“Seller Carry” or “Seller Financing”
What Is a Seller Carry Contract in Commercial Real Estate?
If you’ve been around the block in commercial real estate, you’ve probably heard the term “seller carry” or “seller financing” thrown around. But what exactly does it mean—and why would anyone use it?
Let’s break it down.
Seller Carry 101: The Basics
A seller carry contract is an alternative financing method where the seller of the commercial property acts as the lender, instead of a traditional bank or financial institution.
In this arrangement, the buyer makes a down payment, and then the seller “carries” the rest of the purchase price by offering a loan to the buyer. The buyer repays the seller in regular installments—typically with interest—over a set period of time, just like they would with a bank loan.
Think of it as the seller playing the role of the bank… but without the red tape and rigid underwriting.
How It Works: A Simple Example
Let’s say a commercial property is selling for $2,000,000.
The buyer puts down $400,000 (20%) as a down payment.
The seller agrees to carry the remaining $1,600,000.
The terms might look like this: 6% interest, amortized over 20 years, with a 5-year balloon (meaning the full balance is due in 5 years).
The buyer makes monthly payments to the seller, and after five years, either pays off the balance in full (through a refinance or sale) or renegotiates the terms.
Why Would a Seller Agree to This?
Good question. Seller financing might sound risky at first glance, but it can actually be a smart play for the right seller. Here’s why:
Faster Sale: Attracts more buyers, especially those who can’t (or don’t want to) go through the bank gauntlet.
Better Price: Sellers can sometimes get a higher price in exchange for flexible financing.
Ongoing Income: Instead of a lump sum, the seller gets steady cash flow via monthly payments.
Tax Benefits: It may spread out capital gains over several years instead of triggering a huge tax bill all at once.
Creative Control: The seller can negotiate the terms—interest rate, loan term, balloon payment, etc.—to suit their goals.
Why Would a Buyer Want Seller Financing?
For a buyer, a seller carry contract can be a golden ticket, especially when:
Bank financing is tight. Maybe the buyer’s credit is solid but not bank-perfect.
They want to move fast. Seller financing can often close more quickly than traditional financing.
Flexible terms are key. Buyers may negotiate more favorable interest rates, payment schedules, or even less strict underwriting.
What’s the Catch?
As with anything in commercial real estate, it’s not all sunshine and spreadsheets. Here are a few caveats:
Due diligence is crucial. Just because there's no bank doesn’t mean you skip the inspections, title review, or legal checks.
Default risk. Sellers have to trust that the buyer will make good on payments. Often, the seller will secure the note with a deed of trust, allowing them to foreclose if needed.
Balloon payments. Buyers need to have a plan for that big payoff—refinancing, selling, or saving.
Key Terms in a Seller Carry Contract
Here are a few important terms you’ll see in a typical seller financing deal:
Promissory Note: The IOU that spells out the repayment terms.
Deed of Trust (or Mortgage): Secures the seller’s interest in the property.
Down Payment: Typically 10%–30% of the purchase price.
Amortization Schedule: Determines how the payments are structured.
Balloon Payment: A lump sum due at the end of a shorter term.
Final Thoughts
Seller carry contracts can be a powerful tool in the commercial real estate toolbox—for both buyers and sellers. They offer flexibility, faster closings, and creative deal structures that traditional lenders simply can’t match.
But like any deal, it’s all in the details. Whether you're buying or selling, make sure your attorney and financial team are looped in early. Because while seller financing can be a win-win, it’s only a win if the paperwork is airtight and the plan is solid.