Attention: Residential Real Estate Agents

This is a great opportunity to learn about “Subject To” and how it works.  As an Estate Agent, adding “Subject To” to your bag of tricks will greatly increase the number of sales and closings you can accomplish.  Do not be surprised if you become the top performing agent in your office soon after you learn this technique.

As wonderful as the opportunity may sound, please be aware that this is not one of those “Get Rich Quick” schemes like listing houses on the MLS.  “Subject To” is a very common, but also very misunderstood buying process that many Realtors are oblivious to

Pull out your standard HUD1, and you will find “Subject To” on lines 203/503.  The summarized definition states: Acquisition of title to real property upon which there is an existing mortgage or deed of trust when the new owner agrees to take title with the responsibility to continue to make the payments on the note secured by the existing mortgage or deed of trust

I hope that made sense to you, because it didn’t to me. So let’s break it down into plain English..

What they are trying to say is that ownership of a house can be transferred from a seller to a buyer without the need for the buyer to get a new loan.  The buyer will simply continue to use the existing financing that was put in place buy the seller.  Because there is no need for new financing to be arranged (and we all know how long that takes), the transaction can be completed in a fraction of the time it would otherwise have taken if the buyer had to arrange a loan.

Can’t this put the seller at risk?

Absolutely!  There is a real and present risk that the buyer will not make the payments as agreed, to the seller’s lender.  If this happens, the seller’s credit rating will be adversely affected.  In the worst case scenario, the property could be foreclosed as a result of missed payments.

So why would I even consider this?

As a Residential Real Estate Agent, I am sure you are aware of your fiduciary duty to the seller.  Of course there is the question about whether you should put yourself at risk by informing the seller of options that allow them to sell the property quickly. 

Why don’t we look at the bright side instead? If you work with an investor who specializes in “Subject To” purchases you will be able to accomplish quite a few things.

§  Save the seller a lot of money

§  Close the sale a lot faster

§  Collect a guaranteed commission

§  Gain the confidence and loyalty with your clients

You need to inform your client of all the costs associated with selling their home. In the current market, agents are averaging four to six months to sell a house and that is not considering all of the foreclosures and short sales that are out on the market.  Your client’s holding costs are approximately equal to four times the monthly expenses.  So monthly expenses of $2,000 would amount to holding costs of $8,000.

No here is the kicker.  If your client went down the “Subject To” route, his or her holding costs would be almost zero.  Yes nada! 

How come? 

Well, with “Subject To”, your client will be able to sell the property within a few days, so holding costs will be negligible.  They will also save on commissions, closing costs as well as any repairs they would have needed to execute if they were selling on the open market. Does your client have that much equity in their property?

There is a whole host of other benefits of working closely with a “Subject To” investor.  Since the investor will not earn a dime till they re-sell the property at a later date, or lease it out, the sellers concerns of the payments being made can be assured.

The investor has the ability to close quickly, and will do this at no cost to the seller.  This is because the investor earns money by selling at a profit, not by charging fees.  So the investor would not be expecting any fees from the seller.

The agent representing the seller will receive a full commission for his or her efforts.  Don’t forget this is an actual sale and purchase of property, so the agent is rightfully due their commission.

A successful “Subject To” transaction, will help the agent gain the loyalty of the seller as a client, and reap the benefits of referrals when others need to sell quickly.