Owner Financing a MLS Listed Property & Realtor Commissions

[Sean Salandy]

If I wanted to structure a deal to buy a MLS listed property and it is an owner financed deal, how would the realtor make their commission? Would it come from the down payment that I negotiate with the seller/seller's agent? In that case I'm assuming the down payment would have to be enough to cover the commission(s).

Thanks in advance for your help.

[Russell Holmes]

@Peter Bui I didn't private message him, I think he was just referring to my original reply to this thread.  And to clarify, sellers do 'pay' to sell their home in reality and on paper, they pay Realtors on both sides (usually), Owner's title insurance, doc stamps, etc....but they don't typically have to bring money to closing unless its a short sale or other negative equity situation.  

In general, their 'costs' are paid from the sales proceeds and they leave closing with a check or other monetary instrument (like a wire transfer......I'm sure real cash has been used from time to time, maybe bitcoin....you get the idea, something worth liquid money). My point was that if you made a 100% seller financed offer without any offer of down payment, you'd be asking the seller to pay all of those closing costs and commissions out of their pocket rather than from the equity in their home. If you found an off market deal and covered closing costs, maybe they'd hold the rest. But with an MLS listing you're in too deep to a traditional sale to try and avoid commissions and that seller likely isn't going to breach their listing contract just to hold the note for you.

 With commissions and closings costs, a 10% 'cost of sale' is a reasonably conservative total expense to the seller. Closing costs vary, commissions charged by Realtors vary, states vary....your mileage may vary, but 10% is a nice round number in the ballpark.   In other words, if you buy a seller's free and clear $200,000 house, they'll walk with about $180k +/-.  As such, I'd say any seller financed offer without AT LEAST 10% down would be thrown in the trash. 20% down would put roughly 10% in their pocket at closing and leave them holding a note for 80%. 

Remember too, playing with the interest rate you offer for owner finance affects things as much as the actual total price.  You can offer a higher price and lower interest to result in the same payment and term as lower price higher interest offer. It would likely affect them differently on taxable income and for the same dollar amount each month they'd pay less in tax if it were capital gains vs interest income from lending.  I'm not an accountant but as the son of a CPA I have a novice level understanding of it.  Its a subject to consider on making the deal more appealing to them and Brandon Turner often mentions making a multi-part offer that includes a different total price depending on how much of the amount they'll carry.    I haven't bought or closed any owner financed deals myself so I can't say for absolute fact (my knowledge here comes more from my time on Bigger Pockets than it does from being a Realtor), but I would imagine the vast majority of them have at least 20% down so the seller has some sort of motivation to go through with it rather than waiting for a seller with more funds.