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How should co-op and condo boards navigate seller-financed purchases?
  • As long as the buyer meets financial thresholds, seller financing is treated like any loan
  • What's different: If there's a default, the seller retakes ownership of the property
By Jennifer White Karp
November 8, 2023 - 2:30PM
Manhattan skyline

If the buyer stops making payments, the seller—someone your building has already vetted—will repossess the property.


Even if you’re a longtime New York City co-op or condo board member, you may not have encountered seller financing. That’s because this creative way to structure a deal is pretty rare. Nevertheless, with mortgage rates touching 8 percent, it is something more buyers and sellers may use in the near future.

In a nutshell, seller financing (also known as owner financing) works like this: A buyer gives a down payment for a percentage of the purchase price, usually 25 or 30 percent. The rest is paid in monthly installments, with an interest rate that beats available mortgage rates. The loan term is shorter than a typical conventional loan, a few years or as many as 7 or 10 years, with a final balloon payment at the end.

In exchange for waiting to be paid in full, the seller ultimately ends up making more than the purchase price.

Apply the same standards

Even though seller financing sounds like an unusual proposition, your board doesn’t have to approach these deals any differently, according to Jonathan Helfer, a partner at law firm Romer Debbas who co-manages the firm’s residential real estate department. He’s also on the board of his co-op building.

Co-ops have more stringent financial requirements than condos, but even so Helfer says co-op boards should apply the same standards as they would to other deals. Generally speaking, the fact that a buyer is using seller financing would not be an issue as long the buyer meets the co-op’s thresholds for debt-to-income, down payment, and post-closing liquidity.

Owner-financed deals can be more flexible than those with institutional lenders, but the conditions still need to satisfy a board. For example, a deal involving 90 percent financing would not work for most co-op buildings.

A key difference

From a board’s perspective, what makes these deals different from other transactions is the potential for a default.

When a buyer with conventional financing stops making loan payments, a bank could potentially foreclose on the property and take ownership. Next, the lender would look to unload the property quickly.

“With seller financing, it’s the former shareholder taking ownership, someone the building has already vetted,” Helfer points out. That owner can’t just sell at significantly lower price, he adds.

This is not a bad outcome to some sellers either, like Vickey Barron, a broker at Compass, who has personally been involved with owner financing on four different occasions. “Think of this way, you are getting the interest and still own brick and mortar,” Barron previously told Brick. “If they default, I got the down payment and I get the asset back.”

However, for apartments that are tough to sell, the owners are back to square one.

Helfer recommends boards require a recognition agreement for deals that use seller financing. This is a document typically issued by a lender that lays out the terms of the deal. In this case, with the seller replacing the bank, it would be signed by the seller, buyer, and the board. It would require the seller to notify the board if the buyer stops making payments.