Vendor Terms Explained Simply

Vendor Terms is a common term that’s is used throughout the Industrial Property market. We have refined it in a simple way for you to learn what ‘Vendor Terms’ means. This is a situation where the Vendor or owner offers to finance the sale of the property rather than the purchaser going to the bank.

Typically, the purchaser receives occupation of the property upon payment of a 20% deposit. The balance is often payable in 3 to 5 years’ time. Interest only being paid for the period until settlement.

Further attractions for buyers are in most cases delayed stamp duty and/or GST as this is payable at settlement which can be up to 3 to 5 years away.

The buyer can call for settlement at any time. From the Vendors point of view they sell the property and obtain the bank loaning rate payable by borrowers hence a higher return than having cash in the bank.

Advantages for buyers in this type of situation is huge. Firstly, they do not have to go to the bank for finance so it does not affect their borrowing capacity. The deposit is lower than the banks are requiring and its normally much cheaper than leasing. Buyers and sellers can be winners in the right situations applicable to these types of transactions. Not all situations suit Vendor Terms and buyers and seller should seek professional advice.

Example of Vendor Terms
A) Sale Price                                     $4,000,000.00 + GST
B) Deposit 15%                                $600,000.00
C) Purchaser moves in and occupies the property i.e. has possession of the premises no rental, payments and only normal outgoings

Balance of $3,400,000.00 payable in 3-5 years – which is agreed between Vendor and purchasers

D) Interest is payable on the balance is often at the same rate or less than what the bank charges, this can be paid monthly or quarterly.

E) Settlement of Property is in 3 or 5 years’ time (will be agreed between both parties). Title us retained by the owner until settlement just like a bank would retain the title of your house until you pay out the loan

F) Under Vendor Terms law the purchaser can call for the title at any time and give a mortgage back, so he can add additions to the factory


Benefits to Vendor & Purchaser

Vendor Benefits
A) Vendor sells the property
B) Deposit is significantly higher than normal sale (which may only be 10%)
C) He will receive higher interest rate than if he were to have the money in the bank

Purchaser Benefits
A) Vendor usually has a clear title (no mortgage) so does not necessarily need the money, which is a big benefit to a purchaser
B) Deposit is significantly less than what a bank would require (which can be as much as 50%)
C) Purchaser does not need to go to the bank for finance, which means his loan fund/credit limit is not affected and he can use the money for other things like their business, a very big benefit
D) Purchaser may not pay GST or Stamp Duty in most cases until settlement, a big benefit
E) Purchaser retains any capital value increase, a big benefit, far better than leasing

If you would like further clarifcations on Vendor Terms and how it could benefit you and your future portfolio goals feel free to contact Rutherfords for a discussion.

​* Rutherfords encourages any financial decisions to be discussed with your financial professional prior to making any decisions.