As homes in the Philadelphia area are staying on the market longer, many sellers are turning to rent-to-own agreements. An article in the Philadelphia Inquirer titled Market forces change, by Joanne Cleaver, takes a look at a couple who spent $100,000 in remodeling their home, only to be forced to mark-down their asking price from $475,000 to $439,000. Now they are forced to look at rent-to-own agreements because they’d rather do that then lower their price further. Their reasoning? "It's like the stock market: You don't sell at the bottom," says the seller.
The question therefore begs, what are rent-to-own agreements and are they really beneficial to both parties? I prefer to call these rent-to-own contracts lease-options, as they give the buyer a ‘lease’ with the ‘option’ to purchase at a given point in time (but this is just a technicality in language that I prefer to use). The basic benefits for the buyer are as follows:
- they can get in the home they want with little out of their pocket
- gives a sense of hopeful future ownership
- lock in purchase price
- chance to repair past credit problems and qualify for appropriate funding in the future
Benefits for sellers:
1. quick transformation of equity to cash
2. alternative option to lowering your selling price
3. great incentive for tenant to maintain property
4. calculated rate of return with little market risk
Described above is a brief overview of the benefits for traditional lease options. However, here at World Wide Credit, we have been advising REALTORs on how to create a market through the use of lease options, and still get paid. Typically real estate agents shy away from lease options because there is no reward. The premise of the lease options program involves matching up investors/sellers with potential lease options clients. With the current market conditions in Philadelphia and around the country, this different type of real estate may emerge as a practical alternative for REALTORs. Specific to this topic, we presented an audio and visual ‘webinar’ that had great response. For a copy of the presentation please feel free contact me.
So is the seller in the article doing the right thing? In their situation, it would make perfect sense. They are sticking to their claim and not “selling at the bottom.” This is just an example of the changing marketplace and how lease options may soon become the most viable option for sellers who cannot sell at the price they want.