Before I start with the list of Subject To objections and
how to overcome them, let me say that I understand 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, I or you the seller die, it
is still binding and our heirs would continue our contract.”
#8 How long will it take for you to get a new mortgage?
“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 1 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,
where 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 5 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”:
“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 option. 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 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.
To find out more on evaluating and determining the
profitability of a home, read Chapter 5 of my book “Investing in Real
Estate with Lease Options and Subject Tos”
#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 to first get a full
understanding of the question. Ask them what they mean or repeat, “this
isn’t enough money?” and 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 also – 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, and
are 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.
To find out more about Subject Tos, read my book,
“Investing in Real Estate with Lease Options and Subject Tos”. This book
gives you all the details of which contracts you need in order to complete a
Subject To deal.
© 2007 by Wendy Patton
Wendy Patton is widely
recognized as one of the most inspiring speakers on "Little or
No Money Down" real estate investing. Her real estate savvy and
great depth of experience and knowledge has helped her in
orchestrating the most complete and easy to follow, Lease/Option
Program in circulation.
Home Study Courses by
Wendy Patton
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