How should I structure this MLS deal.

Question

Owner wants to get out of subject property.

• Owner signs a P&S agreement with me for 160,000 but is still flexible on price
• Owner owes 181,000 to his mortgage.
• Property is worth 210,000 ARV I have 3 comps in the same neighborhood showing this.
• Property is listed with an agent off the MLS
• Willing to do a Subject to

Not sure what to do in this case. Should I buy the property subject to existing mortgage. If so what do I do about the realtors fee.

Is there any way to buy the property a lower price than the mortgage. If so how can I get the lender to forgive the amount deficit.

Owner does not seem to be distressed as he is not late with any payments on his mortgage so I'm not sure a short-sale would work. I may be wrong.

Please help this fellow investor out.

Chris Kennedy · Answer

@Levi Bennett  in reality the buyer pays the commission! I don't fancy my chances of being paid a commission if I don't find a buyer for a property :D I know that technically you are correct - the seller pays commission, but it's the buyer who brings the money to closing.

Plus, there is no rule that states a buyer cannot pay commissions - it's just not conventional in Florida. It happens frequently when I work with an investor client to buy an off-market deal that they pay my commission - it's reflected on their side of the HUD.

Getting back to the case above, sounds like the seller might need to come out of pocket to pay the realtor fees at closing since the buyer is not paying a price high enough for the agent to be paid out of seller proceeds...

Levi Bennett · Answer

The buyer NEVER pays the commission in Florida. Ever. Having a real estate agent is completely free to the buyer. 6% is standard (3% to each brokerage involved).. the only time I've seen 3% waived is when one brokerage represents the seller, the buyer, and the sellers new property..

It sounds like your agent isn't being very helpful.. this should've been explained to you right away. Don't be afraid to ask him. This is typically a non-negotiable, but not something you need to worry about paying.

Wayne Brooks · Answer

That's up to the realtor, but the seller will owe him a commission.  Don't expect any less than 3-4%, maybe both you and the seller kicking in.  I'm really surprised the agent is going along with this, as the chance of you not paying the underlying mortgage is a time bomb waiting to happen for the seller, let alone it affecting his borrowing ability until it is paid off.

Geoffrey Jones · Answer

I just called the realtor and I guess the seller put the subject to offer there even though I offered a cash offer.

Since I know the owner is interested in a Subject to deal I think I may go this route with the purchase price being 180,000 since this is what they owe.

Question now is how do I deal with the realtor. Can I negotiate the realtor fee? I don't want to pay 3-6% for a sub to deal that's for sure. But more along the lines of 500 - 1000.

Am I being reasonable here. Let me know what you think.

Rick H. · Answer

There's a disconnect and I'm not seeing how the debt shortfall or costs related to sale get paid, even if property is being purchased sub-2.

Is seller responsible for paying? That's what this appears to be. How/will they perform?

Wayne Brooks · Answer

Either the seller owes less than $160k, or you've got a dummy agent involved.

"Buyer to take over remainder of loan" and "to close free and clear" are contradictory to each other, and impossible.  This language is incorrect for the sub2 you're describing.

Geoffrey Jones · Answer

Its on a FAR BAR Contract provided by me.

Also contract states in section II

Purchase Price: 160,000

PaymentOther: Buyer to take over reminder of loan and payoff costs to close free and clear.Balance to close by cash, wire transfer or LOCAL DRAWN cashiers or official bank checks, subject to adjustments or prorations .......................___________Balance

Eric Stier · Answer

Have you really explained to the seller what you are doing?  If you purchased it Subject To, you had better be ready to start making his payments once he moves out.  Do you know when that will be?  Are you ready to start making repairs and getting a tenant in there right away?  Or, are you ready to close with cash our outside financing? The seller will have to  bring $20K to the table to close and he will also have to pay the Realtor fees and closing costs.

Wayne Brooks · Answer

Odd, generally agents aren't allowed to use non standard contracts when representing a client as an agent.  Does the contract specify the owner is to pay down the mtg by $21k prior to the closing?

Geoffrey Jones · Answer

The property is listed on MLS by the sellers agent for 200000.

The Sellers Agent has sent me back a signed P&S agreement with a subject to clause and a purchase price of 160000. I do not have a buyers agent but they are using my P&S contracts.

The property is in Orlando FL and I have triple checked the comps and it seems to be solid. Owners motivation is that they need to relocate ASAP.