Home Buying in Paoli>Question Details

colinmama, Renter in Swarthmore, PA

Has anyone entered a rent to own agreement?

Asked by colinmama, Swarthmore, PA Sat Jan 19, 2013

Landlord has offered to hold our title while we lease

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@Marco - "A Rent-to-Own or a Lease Option to Buy, is a UNILATERAL contract, that benefit the buyer."

How?

Just to clarify, in case I misunderstood your position - are you saying that, in your opinion, a lease to own contract HELPS/BENEFITS the buyer?

Really?

All the stats prove that statement wrong - as most of these agreements do not even wind up at a closing table.
The buyer (usually) loses any deposit either given as a deposit upfront or a additional rent.

The buyer will usually be paying an amount of rent over and above the normal rent - perhaps in addition to some sort of initial depost, depending on how much they have - they will, in most of these agreements, lose that money if they don't (or can't) exercise their "option" to buy the house .

(Better make sure your contract says the house has to appraise out!)

The seller must sell, but the buyer does not have to buy - true - but - if they cannot buy for whatever reason, they forfeit that money.
That's a pretty big negative, especially for someone who most likely isn't on strong financial ground to begin with.

Most buyers who are looking to this kind of arrangement (and I think most of them have no idea they may be put in a position to forfeit money.. ..also, I think many of them mistakenly think ALL their rent goes towards the purchase price in the end, and that they simply buy the house or not)...anyway......most, if not all, buyers who look to this are in some kind of financial need or difficulty.

Either their credit isn't high enough to be approved for a loan .... or they don't have money saved up for a deposit........no matter what it might be - they usually can't qualify, for whatever reason, NOW so they are looking to the future with hope it will work out then.

Now, let's look at the seller.
In this case, the house is listed.
Apparently no one else is marching forward to buy this home now - for whatever reason - price comes to mind, but who knows how solvent the seller is - maybe he can't lower the price and stay right side up with his mortgage?

So, what does this seller have to lose in this deal?
He can't sell it now at the price he wants or needs.

With luck, he gets to sell it at the end of the lease term......and, in the meantime he gets monthly rent during the term of the lease.......... and, if the buyers don't buy - he gets to keep the deposit.

Win-win for the seller.

In the meantime, if he stops paying the mortgage - well - still a win win for him.

Now, I am not saying there might not be a creative contract written, which does protect the buyer, but the list above and the items other agents on this forum mentioned, are the most common terms in those type of contracts.

Buyer beware!
1 vote Thank Flag Link Sun Jan 20, 2013
yes, it gives them an option to buy - and they pay for that option with the distinct possibility that their deposit will be forfeited if they do not proceed with the purchase..for whatever reason.

That's not a benefit , imo, - that's a huge potential liability for a buyer already on uncertain financial ground.

In regard to your pronouncement that "Mrs. Debra Rose seems to be very professional"..............thank you, I think....I will rest easy tonight with those comforting words
0 votes Thank Flag Link Sun Jan 20, 2013
"Colinmama" Would the owner be willing to offer "Seller Financing"? You could refinance the property after certain time ( 1 year ); and most importantly only if you Qualify for it.
0 votes Thank Flag Link Sun Jan 20, 2013
@DEBRA

Yes, it BENEFITS the buyer, because gives him/her an option to buy, not an obligation.
The "terms" that you mention in a lease contract, could be also as negative, with other type of standard leases, not necessarily with the lease-to-option program. In other words, a disadvantageous lease agreement could be wriitten, whether or not is a Lease with option to buy. So, in your example, when you put specific posible situations (but not general situations), creates a fallacy. The fallacy, that a Lease with Option to Buy is negative.

In my life, as a lender, 13 years, I have found that certainly is mostly advantageous for the buyer, if the buyer decides to use his/her option. What I have found out is, that most of the time, I'd say 90% of the time, the buyer tought that the whole 100% of the monthly payments were going to be used as the downpayment; where they were wrong. And that was entirely, because the realtors that "helped them" to write the contract, was ignorant about how did it work, from the lending side.

A market price for the lease with option to buy, is just as any other exchange market in the whole world. Because under your philosophy, there would not exist Options, Futures, Swaps, Warrants, Factoring and Forraiting (Financial Instruments that work more or less under the same underlying principles than the Lease with Option to Buy).

The price for the monthly lease, is dictated by the market. Most people pay a plus-value when they have subjective reasons (such as fashion, location, need, etc) to agree on determined contract. A good and experienced realtor, should explain, and help to understand the key aspects of the a Lease with Option to Buy agreement; if it is disadvantageous would be because of the guidance from the real estate agent.

I am currently helping to finance, a friend of mine, that entered in a Lease Agreement with Option to Buy, 2 years ago. The seller is an absentee owner, and when the expectations that the Real Estate Market were going to keep stagnant, for the next 10 years (from 2007), I believe it was thought that the set price was sufficient enough. But now, that prices have been gaining some apreciation, or there is scarcity of supply (properties), by the time she closes, she will have an apparent equity of at least 55K. Does this serve to sustain that this type of agreements are definitely advantageous? No. Depends of the professional advise obtained.

Usually the Lease with Option to Buy, is more effective when there is a real motivation from the seller, to minimize the "Wear & Tear" of the property, and decides to transfer the use (not ownership) of the property to someone with "Homeownership" mentality, and that if after certain time the tenant should decide to purchase the property. This contracts are more common in downturn markets. Not too common in upturn markets.

Last but not least, "BUYERS BEWARE" when choosing a REAL ESTATE AGENT. Mrs. Debra Rose seems to be very professioanl.
0 votes Thank Flag Link Sun Jan 20, 2013
A quick note, that has been forgotten to brin up. A Rent-to-Own or a Lease Option to Buy, is a UNILATERAL contract, that benefit the buyer. The seller has to obligation to see, if you decide to excersice your option to purchase the property. The price is determined up front, and the downpayment, is deemed to believe to be used as down payment (which from a lender point of view, is not).
Only the portion, that you are paying over the market price (rental market price) is considered part of a downpayment. Which means that the only (and a big one) benefit for you of entering of this kind of agreement is that you can earn extra equity, if you get to buy a property in 2 years with the prices of today. Assuming of course, that prices are going up. Now, this is in the fieldl of speculation. Would prices go up or down? It depends obviously or local and macro trends. It seem is going in the upwards direction. Reasons? Reduced Inventory, Increasing Demand, Improving consumer sentiment, and the builder sentiment is also showing increasing rates. But remember, we are talking about just speculation. Which means, if you are wrong, when the time to excersice your option to buy comes, if the price went down, you don't have to purchase anything. Just make sure the outline of your lease, does not put your deposit in danger.
In the mean time, if your credit, income, employment or assets are not the best today, you can work all of this during the next 2 or three years. Consult with a professional mortgage banker. Inquire about CRA Lending, with no minimum loan amounts.
Blessings in anything you do.
0 votes Thank Flag Link Sun Jan 20, 2013
I have drafted lease-purchase agreements for both residential and commercial properties, and would be happy to answer any questions you may have about the process. Please give me a call at your convenience (484-942-6266), or email me at MikeColemanRealEstate@gmail.com. Once I know the details of what you are looking for, I can guide you in the right direction.
0 votes Thank Flag Link Sun Jan 20, 2013
Collin,
Great advise has been provided already.
Most buyers truly believe rent to owns will work for them. This is a tool they believe will enable them to circumvent the consumer protections in place to PROTECT THEM! Most result in the buyer becoming poorer than when they began.
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If you ARE well versed in reading contracts, make certain to read every line.
If you are NOT well versed, you must hire an attorney to interpret this conditions and consequences if you do not meet ALL of them.
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I have sold homes via lease/option. I would not consider one if the buyer does not have $15,000 to $30,000 to invest. The reason this requirement is so predominate in the Lease/rent/option business is because the buyer nearly always overestimates their ability. They are unable to save. The do not control their expenses. When they do not preform they take everyone they worked with down with them. Rent to own has exceptional appeal. The evidence, as you are reading today, suggests many will benefit but rarely the potential buyer. Don't set you hopes on the outcome being different for you.

Best of success,
Annette Lawrence, Broker/Associate
Remax Realtec Group
Palm Harbor, FL
727.420.4041
http://RealEstateMadeEZ.us
0 votes Thank Flag Link Sun Jan 20, 2013
What is your exact question about rent to own agreements? Whilst being uncommon in this area, they do happen.

It all depends on the length of the term, what the other terms are, if the landlord is allowing any of the rent to go towards the down-payment. As stated, you need to know if the landlord is paying the mortgage regularly and on time.

There are many mortgage options that might make rent to own unneccessary for you and allow you to negotiate better terms elsewhere when you are ready to purchase.
0 votes Thank Flag Link Sun Jan 20, 2013
Lease/Option
You are desperate!
Your Credit or Finances, or both, will not allow you to go the conventional route:
You need the Seller to help you out!

The Seller will know it, and you are going to pay dearly for this service:
There aren't too many altruistic Sellers out there.

There is no FORM printed by anyone; there are just too many variables.
The terms that can be written into a Lease/Option can be dangerous to you:
How long is the Option period?
How much money are you putting in to the Option?
What happens if you are not able to execute the Option?
How do you know what your financial situation will be 2-5 years from now?
How much is the rent in the meantime?
Who will be responsible for maintenance and repair in the meantime?
What will be the Market Value of the home in 2-5 years?
What will be the Selling price 2-5 years from now?

This is the Ultimate Caveat Emptor!

Good luck and May God bless
0 votes Thank Flag Link Sat Jan 19, 2013
And what else has the landlord "offered" to do?
Why is the seller willing to do this?

A rent with the option to own arrangement usually favors the seller.

There are a number of pitfalls that a buyer needs to beware of.

If you can't qualify now for a loan, or don't have a down payment, and that's why you would consider this arrangement......make very sure everything will come together for you at the end of the lease, or you could forfeit any upfront /deposit money.

Also - with this arrangement, the price is agreed to now - do you want to guess what the valeu will be a year or so from now?
Also - why hasn't the home sold as yet? Is it overpriced?
Usually sellers who are desperate and can't sell their homes now may turn to this sort of option.
Is the seller financially sound?
If they stop paying the mortgage, you will have no recourse...and they will have your money.

Make very sure you understand everything that caan come into play with this kind of deal.

Absolutely hire a real estate attorney to make sure your rights are protected............in my opinion, rent for now and buy when you are financially able to do so.

Best wishes.......
0 votes Thank Flag Link Sat Jan 19, 2013
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