Seller Financing is a debt instrument taken back by the seller as part of the purchase price for a commercial property. Such financing is used as an inducement to a sale when normal 3rd party financing is expensive or unavailable, and in situations where the existing, first lien loan may be assumed by the buyer but the difference between the existing debt and sales price exceeds the cash resources of the buyer. This financing may be in the form of a Senior Mortgage, or a Junior Mortgage.
An example. The buyers offer a twin-single for sale with an asking price of 200,000. The existing mortgage may be assumed by the buyer (though few mortgages are assumable these days) and has a principal of $80,000. One buyer offers to meet the sellers' price on the condition that they provide seller financing in the form of a second mortgage of $80,000 subordinated o the existing loan. Another buyer may put up a $50,000 down payment (25 percent), apply for lender financing for an additional large amount, and ask the sellers to provide seller financing on the balance to help. Seller Financing, when appropriately thought-through, can do much to "sweeten a deal" for both buyer and seller, alike.