Creative Owner Financing Grew in 2023 – But, By How Much?

Seller Financing had a great 2023! We saw a 7.3% increase in the creation of owner financed notes and a 24% increase in dollar volume.

Check out the owner financing stats for the past year and how that affected the note industry.

Here are some numbers at a glance…

• $28 Billion in seller-financed notes were created in 2023 (up from the $22.5 Billion in 2022).
• 89,773 Transactions were owner financed (up from the 83,647 in 2022).
• $125 Billion in owner financed notes were created in the past 5 Years (2019 to 2023).
• March saw the highest creation of notes at 8,090. February saw the least with 6,577.
• Sellers creating one note in 12 months made up 86% of the seller carry notes.
• 67% of transactions were created in just 10 states.
• The average Loan-to-Value (LTV) went up for commercial and land notes, but down for residential notes:
  • 74% LTV on new Residential notes (compared to 75% in prior year),
  • 72% LTV for Commercial, (up from 66% in prior year), and
  • 70% LTV for Land notes (compared to 68% in prior year).

What Led to the Increase in Creative Financing?

2023 saw a 7.3% increase in seller carried notes from 2022. That was the largest increase by percentage in the past 10 years. More notes were created in 2023 than any year since 2018!

Scott Arpan of Advanced Seller Data Services, shares his insights. “This growth might have been much larger if the housing market was more robust. Since 2015, the number of seller-financed residential loans roughly correlated to existing home sales. National existing home sales fell almost 19% according to the National Association of Realtors. We saw a 6.7% increase in the number of sellers carrying 1^st position residential loans.

Higher interest rates are viewed as the primary cause of the sharp jump in seller carry loan creation.

Mom and pop sellers and commercial properties lead the way.

The number of one-off note holders jumped 8.5% over 2022. Most of these sellers are individuals or revocable trusts. A majority of the remaining one-off noteholders were small business owners who used seller financing to sell their commercial building used to operate their business. They often sold inside their LLC or similar corporate structure.

Commercial loan dollar volume increased nearly 60% over 2022 and 30% over 2021 levels. Commercial properties are likely to continue their run as banks become more reluctant to lend on many commercial property types. There should be a great opportunity for note brokers working in this market.

The number of note holders creating 4 or more seller financed notes within 12 months was the only category to drop from 2022 counts.”

What About Seller Financing in 2024?

Scott continues, “While interest rates are projected to decline over the next 24 months, I project the number of new seller-financed transactions will remain in the 90,000 per year range in the short term. Residential and land notes will likely remain steady with commercial secured notes continuing to increase over historic levels.

However, current events are in the background that could cause economic shocks. That could require banks to pull back lending standards, forcing more sellers to finance buyers, creating more inventory of notes. Rising geo-political conflicts and political turmoil in the US, especially over government spending, could create such a shock.”

Through the Years – the Seller Financing Numbers

Year	2014	2015	2016	2017	2018	2019	2020	2021	2022	2023
Count	116,178	105,871	97,089	89,779	91,605	86,155	84,007	89,678	83,647	89,773
Change	+4.7%	-8.9%	-8.3%	-7.5%	+2%	-5.95%	-2.49%	+6.75%	-6.73%	+7.32%

Seller Financing by Dollar Amount

Where Are The Notes At? – Top States for Owner Financing

Everything is bigger in Texas — and in Florida, California, North Carolina and Georgia. The Top 5 States for Seller Financing remained the same from 2022. All combined, the top 10 states for the creation of seller financed notes made up 67% of the overall volume.

State	2022 Count	2023 Count	Percentage
Texas	20,922	22,361	24.9%
Florida	7,676	8,270	9.2%
California	6,722	7,220	8.0%
North Carolina	4,393	4,500	5.0%
Georgia	3,687	4,055	4.5%
Arizona	3,628	3,662	4.1%
Washington	2,762	2,913	3.2%
New York	2,818	2,765	3.1%
Pennsylvania	2,099	2,331	2.6%
Oregon	2,054	2,186	2.4%
Top 10	56,761	60,263	67.0%
All 50 States	83,647	89,773

Wondering how the remaining 40 states compared? Download the full report for a state by state listing.

Carry Back Notes by Property Type – Stepping Outside of Residential Notes

While seller-carry residential notes continue to dominate the industry, there are plenty of opportunities to branch out with commercial and land notes. Here is a look at the number of notes created by property type (from records where property type is known).

	2019	%	2020	%	2021	%	2022	%	2023	%
Residential	46,891	54.5%	42,359	50%	54,443	61%	52,801	63%	56,352	63%
Commercial	10,458	12%	10,588	13%	14,794	16%	13,415	16%	15,142	17%
Land	12,956	15%	13,608	16%	16,921	19%	14,333	17%	14,418	16%
Unknown	15,850	18.5%	17,452	21%	3,520	4%	3,098	4%	3,861	4%
	86,155		84,007		89,678		83,647		89,773

Average Note Size, Down Payment and LTV For Seller Financing

The average residential note balance was $248,523 for owner financed notes in 2023. The average Loan-to-Value (LTV) for residential notes was 74% which correlates to a down payment of 26%. Many people mistakenly believe that all seller financing involves little to no money down (LTV calculated using data from states with sales price disclosure).

	2020	LTV%	2021	LTV%	2022	LTV%	2023	LTV%
Residential	$180,737	82%	$269,201	77%	$225,857	75%	248,523	74%
Commercial	$423,283	75%	$495,266	71%	$432,590	66%	613,077	72%
Land	$449,903	76%	$233,128	70%	$247,735	68%	247,536	82%

Single Note vs. Multi-Note Creations

The majority of notes were created by “Mom and Pop” sellers in 2023. The group of sellers creating 2 or more notes (the group often coined the professional user of owner financing) in a 12 month period were responsible for 14% of the new notes created.  When you break down this group further we see 8% in the 2-3 notes per year and 6% in the 4 or more category. The group where the seller created one note is considered the “Mom and Pop” seller.  There are also differences in the exemptions and requirements under the Dodd Frank Act based on the number of seller carry-back notes.

	2019	2020	2021	2022	2023
Note Count Where Seller Created 1 Note*	74,586	68,257	75,279	70,807	76,780
(% of Notes Created by Count)	87%	81%	84%	85%	86%
Note Count from Sellers Creating More Than 1 Note*	11,569	15,750	14,399	12,840	12,993
Totals	86,155	84,007	89,678	83,647	89,773

Notes Created by Individual, Corporate Entity or Trust

Thanks to Advanced Seller Data Services, a mailing list provider for providing these 2023 stats. They are based on 2,236 counties reporting, balances of $30,000 or higher, on 1st position or wrap/AITD notes.

What are your thoughts on the recent statistics? Leave your comments below.