Real Estate Agents can be useful in helping you to find Subject-To Deals especially in a slow market. You can get a buyer’s agent to find and help you to present offers – all without you having to hunt to find your own deals. In this blog I’m going to show you how to find Subject-To deals using the realtor technique.
For those of you who are new to the topic, Subject-To Investing is a creative way to buy real estate using very little to no cash outlay. In Subject-To deals the existing financing, a mortgage or deed of trust that is already in place is taken over by an investor through an agreement with the homeowner. It’s sort of like a car lease take over only thing is you get the title to the property upfront.
Why Do Agents Reject Subject-To Offers?
First let me tell you that calling agents on their listings in order to offer a Subject-to To Deal arrangement is not a good idea and won’t work as well as making a cash offer. Agents reject Subject-To offers for several reasons:
- Most agents have no knowledge about subject-to and we both know what they do when they don’t understand something…they immediately call it illegal and will not present the offer. Agents will not present to seller Contrary to popular belief that an agent must present all offers…that’s not true. The agent does not have to present something that he thinks is illegal or that won’t benefit his client. Remember that agent owes fiduciary duties to their client and that includes obedience. “Don’t bring me any cockamamie offers!”
- They don’t see their commission in your no-low cash offer. As you attempt to explain your purchase arrangement, they are just rolling their eyes thinking how they will get their commission with this creative deal. Right away, that’s a NO! I know, I know…I can hear you say “I’m willing to pay your agent commissions” yeah, yeah you offer to take care of their commission, but we all know that slick investors will try to short it…. In the middle of the deal investor comes back (hat in hand) “we can only pay you 1.5%…” that’s down from 4% listing agreement commission! That would leave everybody very angry because this not only affects the agent and his broker but possibly the seller as well, since they agreed to the number on the listing agreement. Let’s get another thing clear, agents have a large pool of support and possible sale from other agents with the property listed on the MLS, so don’t think the agent has to accept any offer By this weekend, that agent will hold an open house and invite all the neighbors to come and depending on the market, the agent will have it sold that same weekend.
- The deal can’t support a subject to deal. You don’t know what the situation is, that seller might be going through a court order that makes them have to sell for cash only. I’ve been getting quite a few subject-to offers on my listings. Sometimes I get calls and some investors just email an offer. One group just send blind “offers” (letter of intent) hoping something will stick. It’s like throwing stuff against the wall hoping something will stick. That’s just a waste of everybody’s time and they get deleted anyway, treated as junk mail. I don’t recommend it. Blind offers are not looked at seriously.
- The Broker stops it. Even if the agent and his seller client are on board with it, the deal will not ultimately go through because of their broker who is ultimately responsible for the transaction. What investors don’t realize] is that the real estate broker IS THE AGENT, and the real estate agent is that broker’s agent so in effect, the broker is the agent working for that seller. In 99 percent of the time, the broker will not allow a seller to remain on mortgage as you take over the seller’s payments. It must be either an assumption or be cashed out with a new loan. Brokerages are in the business of doing regular “straight” deals, this is smart and keeps the lawsuits away. All brokers must carry Errors & Omissions insurance to cover them in case of a lawsuit. In my brokerage, I’m the broker and I am ultimately responsible for all transactions that pass through my brokerage. I will agree that Subject-To deals are tough to go through the sniff test of my insurance carrier. So, the broker may not be able to support this kind of deal because they are limited by their insurance. They don’t have the kind of insurance that would cover that kind of activity.
Why You Should Not Assign Subject-To Deals
You should not assign or wholesale a Subject-To deal for obvious reasons. The seller is expecting you to make the payments, you made the arrangements, you signed the contract, so you finish the deal. The deal isn’t over until you cash out of the seller’s mortgage by either selling the property or refinancing. A lot of things can go wrong with a Subject-To deal assignment, see my ranting in my YouTube video.
Why You Should Care
You should care about the repercussions of your agent’s situation because if they could get in trouble because of your actions, don’t do it, it’s not a good deal. You don’t have to slight somebody in order to make yourself rich. The world is a big place and there are lots of ways to make money.
Now with all that said, you would think using a real estate agent to do subject to deals is no good right? Wrong. I’m saying that you’re doing it all wrong. It’s like putting the wrong shoe on your feet and wondering why it’s not working….kinda like trying to force a square peg in a round hole…..
Truthfully, you’re better off dealing directly with the For Sale by Owner by going after them yourself.
How to Use Agents
But here’s a better way to use agents, you should hire them to help you find Subject-To deals and make offers for you. You hire them to help you locate properties in distress. You would get into an agreement with them, hammer out the commissions they’ll receive and what the transaction should look like. Together you go after expired listings and make offers. Your agent can present your offer in a better light with greater understanding than you can. By representing you, that will put you in a better light. Don’t work with an agent if you’re not willing to pay them their full commission. This is hard work that they are taking off your shoulders.
So don’t “one and done” it with cheap shots, throwing out offers all over the place aimlessly that you hope will stick.
For more info, check out CashFlow University’s member forums and investor trainings. https://mycashflowuniversity.com