With banks tightening lending rules and interest rates climbing, investors are turning to alternative financing options. One strategy gaining serious momentum is seller financing in commercial real estate. In this setup, the seller acts as the lender, allowing deals to move forward that might otherwise collapse. For both buyers and sellers, it offers flexibility, faster closings, and unique financial benefits. Let us now discuss why seller financing is making a strong comeback in CRE.

Why Seller Financing Is Growing in CRE

1. Rising Market Volume: In 2023, seller financing deals hit nearly $28 billion, up more than 24% from the previous year. Out of this, commercial properties accounted for $9.3 billion, which is double the amount from 2022. Hence naturally, more investors and sellers are turning to this method. (Note School)
2. Tougher Lending Conditions: Traditional loans are harder to get today. Higher interest rates and strict bank requirements have pushed many investors toward seller financing. For some, it’s the only way to make a deal happen.

Benefits for Buyers and Sellers

1. Faster Closings & Easier Approvals: Without bank approvals or underwriting delays, deals can close much faster. Buyers with less-than-perfect credit or limited CRE experience often find it easier to qualify.
2. Flexible Terms: Since terms are negotiated directly, everything from interest rates to repayment schedules can be customized. Some deals even include profit-sharing or graduated payments.
3. Attractive Returns & Tax Perks: Sellers often secure higher sale prices and earn steady interest income. Other benefits may include favorable tax treatment via installment sale structures, which can potentially lower immediate tax burdens.

What to be Wary of?

For Buyers:

• Balloon Payments: Many deals require a large lump-sum payment at the end, which means planning ahead for refinancing.
• Foreclosure Risk: Missing payments could result in losing the property.
• Covenants: Sellers may include restrictions on how the property can be used, managed, or financed during the loan term.

For Sellers:

• Default Risks: If the buyer can’t pay and property values drop, losses can occur.
• Extra Work: Acting as a lender means managing paperwork, contracts, and borrower relations.
• Additional Financing Risks: Buyers may stack on financing from other channels, such as mezzanine debt or second liens. Unmonitored, this can raise default risk and make recovery more complex.

How Seller Financing Works in CRE

A typical seller-financed deal includes:

• Promissory Note: Outlines repayment terms, interest rate, and penalties.
• Security Instrument: Mortgage or deed of trust securing the property as collateral.
• Down Payment & Amortization: Usually 10–30% down, short terms (5–15 years), and balloon payments at the end.
• Custom Options: Flexible add-ons like profit-sharing or step-up payments.

Broker Insights

In markets like Raleigh-Durham, nearly 12% of CRE sales now involve seller financing. Brokers note these deals close faster, secure higher prices, and deliver reliable income streams for sellers.

The Future of Seller Financing

• Sustained Demand: With no relief in sight for interest rates or lending criteria, seller financing will continue to play a big role in CRE.
• Technology Integration: Digital tools are making documentation and payments faster and more transparent.
• Hybrid Models: Expect to see creative blends of seller financing with bank loans or equity partnerships.

Seller financing in commercial real estate is not just a short-term fix, but a powerful tool that gives buyers and sellers more control. With faster closings, flexible terms, and tax-friendly structures, it’s becoming a go-to strategy in today’s market. For investors facing lending roadblocks, seller financing could be the key to closing the next big deal.

Are you too looking at seller financing for your next deal? Our expert underwriting team can help structure agreements that benefit both sides. Reach out today for a consultation at info@therealval.com