Every week we are asked by buyers to contact a seller to see if they would consider rent to own. There are several terms which apply to this type of transaction. Rent to own, lease to own, option to buy, contract for deed.
As a Real Estate professional I caution buyers to be extremely careful before entering into any agreement with a home owner.
Get competent professional help from both a Realtor and an attorney. Allowing the home owner to write the agreement can result in your "giving away" certain legal rights you may be entitled to.
A Real Estate agent in Pa is not permitted to write this type of agreement. They would be guilty of practicing law without a license. Realtors are highly trained in Real Estate transactions. If it is illegal for a Realtor to write the contract that should serve as a warning to buyers that it is an extremely complex matter. Only an attorney should be entrusted to structure such a contract.
The following timely article by Realtor Don Payne offers insight into the rent to own market.
When searching for homes in the Scranton Area use the same MLS search we use.
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The popularity of Rent-to-Own arrangements has grown during the past few years. Because somewould-be home buyers have suffered the direct consequences of the widespread economic downturn and slow recovery, rent-to-own deals can rescue transactions that would have been impossible through regular purchase and mortgage financing arrangements. If a potential buyer’s cash flow seems strong enough to support an eventual purchase, rent-to-own can overcome credit or cash shortfalls.
In a typical rent-to-own deal, the landlord and tenant execute both a lease and a sales contract at the same time. The tenant usually pays an option fee upfront as well as an agreed-upon amount in excess of the rent payment each month. The landlord applies these additional payments toward the tenant's eventual down payment. As a result, the tenant no longer has a feeling that he has nothing to show for his monthly rent payment, and the landlord has current cash flow plus the warm feeling that at a time certain his property sale will be completed. Everybody is delighted.
However, there is always some potential for less than smooth sailing in a rent-to-own deal, and all parties should be clear about what they are.
The primary risk to the tenant/buyer in the kind of rent-to-own structure I have just outlined is the possibility that the tenant might not be able to complete the purchase at the end of the option period. When this happens, it usually results in the tenant's forfeiture of both the option fee and the payments made in excess of the rent amount -- money the tenant could otherwise have saved or used to resolve credit issues.
There are also a number of ways to make a rent-to-own deal more favorable to the tenant. The first is to make the option fee applicable to the down payment if the tenant purchases at the end of the option period. In addition, the contract can allow the tenant to assign the purchase option in the event that he is unable to make the purchase. This way, if his real estate agent can find another buyer, he may recoup some of his investment. Such a contract might also entitle the tenant to a refund of a portion of the value of improvements he may have made in anticipation of purchasing if he is unable to complete the purchase.
Because a rent-to-own deal can have many possible details, both tenant and landlord are well advised to work closely with experienced real estate and legal professionals from the outset. Our office is here to furnish the knowhow that helps turn rent-to-own and other real estate possibilities into realities.