What if the Seller Owes More Than You Can Offer?

What if the Seller Owes More Than You Can Offer?

In 2008-2010, lending stopped. Interest rates were variable and, as they rose, borrowers who had been told to simply refinance when payments got too high, couldn’t. Foreclosures began to mount. People simply couldn’t afford their house payments any longer and house price values were dropping. Owners were forced over and over to walk away from what had been their family homes.

As investors, it was common to view properties where we found the seller owed more than the property was worth.

This still happens today, of course, but not nearly as often. When the economy turns down again (which it will because the real estate market always cycles), homeowners being “upside down” on their mortgages will become even more common again.

So, what do you do when you go out to a property and find that the seller owes more than their mortgage balance? Can you still make an offer?

To begin with, change nothing that you normally do.

These offers should be made just like any other offers that you present. The most important thing for you to pay attention to as an investor is never the seller’s situation, but keep your focus on your own true number – the most that you can offer to pay and still make a profit. To get to that number, naturally you need to understand:

  • how to comp the property
  • how to recognize and estimate needed renovation costs
  • how to calculate what the property will ultimately be worth after repair

I’ve covered those topics in other blog posts. You can find some by using the search bar at the top of the page or clicking on the links I provided above.

But the first thing to always keep in mind is that the seller’s position cannot influence your bottom line number. You must know the maximum you can offer on any property and never go up on that number just because it doesn’t meet what the seller wants or needs. If you pay too much for purchases, you won’t be in business very long.

Secondly, “never think for the seller”. We have purchased plenty of houses where the seller owed more on their mortgage than what we offer. What does the seller do? They come to closing with money. And don’t assume they can’t. Ask any closing attorney how often sellers come to closing with money and you’ll be amazed. Sometimes they have their own money, or retirement funds, or family steps in to help, etc, etc.

All that matters for our business is what we can offer on any deal. Our number is the only number I worry about. If the seller agrees to our offer, we have a deal. If they don’t or can’t, we part as friends and I’m always available to offer my assistance in their sales process whether they sell to me or to someone else. But we have purchased a lot of properties where the seller brings money to closing, so never “assume” that someone upside down on a mortgage can’t or won’t do that.

Again, your only concern should be your true number, your highest possible offer, what works for your business.

Besides, you actually have NO idea what is truly going on in the life of any seller. Talk openly and honestly about what you can offer and why. The seller will make their decision based on a lot of things that are outside your control. 

Then always make an offer. Why? Because, why not? Don’t think for the seller.

What do you do when a seller owes more than you can offer? Will this post change your behavior?

This post has 5 Comments | Would you like to leave a comment?


  1. Good blog post. I definitely love this site. Thanks!

  2. Yes, our laws are more like GA than Texas.

    Sub2 was more common back when sellers couldn’t sell and banks weren’t giving new loans. Now that sellers can sell, they don’t need to accept Sub2. And banks don’t have the backlog of foreclosures so they’re less interested in a second party taking over original loans. I’d steer clear of Sub2 until you’re an experienced investor.

    Good luck with your investing future. I think everyone should invest in real estate!

  3. THIS! Wow–thanks for that insight… game changer! Thank you!

    I heard you on the BP podcast a few years ago, and I just went back to it yesterday–great stuff!

    BTW, I’ve been learning SFH REI from various “gurus”, but sub2 mostly from some Texas guys–they don’t do contract for deed (CFD), because they can’t in TX. I am looking to do SFH REI mostly in GA and AL. I haven’t read up on NC REI law, but I’m assuming CFD is legal in NC. Do you have a blog or any resources/insights available on sub2 with CFD specifically? Hoping NC is more similar to GA/AL than the TX sub2 and wrap with deed of trust given to disposition buyer.

  4. Hi Blake:

    It’s any time the seller agrees to sell for less than they owe – doesn’t matter how you’re buying. If they owe more than you are paying, they bring cash to closing. This happens all the time even in retail sales with a real estate agent!

    Thanks for asking!

  5. When the sellers “come to closing with money”–are these underwater deals only, are they normal wholesale deals, the seller is paying closing costs, etc… or… is this mostly sub2 transactions–or all of the above?

    I’ve been looking to do sub2 deals (mostly) among other SFH investing. So, from my understanding, are you suggesting that I can actually get the distressed seller to pay the attorney and realtor fees when wrap and/or traditional selling to new buyer? That would be amazing, because I’ve been looking at these as my own cash costs/basis.

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