Buying a property "Subject to" - Posted by Kyle

Posted by kyle on October 11, 2003 at 15:59:11:

Thanks, Randy.

I guess what really spawned my interest in this subject was one of the articles on the “Money Ideas” section of the CRE Online site.

There is an article by John Carlson labeled “You Can’t Do This Where I Live” that had a paragraph as follows:

By Mr. Downandout agreeing to this, it will save him from losing additional money each month waiting for a buyer to come along, it will save him from having to go to the closing with thousands of dollars in closing costs and enough to cover the agent’s commission, because he won’t need an agent and won’t have any closing costs and won’t have to take a discounted price to sell his property because YOU will just take over his problem and end his nightmare right now.

Here’s the link to the page:

I guess I found the idea of saving the seller the 6% commission as a way to create a better deal. Maybe I missed somethink in this article, but it seems like that what he is suggesting.

What am I missing??

Buying a property “Subject to” - Posted by Kyle

Posted by Kyle on October 11, 2003 at 09:37:19:

If a home is listed with an RE agent by a seller, do I have to wait for the listing to expire before I can legally work a “subject to” deal with the seller?

My thinking is that it would not be a problem since technically, I am taking over the owners current loan and part of the great thing about this is offering the seller a way to avoid an agents sales commission.

Any help on this would be appreciated.

Re: Buying a property “Subject to” - Posted by Atlanta_bob

Posted by Atlanta_bob on October 12, 2003 at 22:06:33:

Hi Kyle:

Here in Georgia, the seller must pay a real estate commission if the buyer has been shown the property, the listing contract has expired (or was terminated by seller) and LESS THAN 90 days has past since the buyer has seen the property. If they knock on your front door (without visiting your house with “their” realtor), that technically counts, but the seller would have to submit your name to their listing realtor for them to know this. If the seller terminates the listing contract with their listing agent (via a written letter of termination), then the seller can sell the house to someone who walks off the street (but has not been shown the property, as above), without paying a real estate commission. Yes, the seller will save $$ by not paying the real estate commission. Anyway, with that said:

You can buy a house (Subject-to the HomeOwner’s existing financing) that is listed with a realtor, just as long as you and the seller know that the seller agrees to pay the real estate commission. For a one-sided transaction, the seller should be able to negotiate a lower commission, usually near 3% with their listing agent, rather than the “normal” 6% to 7% commission when two agents are involved. Best to use the Purchase & Sale Agreements used by realtors when submitting the offer to the seller (or their listing agent). Buying a property subject-to is a normal part of selling a house and has an entry on the HUD-1 closing statement: Line 503 for the Seller and Line 203 for the Buyer.

Hope this helps.


Re: Buying a property “Subject to” - Posted by Brent_IL

Posted by Brent_IL on October 11, 2003 at 09:53:40:

Subject-to is a way to arrange the financing on part of the purchase price. It has nothing to so with the listing agreement that the seller signed with the real estate agent. Legally, you can offer to buy the property with any financing arrangement that you wish. If the property was sold with the terms agreed upon in the listing agreement, the seller will owe the same sales commission regardless of how you bought their property. If you close, the broker won?t care if you take over the payments or if you pay all cash. He?ll still get paid.

Re: Buying a property “Subject to” - Posted by kyle

Posted by kyle on October 14, 2003 at 13:45:51:

Bob, Thanks so much for taking the time to go into the details. I appreciate your time! This does help.


Re: Buying a property “Subject to” - Posted by kyle

Posted by kyle on October 11, 2003 at 10:05:13:

Thanks for the response, Brent.

Maybe I’m missing something, but I thought one of the biggest incentives that I can offer a seller by doing a “subject to” is to save them the need to pay an agents commission. Six percent savings on a $100,000 home is six thousand that they could save.

I guess my real question is: Is the seller legally bound to the RE agent to pay a commission if I take over the property “subject to”. Or… do I suggest to the seller that they should let the listing expire and let them know they could save the agent’s sales commission?

Re: Buying a property “Subject to” - Posted by Brent_IL

Posted by Brent_IL on October 12, 2003 at 13:08:46:

Subject-to has no bearing on the questions that you?re asking.

Just for a moment. Forget subject-to and think of a new loan. Then rephrase your question. ?Is the seller legally bound to the RE agent to pay a commission if I take over the property by going to the bank and obtaining a new loan to pay off that portion of the sale price that does not belong to the seller?? The correct answer is ?Yes.? The total amount of liens against the property is not owner?s equity.

Subject-to transactions are a method of financing a property, and that?s all that they are. We use this method because there is no arbitrary limit to how many one can do, qualification is instant and guaranteed upon acceptance, and loan costs are generally lower. If you had an 850 FICO score, and access to a bank that offered unlimited loans, and your seller had a 95% LTV loan at 20% APR, would you be considering taking over the payments subject-to?

When we talk about saving the broker?s commission, there is a presumption that the property is not listed, and the seller has a choice between selling to us on our terms, and listing with a real estate agency in hope of getting an offer that is more appealing, e.g., cash-to-mortgage.

As a comparision, it is often said that the chances of a loan taken over subject-to being called by the bank are slim. It?s true that there is no ?do-on-sale? jail. However, when you advocate that the seller wait out the listing agreement and deprive the real estate agent of a commission, so that he can sell to you, that?s called torturous interference of a contract. It is illegal and there are real damages and the outside possibility of a real jail.

Compared to the number of times this is advocated, the chances of you being sued are very slim. Maybe, one-hundred thousandth of one percent. For the individual who was chosen as a test case by a real estate agent?s association or a large brokerage house, the effect on them is 100%. To that person, the actual chance of repercussion is meaningless. If you do this frequently, the possibility that you will irk someone increases.

At any given moment, I can?t make a property worth more to me than it is. Like most others, I just factor the commission payment into any offer on listed property. The seller agreed to the terms of the listing agreement. As suggested, if the agent has no one else in the wings, he or she might be willing to accept something other than what was agreed to in the listing contract. Most of the marketing efforts of creative real estate investing practitioners are designed to get a seller to call us before they list with a real estate broker. That?s where the ?saving the commission? comes into the picture.

Re: Buying a property “Subject to” - Posted by Jerome

Posted by Jerome on October 11, 2003 at 23:20:49:

You can submit a request for unconditional release of property. This should cancel the agency agreement.

Re: Buying a property “Subject to” - Posted by Randy

Posted by Randy on October 11, 2003 at 10:30:47:

The seller is responsible to pay the realtors commission if a sale results from any efforts of the agent, i.e. you found the property for the agent?s sign or MLS listing. The listing agreement generally covers any sale resulting 6 months to a year after the listing expires. Now if the seller is willing to sell Sub2 and you or the seller agree to pay the agent commission ? no problem. If you or the seller won?t pay the agent commission then you have a problem. Sometimes the agent may accept a reduced commission (something is better than nothing) you just have to make the offer and see if it meets everyone?s needs.

Just curious, ?why do you think the seller will accept a Sub2 offer in the first place?? Have you spoken to them about it?