Common Sense Solutions for todays Real Estate Market
Sellers FAQ
Why would I consider selling my home with a lease option sale?
For several reasons, lease options are typically better for Sellers than most people think. When Lessee/Buyer buys the house, the Seller has accomplished his or her goal of selling the house, and he or she has also earned rent money in the meantime. In addition, lease option Buyers are often willing to pay market value, or even slightly higher, due to their unique circumstances, so the Seller is more likely to get top dollar for the home.
Why would I consider selling my home with a lease option sale?
It is not uncommon that the monthly rent for a “Rent to Own” is slightly above what would be paid for a traditional rental. However, the higher rent is generally offset by rent credits that go toward the purchase price to offset the higher rental rate.
What would happen if the Buyer of my “Rent to Own” home stopped paying their rent?
This is a challenge that is rarely seen. Tenant Buyers have skin in the game, and if they fail to pay their rent, they will lose the option fee they paid, all rent credits, and they will no longer have a place to call home. This is the benefit of a Tenant Buyer over just a rental Tenant. The Tenant Buyer stands to lose much more. Once a Tenant Buyer is 30 days delinquent, they have another 15 days to vacate the property.
How would I know that the “Rent to Own” Buyer could qualify to purchase my home?
Our “Rent to Own” Buyers must go through a comprehensive rent-to-own prequalification process with a mortgage professional. The prequalification process is designed to determine that the Buyer could qualify to purchase your home by the expiration date of the option period based on their credit, income, debt-to-income ratios, reserves, payment histories, and employment history.
What would happen if, when I am ready to close on the sale of my home, the value is less than the negotiated purchase price determined in the “Option to Purchase Agreement”?
This is a valid concern because housing prices have dropped so dramatically over the last several years. Our option-to-purchase contract states that if the home does not appraise for a mortgage to purchase the property for the pre-negotiated option contract price, either one of two options is available to the Seller:
It would be the Seller’s option to renegotiate the purchase price to appraised value so the sale could close.
If unable to renegotiate to appraised value, the Seller could choose to keep the property but would be required, per the option contract, to refund a minority portion of the lease option fee paid by the Tenant Buyer.
How much should I expect to receive for a lease option fee on my property?
You can generally expect to deposit 1-2% of the negotiated purchase price directly into the bank. Occasionally, we can negotiate the option fee to be a bit higher. As occurs with a traditional sale, there will be some costs associated with closing the lease option transaction, typically in the range of 2-3% of the purchase price. The closing costs come directly from the lease option fee paid upfront by the Buyer. Rest assured; your closing will be held at a title company, which will handle all official document filing and the dispersing of all funds.
Who is responsible for property repairs on a “Rent to Own” property?
Generally, repairs are a shared financial responsibility on a “Rent to Own” property. It is common to see that the Tenant Buyer would be responsible for repairs up to some negotiated value and the Seller would be responsible for repairs exceeding the agreed to dollar value. For example, the negotiated contract stipulates that the Tenant Buyer is responsible for repairs up to $250, and a $400 repair needs to be completed. In this example the Tenant Buyer would pay $250 and the Seller would pay $150. Also, in most contracts the Tenant Buyer is not responsible for necessary repairs for the first 90 days. We also suggest that the Tenant Buyer gets a home inspection, just like a normal purchase, to discover any needed repairs in advance.
What happens if the Buyer’s option period expires before they qualify for a mortgage?
The Seller would no longer be obligated to sell if the option period expires before the Buyer qualifies for a mortgage. However, our contracts do allow, if negotiated, a clause to extend the rent to own period if needed.
That is why we require our Buyers to speak to a mortgage specialist within our referral network before they enter into a “Rent to Own” contract with you. The Buyer needs to know how soon they could qualify for a home mortgage. Imagine a Rent to Own Buyer moving into your home with a 12-month option, and then you find out they can’t possibly qualify for a loan for two years when you count on one year.
Check out our Rent to Own Road Map to better understand how we navigate the process.
Will the contracts protect my interest in the property?
It is essential to leave as little to chance as possible. All agreements must be in writing, nothing verbal. If it is not in the contract, then it simply does not count. As the property owner, you will not transfer the Title to your property until the Buyer closes on purchasing your property. However, a Memorandum of Option will be recorded with the county where the property is located. This document formalizes the Option Agreement to sell the property to the Buyer for a pre-negotiated price by a pre-negotiated date.
All of our Rent to Own transactions are executed at a Title Company. The Title Company will file all appropriate paperwork to protect your interests.
How much of the rent payment is usually credited toward the purchase price?
We receive calls daily from families interested in finding a “Rent to Own” home, and they often believe that the rent they will pay would be 100% credited towards the purchase price. It is uncommon to find a Rent to Own home where 100% of the rent goes towards the purchase price. More commonly, we see 20-30% of the rent offered as a credit, which is a generous amount. But, there is no “industry standard” or “normal” percentage. Remember, unless written in the contract, it is not enforceable. Our contracts spell out all rent credit agreements, so there is no room for misunderstanding.
Will the Buyer have the option to extend the option period if needed?
When a lease with an option to purchase or rent-to-own agreement is negotiated, there is a certain period of time for the Buyer to purchase the rent-to-own home for a pre-determined price. This period of time is known as the option period.
What happens if the Buyer is just a few weeks or months away from qualifying for their home loan when the option period originally agreed to expires?
If you have a simple rent-to-own agreement setup, the Buyer will lose the option to purchase the home, and you, the Seller, are no longer obligated to sell your home.
The Buyer would lose all the equity they built in the home. That includes the option fee, rent credits, and any appreciation.
Our contracts address that issue, but it will be up to you and the Buyer to pre-negotiate any right to extend the option period before signing any contract. As a general rule, we do believe it is an excellent idea to pre-negotiate this upfront.
Is there any fee for extending the option period if the Buyer needs to?
Some Rent to Own agreements calls for a sizable fee to be paid if the Buyer chooses to extend the option period. Remember that everything is negotiable, but in a Buyer’s market, as we are in right now, that fee is generally relatively small or waived altogether.
The critical thing here is agreeing on an extension AND documenting the agreement in the contract accordingly!
