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Welcome to the Cordato Partners
Vendor Finance Website.


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

  1. 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.
     
  2. 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.
     
  3. 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”.
     
  4. 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.
     
  5. 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.
     
  6. 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.
     
  7. 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 finance.



 

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 legal fees;
  • 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 outright?
  • Owned with a mortgage?
  • Being purchased under a rent/buy scheme?
  • Being rented?
  • …….

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 used.

Question - When has vendor finance been popular?
Answer - Vendor finance has been popular when the banking system is rationing loans for homebuyers and investors.

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;
      or
    • 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.
     

Find out more about the history of vendor finance in the Introduction to Vendor Financing for Real Estate in Australia tab.

Find out more about how vendor finance works in Australia in the How does Vendor Finance work? tab.



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.

    Learn more about Joint Ventures in the Joint Ventures tab.

  • 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 the 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?

    Learn more about Investment Structures in the Investment Structures tab.
     


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