[Editor’s note: Buying a home “subject to” means “subject to the existing financing” already in place on the property. The terms of the original note with the lender stay the same, and the note remains in the seller’s name. Typically, you would then sell the house to a tenant/buyer on a lease option.]
Most people get nervous about dealing with objections from the sellers. They worry that if they don’t have the right answer, they will lose the deal.
Here’s the thing with seller objections, if a seller is raising objections and asking questions it means they are seriously thinking about giving you their home “subject to.”
Over time, you will learn to LOVE to hear objections from the sellers because it means you are close to making the deal happen! You just need to give them a little more reassurance to get the deal done.
If a seller makes too many objections they aren’t really motivated, and they probably won’t give you their home “subject to.” On the flip side, if a seller doesn’t raise any objections, it means they aren’t really interested, and you aren’t going to get the deal either.
The other great thing about handling “subject to” objections is that after you have handled one successfully it becomes that much easier to handle it the next time.
Each time a new objection comes up, it’s a learning curve. As you get more and more experienced, your learning curve comes down, so you’ll be able to get more deals done.
So what if you blow it once? You WILL do better the next time around, and trust me–there are plenty of deals out there. If you don’t get this one, you’ll get another.
Real estate investing is not a sprint race to the finish line to just get one deal; it’s more like a marathon where you will continuously do deals over time.
With that said, let’s take a look at the most frequent “subject to” objections you’ll likely encounter.
#10 Can my attorney review the contracts?
“Absolutely! I recommend it.” Most of the time, they won’t do this anyway. But by giving them that reassurance, it shows you have nothing to hide.
#9 What happens if you die?
“The contract has provisions that if either, you (the seller) or I die, the contract is still binding and our heirs would continue our contract.”
#8 How long will it take you to get new financing?
“What I can tell you is that I will work as quickly as possible to do this. As soon as you sign this contract, I will go to work on finding a qualified tenant/buyer for your home.
“Tenant/buyers usually need about a year to get their credit back in shape to qualify for a mortgage. However, sometimes tenant/buyers don’t exercise their option to buy so we would need to get another one, which could mean it would take longer.”
Sometimes the seller will want a “not more than” date, so no matter what happens, you agree to refinance their “subject to” property no later than that time.
For example, you may find an option buyer who closes on the property before this date, but if it doesn’t work out after a certain length of time, say five years, then you agree to refinance the mortgage to get the mortgage out of the seller’s name.
#7 Is this legal?
“Yes, there is no law against this at all.” If you need to explain anything further on the “Due on Sale” clause, here is your explanation:
“On your mortgage there is probably a “Due on Sale” clause, which gives the bank the right to call the loan due if you transfer ownership. As long as the payments are being made the bank almost never cares that the title has changed hands.”
This is especially true during a time when foreclosure rates are very high in the country, as they are now. Banks are less likely to want to exercise the “Due on Sale” clause because it increases the chance of them having to foreclose.
#6 I’m thinking about just listing it with a Realtor
“That is certainly your choice. Let’s take a look at why I’m here today, though. You want to SELL your house, not just put it on the market.
“Based on the comparable sales that I’ve brought you it takes X number of months to sell a home in this area. That means you’ll have to pay an additional $Y in total mortgage payments in that time. Plus you’ll have to pay a 6% to 7% Realtor commission, transfer fees, and closing costs when it sells.
“This is not to mention any repairs that need to be done to bring the house up to the same standards as the homes that are selling here. Those will cost you time and money, as well.
“If you add all of that up, plus all of the inconvenience of the months of showing your home, having to constantly keep it clean and presentable and having strangers going through your house, is it really going to be a better deal for you to list the house? It wouldn’t be to me.”
This objection of theirs is a stalling tactic. Sometimes they want to talk more before they make a decision to give you their home “subject to.”
Sometimes they are testing you to see how eager you are. If you are over-eager to get the deed, they will sense it and suspect you aren’t being completely honest with them.
If they do decide to list it with an agent, make sure they put your name down as an exclusion on the listing. This means that if they end up accepting your “subject to” offer down the road, no commission would be paid to the listing agent.
#5 I have to get my asking price, or I’m not selling
“I understand that you feel your home is worth $X, but let me show you what is happening right here in your neighborhood. This house at 123 Main Street is 1,480 square feet with a pool and it sold for $X. All the homes on this list are within a few blocks of your house.
“Remember, these prices are what houses have sold for, not what someone is trying to get for their home. I know you may have seen houses for sale in your area with certain asking prices, but we need to look at the actual sale prices. Based on these comparables we can see that your house is worth $X.
“I could be generous and pay you the price you want, but in order for it to make sense for me, I must get the following terms.”
Sellers commonly fix the price of their home in mind based on the asking price of neighbors homes, which in a hot market, can be to your advantage if homes are selling for more than asking price and appreciating rapidly.
However, in soft markets it’s quite common for homes to sell well below the asking price. You need to help them adjust their thinking and realize that their home isn’t worth asking prices, it’s worth sale prices.
Remind the seller of the risk you are taking in assuming responsibility for their house when you take it “subject to,” making payments and waiting to make your profit at some future time. Make sure that even with the terms the deal would still work for you.
Just because someone is willing to sign the deed to their house Subject To doesn’t mean you should accept it! If you can’t find a way to make a fair profit on that house walk away.
#4 I don’t want tenants in my home
“I understand completely. Lots of tenants are not very respectful of the homes they rent. But the people that will be staying in your home aren’t tenants. They are home buyers. They don’t have the tenant mentality. They will look at the house as their own and want to take care of it and keep it nice.”
#3 What if you don’t make my mortgage payments?
“I understand your concern. What would make you more reassured and yet protect us both?”
or
“I understand your concern. I could make your payments to the mortgage company and then mail the receipt to you. This way I am protected and so are you. Would this work for you?”
Work out a solution with them. This is a valid concern, but accommodations can easily be reached. I don’t recommend you sending the payment to them for them to make to the bank. This leaves you very vulnerable.
Make sure a bank authorization is signed as part of the “subject to” paperwork, allowing you to verify that payments are being made. Also include a signed agreement that says if they don’t pay on time you have the right to switch your payments from the seller directly to the bank.
#2 This isn’t enough money!
A great way to handle this is first to get a full understanding of the question. Ask them what they mean or repeat, “This isn’t enough money?” Don’t say anything else until they answer.
Next, sit down with them and do a cost analysis together. Get out a sheet of paper and give them the calculator. Hand them the comps and ask what the average sales price of the house is. They will calculate it and give you the figure.
Then ask them what commission a Realtor gets in their area. Deduct the commission. Next, ask them what repairs need to be done to the house to bring the property up to current market standards and deduct those costs.
Ask them to calculate the average time to sell a house based on the comparable sales and total the mortgage payments for that time. Deduct all of the closing costs.
Encourage them to put down anything else that will reduce the value and help them be more realistic. For instance, what is their time worth? As they do this themselves on the calculator it becomes hard for them to argue about the value of their home and the price you are offering them.
You are now working together as partners, not adversaries.
#1 Why should I give you the deed when the mortgage stays in my name?
“That’s a good question. What I can tell you is that different people do it for different reasons. The bank will not let me assume the mortgage on your house. In order for me to make a fair return on this deal, I can offer you $X right now.
I’ll be glad to buy the house immediately for that price, but how would you cover the difference between what I can pay and what you owe? You are actually being very savvy and getting top dollar for your house by letting me take over your payments.
This saves you on the costs that would occur if you sold the house normally, like commissions, closing costs, repairs, and so on. The minute you okay this paperwork I will be doing everything possible to sell this house as quickly as I can, using my expertise.
I’ve spent thousands of dollars on training to do this business legally and morally. It would be futile for me to let your home go back to the bank just because I didn’t make the payments.”
This objection is both legitimate and important. Put yourself in their shoes, wouldn’t you be asking it too if someone asked you to give them your home “subject to”?
It comes in as #1 because it is going to be the most frequently asked and sometimes the hardest to overcome. Does that mean you should fear it? Not at all. Different people will sign the deed over to their house “subject to” for different reasons.
As you build rapport with the seller their reason will become more apparent, and you can tailor your answer to best fit them.
Remember if they are motivated sellers, and you have built a relationship with them, they will trust you and be willing to sign over their house “subject to” to get out of it.
You are doing them a service, and this happens regularly. If they understand that their options are limited, and that you are genuinely trying to help them, the idea of signing over their home “subject to” won’t seem so outlandish.
What you’ll find is that through building rapport and gaining their trust, this objection will be much less strenuous. If they are not truly motivated sellers–just tire-kickers, this will likely be a very strenuous objection, and they aren’t even considering signing over their home.
Don’t even worry about those sellers, they might become more motivated over time, but right now a “subject to” isn’t right for them.
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