Seller Wants to Sell House for Less Than Mortgage

39 Replies

I am currently working with a seller who owes 70k on his mortgage. His house is assessed at 63k. It has a finished upstairs with 2 bedrooms and a bathroom but isn't added to the assessment because it doesn't have A/C. He wanted to sell it for 60k until he found out he would be liable for the other 10k. The numbers work till about 65k as my max purchase price. He is somewhat of a hoarder and I am now working with him to sell me a couple motorcycles in his garage along with the house to reach the 70k in value. 

Has anyone done something like this before?

I am most likely going to take it for myself but what if I Wholesale it? do I assign the purchase for the house but keep the motorcycles? what investor will want the house an motorcycles?

This is a very strange situation.

@Neil Schindel I would start with getting the place "appraised", for the true FMV. "Assessed" is typically a property tax term and can be way different. Once you know what the FMV is, you can determine if the deal is worth pursuing or not.

@Tom S. Based off my comps and cma from mls ( I’m a real estate agent) it’s fmv is around 140k if I can get the extra bath, and 2 rooms and 500+ sqft added into the house by adding a/c.

@Mike Cumbie he is a hoarder. He has immense amounts of stuff in there. I don’t even know the extent of the damage under the stuff. The house could not be listed for more than 100k in current condition and probably would only sell for 80k-90k. Once a buyer beats him down due to all the repairs they will find and he pays all closing costs he will be right where he is now. Not to mention the amount of time it will take for him to get all his stuff out. I’m trying to help him and rent a moving company to help him move it all.

If he owes $70k and sells for anything less than that, then yes, he still has to pay off the mortgage unless the lender agrees to a short sale. If after the mess was cleaned out and it could sell for $80k or more, than as a licensed agent, you have the fiduciary responsibility to get the seller the most money for the home by listing on the open market and obtaining the highest offers possible. That would eliminate the seller from coming out of pocket for the mortgage difference and even put cash in his pocket at close, plus you get a commission. Find the buyer too and double end it potentially.

If you truly want to take it down as your flip, then at minimum you should be offering him the $65k and disclose that you feel with a clean up jon, the seller could get $80k plus so the seller has options. 

@Will Barnard I appreciate the candor. It is hard to work as an investor and trying to get the best deal for myself and also as an agent that has the responsibility to clients and potential clients to be honest and forthcoming as the market expert. I have explained to him all of his options and explained what can happen when listing on the open market with a house that needs several repairs. He understands and wants to sell to me directly but I can tell money or real estate is not his strong suit. I don’t know if I need to explain further his options, lay it out in writing cohesively or what to make sure he fully understands all options on the table.

Wait...... this house will sell on the open market for 100k even in the state it is in, but you want to buy it for 67k? Seriously? I would think you could get sued for not looking out for your clients best interests. 

Do the honorable and right thing - sell the house for top $$ so the owner can pay off his loan etc 

@Mary Mitchell I think you misunderstood what was written. It would not sell for 100k on the open market. It would possible sell for 80k but that is before a buyer is guaranteed to beat up the price because of all of the repairs that are needed. This is an investor property. No homeowner will buy this due to the amount of repairs.

@Colby Hager he wants to take out what is his families stuff he has been left with which is a majority of it but he also realizes some of it is junk and does not want to take. He is also downsizing because it is just himself now and has little family besides his sons who do not live at home so he realizes it all will not fit in the new house left to him by his father

I just want to be clear. I am in no way trying to swindle this guy. I have laid out several options including the open market explained to him what would happen if listed at the prices previously explained. He wants to ensure a sale and a guaranteed price before beginning the move out process which is why is has expressed a desire to sell to me off market.

@Neil Schindel

In my experience, it is hard to get a hoarder on board with moving all the stuff. Sometimes they want a clean break. If this is the case, then having him clean the place out so you can list it for 80k doesn’t seem realistic. If you told the guy he could get 80k you did your job imo.

If we continue down this line of thinking, must we make him repair the house so he can get even more than 80k? Would we be at risk of being sued if we don’t make him do that? Where does that line of thinking ever end? Some people value convenience, speed and ease of transaction, privacy, etc...over trying to squeeze every penny out of their house.

How much are the motorcycles worth? Could you sell them to make up the 5k?

Could you take it sub2 to save on closing costs, funding costs etc. while you complete the rehab? Would that be worth 5k? Maybe not, but could be an option.

Good luck

@Colby Hager

I agree and I do think this is the case in this situation. The owner values the “as is” transaction, the clean break, and the flexible I have with him. I am about to sign a contract with him that is for a close in March of next year. This was discussed between us so that he has time to go through his stuff and take the things himself. He has indicated to me that some stuff is precious to him because they are from passed family members and he does not want other people touching them. I am doing things and helping him in ways that would not be done if it was on the open market.

I do think the motorcycles can be sold for 5k together. I have a friend who repairs them that is coming out to verify that with me.

I also feel there is some gray area of when you have given them adequate information and verified they understand it all. Like I said he is not very well versed in real estate or money. Me telling him that he could get more if he cleaned the place up and did some repairs seemed to go in one ear out the other when he already knows I am willing to pay him 70k for the house and motorcycles and he gets to leave free and clear with his possessions.

@Neil Schindel sounds like you are going above and beyond. If you are concerned(I dont think you should be) get an attorney to create an addendum stating you are buying under value, plan to make money, and seller could get more by selling on mls. That should take care of that. Hope it’s a good deal for you. Sounds like seller is getting exactly what he wants/needs

Listing a property on the open market gives the seller the best opportunity to get the best price.  I dont see how anyone can dispute that 


investors will look also but it means a competitive sales environment which is good for seller. 

ETA - this idea that it needs to be repaired and cleanup to be listed on the MLS is false. I have seen plenty of scary props listed on the MLS!

@Mary Mitchell

No one is arguing that he could get more from it being listed on the MLS. Ultimately it is up to the seller to decide what he or she wants to do. I have given him the options and told him the scenarios for each. As of right now an off market offer from me sounds me enticing to him due to the benefits he perceives from it. I can't force him to sell it on the MLS.

May want to keep in mind hoarders *NEVER* get enough time to deal with their stuff. They never close on time. I would not be extending closing out this much. If you do - make sure he's paying the mortgage or he will owe more than 70 by March. 

@Neil Schindel you're a real estate agent and just said "no doubt he could get more money on the MLS." How's it not slimy to do anything else but that for the guy? You said he could get 80k and you want to give him 65 and take his motorcycles lol.

Originally posted by @Neil Schindel :

@Tom S. Based off my comps and cma from mls ( I’m a real estate agent) it’s fmv is around 140k if I can get the extra bath, and 2 rooms and 500+ sqft added into the house by adding a/c.

How much is fair market value in the current condition? Why not help him sell his house, so he can pay off his mortgage? You will still get money from the sale via the commission. (ETA: I see you told him what he could get via MLS)

I think I get what the OP is saying. The house can probably pull an offer for $80k in its current condition, but once the inspection contingency lays into it the guy will be back in the same position as if he just sells to you without listing. 

It is tough to be an agent and a buyer at the same time. Ethically it would be reasonable to bring another agent in from your firm, or even another firm, to witness discussions and provide an unbiased opinion on what the seller could reasonably expect to get if he lists it on the MLS - that turns you into just a buyer if he doesn't want to list it, and the listing agent if he does want to list it after hearing his realistic options from a disinterested party.

If the house can sell for “$80-90,000 in its current state” and you are debating on offering $65k with the possibility you wholesale it... it’s hard for me to agree that you aren’t looking it for your best interest over his. Sounds like in lieu of a couple thousand in commission you are trying to get either 2-3x in wholesale fees or a house at a steep discount.

Why not offer to list it for a period of time for $90-100k and see what happens. Maybe offer 3 months starting at $100k and work down to $90k and then if it doesn’t sell, you “buy” at your price? Sounds like he needs those months anyway to remove items.

@Neil Schindel  I have to agree with @Minna Reid even if you push this out to March, come February all the stuff will still be in the house. A hoarder will tell you they "need time" but in reality they are paralyzed. Time is just an excuse to do nothing. You will probably need to hire people to get the junk out.

@Robert Tucker my guess is short sale is not an option, especially if he is not delinquent on his payments. Given the strong housing market and market value being over twice what he owes, the bank is not going to agree to $60K. If someone is making payments on time and the asset has value twice what he owes, they have no motivation to take a loss.

I am wondering if this may still be a deal at $70K? I say that because you talk about wholesaling it when you buy it at $60K. Assuming you can pay $60K, make money wholesaling and the buyer is happy - I think that implies you could just pay the $70K. Of course I have not seen the house, but if the retail is $140K, you could pay $70K and there is $70K gap there to rehab and secure equity. Even a $30K rehab is very significant.

@Brian Pulaski the only reason I ask about how to wholesale "assign" the contract with personal property attached is because I have another BRRRR property which will be in the midst of renovation when our contract is set to close. I am sure that I can hand both at the same time but in the off chance I cannot follow through with the contract I want to have other options. I am someone who thinks 20-30 moves ahead and also thinks of different scenarios so this is common for me to find solutions to some unlikely outcomes.

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