Welcome to the Cordato Partners
Vendor finance (‘seller finance’) makes it easy for sellers
(‘vendors’) and buyers (‘purchasers’) to buy and sell real
estate in Australia.
Seven reasons why vendor
finance is popular in Australia
Vendor finance gives home buyers choices
Home buyers can choose both the house and the finance
that suits them best. Imagine buying a new car and being
told that it only comes in the colour black. While black
appeals to some car buyers, it does appeal to all. Bank
finance is the colour black – the loans are more or less
the same no matter which lender it is. This suits some
house buyers, but not all. With vendor finance, sellers
and buyers can choose any colour of the rainbow for
their finance, instead of the all black bank finance.
Vendor finance helps home buyers who are not yet
‘bank finance ready’
Many home buyers are not yet ‘bank finance ready’ for
many reasons. It could be that they have not been in a
steady job for long enough, or because they work for
themselves, or don’t have quite enough money saved to
pay the stamp duty and loan expenses on top of the
deposit, or because the bank values the house at lower
than the price, or because they have a black mark on
their credit file.
Vendor finance sells houses if the bank valuation
comes in below the price
Instead of sellers having to cross their fingers and
hope that the buyer will be able to borrow enough money
from the bank to pay the price, they can say “We are
willing to lend you the shortfall - whatever the bank
does not lend you”.
Vendor finance attracts home buyers because it
offers an agreed price with time to pay
Many home buyers with good incomes look for
opportunities to minimise their up-front cash outlay, It
could be that they don’t have enough deposit to satisfy
the bank requirements, or because they would like to use
some of their money to renovate, or because they need to
build up a track record of payments before they qualify
for a bank loan. In any case, vendor finance provides
the time to pay. Vendor finance gives the buyer the
opportunity to move in straight away. And because the
price is agreed up front, the increase in value when the
buyer uses a paintbrush or landscapes the garden will be
the buyer’s profit from their hard work.
Vendor finance works well for selling properties
in regional Australia
Many banks will not lend in towns with less than 10,000
inhabitants, on vacant land, on acreage, on shops, on
workshops and on rural land. And even if they do lend,
the banks will not lend as much as they would lend on a
city property. Sellers who offer vendor finance will
sell their properties more easily. Sellers who wait for
a cash buyer may be waiting a long time! The same
applies to selling properties in the city when the
market is slow.
Vendor finance works well for selling factory
units and businesses
Small business in Australia is treated badly by the
banks because they prefer to give home loans, not small
business loans. And when the banks do lend money for
small business, they ask for a mortgage over the
business owner’s home, as well as the business property
(if it is owned) and business assets. For this reason,
business owners wanting to sell factory units and
businesses find that offering some form of vendor
finance is the only way for a buyer to be able to buy.
The paperwork for vendor finance is standard,
with three twists
Property Lawyers and Conveyancers use Contracts for the
Sale and Purchase of Land to transact real estate. These
are supplemented sometimes by Options and Mortgages.
Vendor Finance uses these same standard documents, with
three twists: (1) Delayed settlement – instead of
between 30 and 90 days, settlement is often delayed by 2
to 5 years, and in some cases longer; (2) Deposit /
Price is paid by instalments – regular payments are
made, not just one payment on signing and a second
payment on settlement; (3) Move-in straight away – the
buyer moves in when they sign the paperwork, instead of
waiting for settlement to take place. Note – whether a
standard sale or a vendor finance sale, the title to the
property does nor transfer into the buyer’s name until
they have paid the price.
Cordato Partners provide
legal services for sellers and buyers of property
Cordato Partners, Property Lawyers provide legal services
and prepare the paperwork for sellers, investors and owners
who wish to use vendor finance strategies for the sale and
purchase of real estate in Australia. Cordato Partners also
help buyers who are looking to buy real estate with vendor
In this vendorfinancelawyer website, we will tell you how
you can use vendor finance strategies, to sell, and also to
buy real estate (particularly homes) in Australia.
Cordato Partners prepares the legal paperwork for these
vendor finance strategies –
Instalment Sales (‘Instalment Finance,
Instalment Contracts, Terms Contracts’) where the seller
is the banker for the buyer to buy the home, and
provides similar payment terms as a 30 year bank loan;
the buyer moves in when they sign the Contract;
Rent to Own (‘Rent 2 Own, Rent/Purchase, Rent
to Buy, Rent-Buy, or Rent now Buy later, Lease Options,
Deposit Builder, Delayed Settlement Contract’) where the
seller agrees to sell at a price which is agreed up
front, and which does not change; and the buyer agrees
to pay the price at a future date, and in the meantime
pays instalments to build up a deposit; the buyer moves
in and pays rent in the meantime;
Deposit Finance (Carry-Back Finance, Top Up
Finance, Seller Loan) where the seller finances the
shortfall between the buyer’s loan and what is needed to
buy the home, including stamp duty, loan expenses and
Handyman Special (U buy U fix, sweat equity)
where the buyer agrees to renovate and the seller agrees
to credit an agreed amount for the renovation towards
the deposit in lieu of a cash deposit – this is used
with the Instalment Sales and Rent to Own strategies;
Joint Ventures where a ‘transaction engineer’
helps an owner, or investor to sell, or to buy and sell
a property using an Instalment Sale, a Rent to Own, or a
Deposit Finance vendor finance strategy.
These vendor finance strategies can be used throughout
Australia and New Zealand, but in South Australia the use of
Instalment Sales and Rent to Own is restricted.
So if you are looking to break the shackles of relying
upon a buyer to obtain enough bank finance to buy a
property, and if you want to achieve a better financial
outcome both for a seller and a buyer, and if you want a
win-win property sale, welcome to vendor finance!
Is vendor finance legal?
Yes. State and Federal Government laws provide legal
frameworks for vendor finance for homes in Australia.
You will find specific references to these laws and legal
frameworks throughout this website. But for now, would you
be satisfied if I gave you the Federal Government’s seal of
approval for vendor finance?
Refer Question 56, Australian Census, August 2011 –
Is this dwelling?
Owned with a mortgage?
Being purchased under a rent/buy scheme?
Being purchased under a rent/buy scheme covers the
Rent to Own and Instalment Sales strategies.
Is vendor finance new, or is
it a sleeper?
You may not have heard much about Vendor finance, but is not
new. It has been used for a very long time for the sale and
purchase of real estate in Australia. But its popularity
goes through cycles - there are times when vendor finance is
very popular, and there are other times when it is hardly
Question - When has vendor finance been popular? Answer - Vendor finance has been popular when the
banking system is rationing loans for homebuyers and
Question - Does vendor finance work better when there
are lots of properties on the market, and buyers are hard to
find? Answer - Yes. Vendor finance works well when everyone
is having trouble trying to sell real estate the traditional
way focusing on price such as - Property for Sale $X -
Make us an offer! and when sellers keep dropping the
price to meet the market. Vendor finance
allows a seller to use terms to sell their property at the
price they want!.
Question - Why does vendor finance work well when
sellers are having trouble selling on price? Answer - Sellers who advertise vendor finance stand
out because they advertise not on price but on terms For
sale no banks $X per week - to attract buyers who do not
have enough deposit or do not currently qualify for bank
finance to pay the whole of the price advertised within the
standard settlement period of 30/42/60/90 days !
Allow me to give an example of a time when vendor finance
was popular because bank credit was tight and home loans
were hard to get –
In the 1950s, 1960s and the early 1970s, the banks
rationed home loans. Homebuyers had to go through these
hoops to own their own home –
Buy the land for the new home from the
subdivider with a vendor finance terms contract,
where they paid the subdivider for the land by price
instalments over 3 years (reason? – banks did not
lend for the purchase of housing land), and when the
vendor finance was paid out;
Build the new home using bank loan funds secured
by first mortgage over the land;
Buy an existing home using a 20% deposit saved,
borrowing from a bank / life insurer / credit union
/ building society / private lender up to 65% of the
price, because this was the maximum the banks would
lend. The remaining 15% was borrowed from a finance
company such as ASL, CAGA, ESANDA, FCA, Custom
Credit and IAC at an interest rate of up to 5% pa
above the bank rate.
Times changed when deregulation of the financial
markets began in the 1960s and banks were allowed to
loosen their lending policies. They became the dominant
players in the home lending market. This dominance by
the banking system has continued until the present day.
Since 2008, clouds have been gathering which will
affect this dominance by the banks of the home lending
market and which are resulting in a steady revival of
vendor finance for homes.
One cloud is the Basel II implementation in Australia of
tighter financial controls for the banking system,
resulting in less home loan money being available. In
many instances, borrowers are limited to 80% of the
price because of Basel II and because mortgage insurers
will not give the bank, lenders mortgage insurance for
loans above 80%.
Another cloud is the continuing domination of the major
banks in thehousing finance market. Before the GFC in
2008, the non-bank and low doc lenders had a 20% share
of new home loans and led innovation. Without this
competition, the major banks have not wanted to do
anything but ‘easy home loans’, which leaves many home
buyer unable to borrow.
What should I do if I have a
property to sell with vendor finance, or if I would like to
use vendor finance strategies for investment?
Can we suggest these alternatives?
If you don’t have enough expertise, why not marry
together your property or your potential property
investment with someone who has the skill and expertise,
to form what is known as a Joint Venture? It is
popular for experienced vendor financiers to team up
with investors to be joint venture partners in a vendor
finance transaction. The investor purchases the property
in their name, the vendor financier is the ‘transaction
engineer’ who organises everything, and they share the
positive cashflow profits equally.
If you would like the names and contact details of an
experienced joint venture partner near where the
property is situated, or is to be purchased, use the contact
us tab or the links tab on this website and
we will provide you with names and contact details.
If you have an outline of a vendor finance
transaction, and want it documented in New South Wales,
contact Cordato Partners. We are a vendor finance
specialist law firm.
If you want to document a vendor finance strategy
anywhere else in Australia or in New Zealand, look at
Lawyers and Solicitors tab to find the
contact details of a solicitor or lawyer close to you.
Cordato Partners Property Lawyers acts on all types of property
transactions – standard purchases of property, standard
sales of property, commercial leases, options, joint
ventures, mortgages and property developments.
We would be only too pleased to assist you in vendor
finance documentation for your property. We prepare
vendor finance documents, namely Instalment Contracts,
Lease Options and Second Mortgage Carry-Backs. We act
for clients who have successfully completed more than
4,000 vendor finance transactions in NSW. We have several conveyancing assistants, and can always create
the spare capacity to do your work.
We advise upon the best structure for your property
investment. Is it to be as an individual, as a joint
venture, in a company name, in a trust, in a super fund?