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Hi Roberto
Some of your questions can be answered by knowing the difference between types of Agent Listing Agreements used.
In NSW an Exclusive Listing entitles the Agent to get paid their commission if you speak to the Agent or the Vendor about the property during the term of the Listing Agreement. Even if you come back after the 'Exclusive' has expired and buy the property, the Agent will be entitled to their commission. This is why most Agents try to insist that all sellers sign Exclusive Listing Agreements
In comparison, in NSW, if a vendor signs a Sole Agency Listing Agreement, the Agent has to 'physically introduce' the buyer to the property, during the term of the Agreement, to be entitled to their commission.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Hi Jenny
The difficulty in answering your questions simply is there are a number of vendor finance techniques in the market place. The 3 most common are; the Instalment Contract (often mistakenly just called 'vendor finance'), the Lease/Option (usually called a Rent To Own) and Deposit Finance. There is even a new set of legal paperwork being launched over the next week but three's enough for now.
what is the going vendor-finance interest rate for P&I? It very much depends on the vendor financier and the technique being used. Let's take our average interest rate on an Instalment Contract we're offering at the moment. Like some traditional lenders, we start with a 'honeymoon rate of about 6.4% and then gradually rise to 8.14% at the beginning of year four. The rate then stays consistent for the remainder of the 30 years, going up and down in 'lock step' with the Vendor's underlying loan, e.g. Reserve Bank movements. Under ASIC's Responsible Lending requirements we have to check our buyers' serviceability at the higher rate.
On average, our buyers stay with us for approximately 5 years and then refinance into a traditional home loan.
Does the purchaser pay the stamp duty, transfer of land etc…during the rent-to-own period? For Instalment Contracts and Deposit Finance, yes Stamp Duty is payable soon after exchange of contracts, except in Victoria, where Stamp Duty is not charged until Title transfers. For Lease/Options (Rent To Own), Stamp duty is not payable until the Option is exercised (except in Victoria where Stamp Duty is payable when a Lease and an Option are used together on the same property). Different State laws don't make it easy
How long is the rent period usually? We write our Instalment Contracts up for 30 years as ASIC is not fond of lumbering consumers with 'balloon' payments. Lease/Options tend to be offered for 2 to 5 years. The challenge with all shorter term vendor finance arrangements, is you have to be in a position to buy traditionally when the term of the Lease and the Option run out. Therefore, as a buyer, the longer you can negotiate the term of the Lease/Option the better. If we use the Lease/Option strategy, we offer a roll-over to an Instalment Contract if, at the end of the term of the Lease/Option, the buyer is still unable to get a traditional loan.
Can the purchaser on-sell the property during the rent-to-own period? For a Lease/Option, not normally but you may be able to negotiate with the Vendor to assign your interest in the Lease and the Option, if you bring a strong candidate to the table. With an Instalment Contract yes you can sell the property. Of course, as with a traditional loan, you need to be able to pay out your loan to the Vendor.
is the property price negotiable? Not normally. I see buying with vendor finance as like buying at a local convenience store. You know that you can buy two litres of milk for $2 at the supermarket but, when the supermarket's shut, you have to pay $4.20 at the convenience store. Luckily the price differential with vendor finance is much less than this but you do normally pay a premium price.
Can the vendor alter the repayment term at any time during the rent-to-own period? Not unless both parties agree.
Will the vendor produce a statement of P&I reduction prior to the agreement to indicate how much the loan is reduced over so many years? If you ask, I'm sure they would but it is all carefully laid out in the Instalment Contract or Lease and Option. In an Instalment Contract, like a traditional 30 year home loan, you will pay off the total debt if you make all your 360 monthly repayments. With a Lease/Option we send a statement to our buyers every six months showing a record of their last six months of payments and the amount of 'price credit' (sometimes called 'rent credit') they have accrued since the Lease/Option began. There are specialist companies like Vendor Finance Management Pty Ltd (VFM), that operate with statutory trust accounts that many vendor financiers use to administer their vendor finance transactions. (Disclosure – I am a part owner of VFM).
I generally see the advertising price for vendor finance home for sale at 10% (or more) higher than its true value. Yes, as mentioned above, you do normally pay a premium for a property that comes with finance included.
On top of the higher initial price, the ongoing interest rate is sky rocketing. Yes our clients do pay a higher interest rate than that section of the community that can get a traditional loan but the aim is for them to refinance across to a traditional loan as soon as they can. A lot of them see us as a stepping stone back into the traditional lending system.
One vendor quoted around 7%, but when I sat down and did the figure, it turned out to be almost 10%. There are many more vendor financiers out there in the marketplace these days. I suggest you shop around. Thanks.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Hi again Melissa & Paul
We;ve found that flyer drops are a bit of a blunderbuss marketing technique. They go into every residential property and then the filtering starts, i.e. first up, a large percentage aren't interested in selling. Then most of the sellers are selling their family home to move to another family home and, while they my ring you, they can't go forward with a vendor finance sale as they need all the money now, to move to their new home.
I'd suggest you research how to market to Landlords. With the change in capital gain returns in the recent past there are a lot of frustrated, negatively geared landlords out there. And they're not that hard to find
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
