Most real estate professionals on the Big Island, and in many areas across the country, agree that we have shifted from a seller’s market to a buyer’s market. This is a painful reality for sellers as they have enjoyed many years of “calling the shots,” especially during Covid. Now, properties need to be listed at what the market will bear, inspections need to be performed, and contingency sales on the buyer’s properties are more common.
Although, as of August 10th, the Hamakua Coast has exceeded number of sales for both residential and land sales as compared to the same time period in 2024, the days on market, on average, is longer, original list prices are experiencing reductions, and some properties are actually withdrawn because the sellers aren’t happy. Where do we go from here?
Enter in the PMM – Purchase Money Mortgage! This is a great option that opens up opportunities for both buyers and sellers. Basically, the seller steps in as the bank, carrying the mortgage for a designated period of time that can be as short as a year or as long as 15 years…maybe longer. The down payment is negotiable. Interest rates are negotiable. A ballon payment? Yep, negotiable.
So, what are the benefits on both sides?
SELLER BENEFITS
- First and foremost, the door opens wider for a potential buyer.
- The interest is paid to the seller rather than a bank or other lending institution.
- The interest received can often offset the reduction in sale price for the property.
- No appraisal is required.
- The seller moves on, reducing the time the property is on the market, and the sometimes stressful experience of showings, offer negotiations, etc., they have money in the bank, and more coming in each month. For those retired sellers who don’t need all the cash at closing, this is a great way to increase monthly income!
BUYER BENEFITS
- The ability to purchase a property that otherwise might be unattainable.
- The potential of a lower interest rate.
- Potential qualification with a lower credit score.
- Negotiation options on all elements of the mortgage and purchase.
Some sellers will be concerned that the “mortgage may go south,” and the buyer will stop paying the mortgage. This is definitely a possibility. But, the typical down payment is 50%, so the buyer already has significant buy in. Most buyers don’t want to lose that investment if the property goes back to the seller, along with all improvements the buyer may have made!
PERSONAL EXPERIENCE
In the past eight years as a Realtor®, I have negotiated six Purchase Money Mortgages for my clients (two so far this year!) I currently have two sellers offering this financing option, and this is how hubby, Pat, and I purchased our home 12 years ago. One hundred percent success all the way around. It won’t work for all sellers, but as the market continues to shift, this is definitely a strategy that can bring sellers and buyers together and into a successfully closed transaction!
