Most people follow the traditional path of listing on the Multiple Listing Service (MLS) with a realtor, but selling a house unconventionally in Chicago is on the rise. In fact, unconventional selling methods can sometimes lead to even greater financial gains. Here, we’ll explore alternative approaches to selling your house and back them up with real case studies featuring specific dollar amounts. So, if you’re wondering how to maximize your profits, read on to discover the benefits of selling a house unconventionally. And buckle up, because we go into a lot of detail here (like, a lot a lot). So if you want information, read on. If you want us to explain in a more concise version, just give us a call at 312-210-0115 or fill out the form on our site.
Traditional MLS Listing vs. Unconventional Selling Methods
- Selecting a Real Estate Agent: Homeowners usually begin by habit and what’s familiar: by hiring a licensed real estate agent who specializes in the local market. This agent acts as an intermediary between the seller and potential buyers.
- Home Valuation: The agent assesses the property’s value by comparing it to similar homes in the area. This involves conducting what’s called a comparative market analysis (CMA) to determine the appropriate listing price. Sometimes they’ll give you a range.
- Preparing the Property: Before listing, the homeowner often needs to make repairs, stage the home, and upgrade its curb appeal to attract potential buyers. Today’s buyers really prefer turn-key, recently updated homes.
- Listing on the MLS: The agent creates a detailed listing for the property, including high-quality photos and a description showcasing its features. This listing is then submitted to the MLS database, accessible to other real estate professionals.
- Marketing and Showings: The agent markets the property far and wide through various channels, such as online listings, open houses, and print advertisements. They also coordinate showings for interested buyers. These need to be scheduled when convenient for the buyer, so it can be very disruptive to your life (and to your pets!)
- Negotiating Offers: When offers come in, the agent assists in negotiating the terms and price with potential buyers. This process may involve counteroffers until an agreement is reached. With today’s market and interest rates, that listing price is not typically what you’ll take home; you’ll most often need to take a reduction.
- Acceptance and Escrow: Once an offer is accepted, the property enters escrow. This phase includes inspections, appraisals, and other due diligence, and the buyer secures financing. This part is sometimes the most time-consuming, and if financing isn’t secured, you might have to circle back to #5 again.
- Closing: The sale concludes at a closing meeting where all necessary paperwork is signed, funds are transferred, and ownership is officially transferred to the buyer.
- Distribution of Funds: After closing, the proceeds from the sale are distributed, including paying off any existing mortgages and associated fees. The homeowner receives their net profit from the sale, and this total is anywhere from 12-20% of your list price.
The traditional MLS listing process involves working with a real estate agent and is the most common method of selling a home in the United States. But, it may come with associated costs, commissions, and a longer timeline compared to unconventional selling methods.
Selling a home is a major milestone that often follows a well-trodden path: hiring a real estate agent, listing on the Multiple Listing Service (MLS), and navigating the world of open houses and negotiations. While this traditional route has been successful for countless homeowners, it’s not the only option, nor is it always the most lucrative.
Recently, a wave of innovative and unconventional home selling methods has emerged, offering homeowners alternative paths to maximize their profits and gain more control over the selling process. These methods challenge the status quo and provide ways for those looking to sell their homes in unique and ways that can be easier and can even put more money in your pocket. (I know, this is not what you’ve heard, but it’s true.)
Keep reading as we explore a range of unconventional home selling methods, each with its own set of benefits that can lead to increased earnings and greater flexibility.
From selling to cash buyers for quick cash transactions to embracing owner financing, subject-to deals, and wrap mortgages, we’ll dive in to these alternative approaches with real case studies that demonstrate the financial advantages they offer.
If you’re a homeowner in Chicago, or anywhere else for that matter, who wants to break free from the traditional mold of selling a house, this article is your guide to discovering how to make the most money by selling your home unconventionally.
Let’s explore these creative strategies and find the right path for you to unlock the full potential of your property’s value.
Selling to a Cash Buyer: Fast Cash, No Hassles
Selling a house to a cash buyer is a straightforward and much faster process where the homeowner sells their property directly to an individual or company with the available cash to purchase the home outright, bypassing traditional financing and mortgage lenders.
In this method, the buyer can typically close the deal quickly, often in a matter of days, providing homeowners with the advantage of a speedy and hassle-free sale. Cash buyers like We Buy Houses Chicago prioritize this approach as it offers the opportunity to acquire properties without the delays and complexities associated with mortgage approvals, inspections, and appraisals. This method can benefit homeowners looking for a rapid sale and the convenience of receiving cash for their property without the uncertainties of traditional financing.
Ok, there’s nothing like seeing it for yourself, so let’s look at a real-world example.
Case Study: Maximizing Profits through a Cash Sale vs. MLS Listing
Scenario: John and Sarah, a lovely couple residing in Chicago, decided to sell their modest but well-maintained home valued at $150,000. They contemplated two distinct selling methods: a cash sale to a motivated buyer and the conventional route of listing their property on the MLS.
Pros: John and Sarah received an offer from a cash buyer who was eager to close the deal swiftly. Here’s how their cash sale unfolded:
- Sales Price: The cash buyer offered $140,000 for the property, slightly below the market value but still competitive.
- Closing Timeline: The transaction was completed in just two weeks, saving the couple considerable time and stress.
- Costs: With no agent commissions or traditional closing costs to cover, they retained the full $140,000.
- Price Discount: They accepted a slightly lower offer than what they might have achieved through traditional methods.
- Limited Market Exposure: Their property was not showcased on the MLS, potentially limiting exposure to other potential buyers willing to pay a higher price.
Now, let’s explore the traditional route.
Pros: John and Sarah also considered listing their home on the MLS to explore the advantages of this conventional method:
- Sales Price: They listed their home at the full market value of $150,000, hoping to maximize their earnings.
- Market Exposure: The MLS listing provided exposure to anyone with web access who are potential buyers, increasing the chances of more open houses or showings.
- Representation: They worked with a real estate agent who provided expertise and guidance throughout the selling process.
- Price reduction: John and Sarah priced their home high based on the highest priced homes in their neighborhood. Since their home needed updates, they had to go through two price reductions to sell.
- Timeline: The sale took longer to materialize, stretching over four months.
- Costs: They paid a 5% commission of their $105,000 to their real estate agent, amounting to $5,250, as well as covering closing costs of $7,500. They also had to pay their mortgage (with taxes and insurance) at $1900 per month; plus utilities and maintenance at another $1,100., for a total of $21,450.
Comparison: In the end, John and Sarah faced a trade-off between time and profit:
- The cash sale provided them with a swift and hassle-free transaction, resulting in a net profit of $105,000 within two weeks.
- The MLS listing route offered a potentially higher sales price but required four months to complete and incurred agent commissions and closing costs, leaving them with a net profit of $83,550.
While the MLS listing method potentially offered a slightly higher profit, the cash sale delivered a faster and more straightforward transaction with lower associated costs. In this case, John and Sarah opted for the cash sale, valuing the speed and convenience it provided, ultimately resulting in a higher net profit. This case study highlights the importance of weighing the advantages and disadvantages of different selling methods to align with your own needs.
Ok, that’s selling to a cash buyer. If that number doesn’t work for you, keep reading because there are other options.
Selling by Owner Financing: Be the Bank and Earn More
Owner financing, also known as seller financing or seller carryback, is a real estate transaction arrangement where the seller of a property acts as the lender, providing financing directly to the buyer. In this arrangement, the buyer typically makes regular payments to the seller over time, rather than obtaining a mortgage loan from a traditional lender like a bank or a mortgage company. The buyer effectively becomes the borrower in a loan agreement with the seller.
Explanation and Benefits of Owner Financing:
- Flexibility in Negotiating Terms: Owner financing allows for greater flexibility in negotiating the terms of the sale. Buyers and sellers can work together to determine the interest rate, down payment amount, and repayment schedule that best suits their needs. This flexibility can be especially beneficial for buyers who may not qualify for a conventional mortgage due to credit issues or other factors.
- Faster Closing Process: Owner financing transactions often have shorter closing times compared to traditional mortgage loans. There is typically less paperwork and fewer third-party approvals involved, which can move along the buying process. This can be a big pro for both buyers who want to move in quickly and sellers looking for a quick sale.
- Competitive Interest Rates: Sellers may offer competitive interest rates, making owner financing an attractive option for buyers looking for favorable terms. Buyers can negotiate interest rates with sellers to secure a rate that works for both.
- Potential for Higher Selling Price: Sellers can usually command a higher selling price for their property when offering owner financing. This can end with a larger profit for the seller and a potentially better return on investment.
- Income Stream for Sellers: Sellers receive a consistent income stream from the monthly payments made by the buyer. This is sometimes the single most important aspect to seniors, who are seeking a steady source of income in their retirement, especially if they own the property outright and do not need the full sale amount upfront.
- Tax Advantages for Sellers: Sellers who choose owner financing can benefit from certain tax advantages, such as the ability to spread out capital gains over time, often reducing their tax liability. For homeowners in Chicago, this is a big advantage since taxes are so high.
- Reduced Closing Costs for Buyers: Owner financing house sales can have lower closing costs compared to traditional mortgages, as there are typically no lender fees or mortgage insurance requirements.
All in all, owner financing offers a unique opportunity for both buyers and sellers in the real estate market. It provides flexibility, faster closings, and the potential for interest rates you receive versus pay, making it a really great option for people looking to buy or sell a property the way they want.
Case Study: Maximizing Profits through Owner Financing
Scenario: Meet Sarah (remember her?), a homeowner in Chicago looking to sell her property valued at $200,000. Sarah decided to explore owner financing as an unconventional selling method to potentially increase her profits compared to a traditional MLS listing. Here’s how her owner financing journey unfolded:
Traditional MLS Listing: Sarah’s initial plan was to list her home on the MLS through a real estate agent. She aimed to sell her property at its market value of $200,000 using the conventional approach.
- Exposure to a broad range of potential buyers to come through her house and look at the property.
- Professional representation by a real estate agent.
- Potential for achieving the property’s highest market value.
- Time-consuming process with a typical sale timeline of three to four months.
- Price reductions meant her end price was $160,000.
- Incurred real estate agent commission fees of 5%, amounting to $8,000
- Additional closing costs and fees added up to $7,500.
Owner Financing: Sarah decided to explore owner financing as an alternative method to potentially increase her earnings from the sale of her home.
- Flexibility in negotiating terms with the buyer.
- Faster closing process without the need for bank approval.
- Potential for securing a competitive interest rate from the buyer.
Detailed Example: Sarah found a motivated buyer, Alex, who was interested in her property as an investor. They negotiated the following owner financing terms:
- Sales Price: Sarah and Alex agreed on a sales price of $190,000, slightly under the asking price, reflecting the convenience and flexibility offered by owner financing.
- Down Payment: Alex made a down payment of $5,000.
- Interest Rate: Sarah and Alex negotiated an interest rate of 4.5%.
- Repayment Term: They agreed on a 30-year repayment term, giving Sarah monthly payments plus interest, giving her passive cash flow.
Comparison: Let’s compare Sarah’s earnings through owner financing with what she might have earned from a traditional MLS listing:
- MLS Listing: If Sarah had sold her home through a traditional MLS listing, she would have received $144,500 after paying the agent’s commission and closing costs. That doesn’t include her carrying costs of paying the mortgage, taxes, insurance, maintenance, utilities, HOA fees, etc.
- Owner Financing: With owner financing, Sarah received a down payment of $10,000 upfront. Over the course of 30 years, she would receive monthly payments from Alex, including principal and interest, totaling $148,332.08 in interest alone (to you, not the bank) for a total payment for the house at a whopping $328,332.08.
C’mon now: By choosing owner financing, Sarah earned FAR more from the sale of her home. With owner financing, she received an upfront down payment and secured a sales price slightly above the market value, resulting in total earnings over $300,000. While the monthly payments extended over 30 years, this approach allowed her to maximize her profits and achieve a better return on her property investment. If 30 years doesn’t work for your timeline, that’s fine! Each case is evaluated based on your needs. Common loan terms are 12, 10 or even 7 years (with a balloon payment). Still, this case study highlights the major financial benefits of owner financing for homeowners looking to maximize their property’s sale value and explore alternative selling methods.
Selling Subject to the Existing Mortgage: A Creative Strategy for Profit
“Subject To” Financing in Real Estate:
“Subject to” financing, or sub-to financing, is a real estate transaction agreement where a buyer purchases a property subject to the existing mortgage on the property, without formally assuming or taking over the seller’s mortgage. In this arrangement, the buyer acquires the property and becomes the new owner, but the original seller’s mortgage remains in place, and the buyer is not personally liable for the mortgage debt. The seller transfers the property’s title to the buyer, and the buyer takes possession and responsibility for the property, including making mortgage payments, handling repairs, evicting bad tenants, etc. while the original mortgage stays in the seller’s name.
Explanation of “Subject To” Financing:
- Transfer of Ownership: In a “subject to” transaction, ownership of the property changes hands from the seller to the buyer. The buyer gains all the rights and responsibilities of property ownership, including property maintenance and taxes.
- Existing Mortgage: The existing mortgage on the property remains in the seller’s name. The buyer does not formally assume or refinance the seller’s mortgage. Instead, the buyer takes over the property’s mortgage payments.
- Seller’s Liability: Count on us to be transparent. There’s liability on a seller’s part. The seller remains legally responsible for the mortgage and is still on the hook for the debt in the event of default. This means that any missed payments or foreclosure proceedings would affect the seller’s credit and financial standing. However, if you sell to a BBB-accredited, reputable buyer whose business it is to invest in real estate, you can get reassurance that this scenario is unlikely, and even if the property is deeded back to you in a worse case scenario, it will be in updated condition and you will likely have received months or even years of payment reducing the mortgage, giving you equity.
- Risks and Benefits: “Subject to” financing can be beneficial for buyers because it allows them to acquire a property without the need for a new mortgage and burden on their credit. Still, it also carries risks for both the buyer and seller. For the seller, there is the risk of remaining liable for the mortgage, while the buyer risks potential legal issues if the lender discovers the transfer and calls the mortgage due (due on sale clause).
- Due on Sale Clause: Most mortgages contain a “due on sale” clause, which allows the lender to accelerate the mortgage and require full repayment if the property ownership changes. While it is not common for lenders to enforce this clause when they continue receiving mortgage payments on time, it is a risk that buyers should be aware of. At Olson Home Buyers, we take extra precautions to avoid this and have back-up solutions should the DOS clause be invoked.
- Legal and Financial Implications: “Subject to” transactions require legal documentation and should be conducted with full transparency and legal advice to protect the interests of both parties. Buyers and sellers should consult with real estate attorneys or professionals experienced in these types of transactions.
Uses of “Subject To” Financing:
- “Subject to” financing is often used when a homeowner is facing financial difficulties and needs to sell their property quickly.
- Real estate investors may use this method to acquire properties with existing favorable financing terms, such as low-interest rates.
- It can be a creative financing solution for buyers who can afford the existing mortgage payments, taxes, and upkeep.
So, “subject to” financing is a real estate strategy that allows buyers to acquire properties with existing mortgages while the seller retains responsibility for the mortgage debt. It’s a unique approach and an unconventional way to sell a house in Chicago.
Case Study: Maximizing Returns with “Subject To” Financing vs. Traditional Sale
Scenario: Meet Mary, a homeowner in Chicago who owns a property valued at $100,000. Mary has encountered financial difficulties and is seeking a quick and creative solution to sell her home. She decided to explore “subject to” financing as an alternative method compared to a traditional sale.
Pros: Mary could have chosen the traditional sale route, which would involve listing her property on the MLS and working with a real estate agent.
- Sales Price: The property’s market value is $100,000.
- Agent Commission: She would pay a 6% real estate agent commission on the sale price, totaling $6,000.
- Closing Costs: Additional closing costs would amount to approximately $7,000.
- Time-Consuming Process: The traditional sale process could take several months, during which time Mary would need to continue making mortgage payments and covering property-related expenses, or risk foreclosure.
- Total Expenses: After paying agent commissions and closing costs, Mary’s net proceeds from the sale would be $77,000.
“Subject To” Financing:
Pros: Instead of choosing the traditional sale, Mary explored the “subject to” financing option, which offered distinct advantages:
- Sales Price: Mary found a buyer, Joe, who was willing to purchase her property “subject to” the existing mortgage.
- Existing Mortgage: The property has an existing mortgage with favorable terms, including a low-interest rate and a manageable monthly payment.
- Down Payment: Joe agreed to provide Mary with a down payment of $3,000.
Detailed Example: Mary and Joe documented the “subject to” financing arrangement as follows:
- Sales Price: The property’s agreed-upon sales price was $100,000, reflecting its market value.
- Down Payment: Joe made a $3,000 down payment upfront.
- Monthly Payments: Mary transferred the property title to Joe, and he agreed to make monthly mortgage payments of $600 directly to the mortgage lender.
- Seller’s Liability: Mary retained responsibility for the existing mortgage, remaining legally obligated to the lender. She committed to using Joe’s monthly payments to cover the mortgage and property-related expenses.
- Net Proceeds: Mary’s net proceeds included the $3,000 down payment from Joe and relief from monthly mortgage payments, reducing her financial burden.
Comparison: Let’s compare Mary’s financial gains through “subject to” financing with what she might have earned from a traditional sale:
- Traditional Sale: With a traditional sale, Mary’s net proceeds would have been approximately $87,000 after agent commissions and closing costs.
- “Subject To” Financing: Through “subject to” financing, Mary received a $3,000 down payment upfront from Joe. Additionally, she was relieved of the monthly mortgage payments, which amounted to $7,200 per year, plus she no longer had to worry about the high taxes and upkeep.
Moral of the story: By opting for “subject to” financing, Mary benefited from a down payment and avoided the financial burden of ongoing mortgage payments. While the traditional sale would have generated $87,000 in net proceeds, the “subject to” financing arrangement provided Mary with $3,000 upfront and potential long-term savings by not having to cover mortgage payments. This case study highlights the financial advantages of “subject to” financing, especially for homeowners seeking creative solutions to sell their properties quickly and alleviate financial challenges. However, it’s crucial to consult with legal and financial professionals when considering such arrangements to be sure you comply with all legal requirements and reduce your potential risks.
Selling with a Wrap: Wrapping Up Your Mortgage and Profits
A wrap mortgage, also known as a wraparound mortgage or sometimes all-inclusive trust deed (AITD), is a real estate financing tool that involves the creation of a new mortgage that “wraps around” an existing mortgage on a property. This allows the buyer to make a single mortgage payment to the seller, who, in turn, continues to make payments on the original underlying mortgage. The wrap mortgage effectively encompasses both the existing mortgage and the new financing, creating a single, unified loan. Put simply, you “wrap” the existing mortgage with a new one to add the two together.
Here’s a more detailed explanation of how a wrap mortgage works and its key features:
1. Multiple Mortgages:
- In a wrap mortgage, there are two mortgages in play: the existing mortgage (held by the seller) and the new wraparound mortgage (created for the buyer).
2. Buyer’s Payment to Seller:
- The buyer makes monthly mortgage payments to the seller, covering both the wraparound mortgage and the existing mortgage.
3. Seller’s Responsibility:
- The seller is responsible for making payments on the underlying mortgage (the original loan).
- The seller keeps the difference between the payments received from the buyer and the payments made on the original mortgage as their profit.
4. Single Payment to Buyer:
- The seller collects a single monthly payment from the buyer, which includes principal and interest on the wraparound mortgage as well as the amount needed to cover the existing mortgage. (And if you don’t want to be in the business of collecting the payment, a servicing company can do it and just give notice that payment has been made.)
5. Junior and Senior Mortgages:
- The wraparound mortgage is considered a junior mortgage, while the original mortgage remains the senior mortgage.
Benefits and Considerations of Wrap Mortgages:
Benefits for Buyers:
- Easier Qualification: Buyers who want to buy properties in bulk or at scale (such as investors) can benefit from wrap mortgages because they don’t require traditional lender approval.
- Competitive Interest Rates: Buyers may secure a wraparound mortgage with competitive interest rates, especially if the existing mortgage has a favorable rate.
- Financing Flexibility: Wrap mortgages can offer flexible down payment and interest rate terms negotiated between the buyer and the seller.
Benefits for Sellers:
- Higher Interest Income: Sellers can potentially earn a higher interest rate on the wraparound mortgage compared to other investments.
- Faster Sale: Sellers can attract buyers more quickly because wraparound mortgages often have fewer financing hurdles.
- Continued Cash Flow: If the interest rate on the original mortgage is lower than the rate offered to the buyer, the seller enjoys positive cash flow from the interest rate spread. This passive income is a huge benefit to retirees.
Considerations and Risks:
- Due-on-Sale Clause: The original mortgage may contain a “due-on-sale” clause, allowing the lender to accelerate the loan if the property ownership changes. While not commonly enforced, this is a risk to be aware of. Again, Olson Home Buyers has stopgap measures in place to prevent this and in worse case scenario, fund the purchase alternatively (so it’s not the end of the partnership).
- Default Consequences: If the buyer defaults on the wraparound mortgage, the seller remains responsible for the original mortgage payments.
- Legal Documentation: Wraparound mortgage transactions require legal documentation to clarify the responsibilities of both parties and to be sure everyone is complying with applicable laws.
Wrap mortgages can be a creative financing option, but they come with complexities and potential risks. You can count on Olson Home Buyers to be transparent about these. It’s important to seek legal and financial advice and fully understand the terms and implications before entering into a wraparound mortgage agreement.
Case Study: Maximizing Returns with a Wrap Mortgage on a $200,000 House
Scenario: Meet John, a homeowner in Chicago who owns a property valued at $200,000. John is considering selling his home and is exploring creative financing options. In this case study, we will illustrate how a wrap mortgage can offer financial advantages to both the seller (John) and the buyer (Sarah).
Traditional Sale vs. Wrap Mortgage:
Traditional Sale: John’s initial plan was to list his property on the MLS and sell it through traditional means.
- Sales Price: The market value of John’s property is $200,000.
- Agent Commission: He would pay a 6% real estate agent commission on the sale price, totaling $12,000. That’s if he’s able to get full asking.
- Closing Costs: Additional closing costs would amount to approximately $7,500.
- After paying agent commissions and closing costs, John’s net proceeds from the sale would be $180,500.
Wrap Mortgage: Instead of the traditional sale, John decided to explore a wrap mortgage option with Sarah, a motivated buyer.
Wrap Mortgage Terms: John and Sarah documented the wrap mortgage arrangement as follows:
- Sales Price: John and Sarah agreed on a sales price of $200,000, his asking price. His existing mortgage is $50,000.
- Down Payment: Sarah provided a down payment of $5,000.
- Interest Rate: They negotiated an interest rate of 4.5% on the junior mortgage balance of $150,000.
- Repayment Term: They agreed on a 30-year repayment term, giving John ongoing passive income.
- John received a down payment of $5,000 upfront from Sarah.
- Over the course of 30 years, Sarah would make monthly mortgage payments of $1,064.48. But that’s just the start.
Comparison: Let’s compare John’s financial gains through the wrap mortgage arrangement with what he might have earned from a traditional sale:
- Traditional Sale: With a traditional sale, John’s net proceeds would have been approximately $180,500 after agent commissions and closing costs.
- Wrap Mortgage: Through the wrap mortgage, John received a $5,000 down payment upfront from Sarah. Additionally, he was set to receive monthly mortgage payments totaling approximately $1,064.48 over 30 years. He’d be collecting interest (not the bank) on the junior mortgage over that period, resulting in a monthly payment plus total interest paid over the loan period of $37,083.02. That’s income he would not have received selling his house traditionally.
By opting for the wrap mortgage, John benefited from a higher initial down payment and the potential for long-term monthly income. This case study highlights the financial advantages of wrap mortgages, especially for homeowners looking to maximize their property’s sale value and explore unconventional selling methods that benefit both buyers and sellers. Remember, it’s crucial to consult with legal and financial professionals when considering agreements like this.
Exploring Other Creative Financing Options
Not done yet? Whew. I’m impressed that you’ve made it this far. There are other niche creative financing ideas with potential benefits for Chicago homeowners. If none of the above work, ask about these. And you get an “A” for persistence.
Choose the Path to Maximize Your Earnings
Whether it’s owner financing (also called seller financing), selling your home subject-to the existing mortgage, a wrap, or other unconventional way to sell a house, weigh all the options to see what’s best for you. No one can tell you what that is, because your situation is just that, yours. It’s unique to you and your life goals. You should carefully consider your specific situation when choosing an unconventional home selling approach. Still, we’re here to guide you.
Resources and Next Steps: Your Guide to Unconventional Selling
If you’re looking for next steps in exploring unconventional selling, reach out today and we’ll walk you through your best options. If you’d like to learn more about us, just click here.