Typically, real estate agents don’t want anything to do with rent to own. It’s not really a rental property and it’s not a guaranteed sale. Therefore, the commission is up in the air.
So, why would a real estate agent want to get involved in rent to own?
Commission potential is significant if you’re not afraid of confrontation. From one deal, you can earn commission from a rental and commission from a sale.
Prior to working with a rent to own buyer or seller, you have to determine how you will get paid. How much commission will you earn from rent? Will it be a percentage of rent for the whole year or a percentage of the first month’s rent? Is the seller obligated to pay you a commission if the rent to own deal is successful? Do you earn a commission from the option fee if the deal is not successful?
Like I said, there’s not really a protocol for rent to own commissions. You cannot assume that you and your client are on the same page until you write the commission down on a page and sign on the dotted line.
Negotiate a commission on the rental and on the sale of the home. It’s in the seller’s best interest to compensate you for both. Finding a tenant for a property is easy, but qualifying that tenant to predict whether they will qualify for a mortgage is much more difficult. Therefore, if the seller isn’t giving you a commission on the eventual sale of the property, then there’s no reason – other than ethics – for you to do the work of qualifying that tenant.
If someone is selling their home, chances are they’re also looking to buy a home too. You’re already aiming to make a commission off the rental and sale parts of the seller’s rent to own deal. Helping the seller to purchase their next home could result in a third layer of commission.
Twenty-three percent of home buyers use an agent they’ve previously worked with when they need to buy or sell a home, according to the National Association of Realtors’ Quick Real Estate Statistics. Therefore, by working on this rent to own deal, you’re increasing client relationships.
By increasing your client relationships, you’re also spreading the word about your business. The same list of statistics from the 2017 Profile of Home Buyers and Sellers states that 41 percent of sellers who used real estate agents found them through a referral by a friend or a family member.
Creating a positive relationship with this rent to own client could earn you the commission from a sale in the future. That’s especially true because not a lot of agents want to work with lease-option deals. Therefore, when the seller finally finds you, a willing helper, they will be much more appreciative of the time you dedicate to them.
Confidence in Your Ability
The primary fear that agents have about rent to own is that the sale of the home isn’t guaranteed. Therefore, the profit at the end isn’t guaranteed.
However, if you do your due diligence on the buyer’s finances, you’ll have a good idea about whether they will qualify for a mortgage for this home within the lease term.
If you learn that buyer’s interests – just like you would in any normal sale – and do your due diligence, you’ll know that the property they’re in is the right one for them. That eliminates a lot of the uncertainty about whether the buyer will purchase at the end of the lease.
Of course, there is no way to completely eliminate uncertainty. Nonetheless, there’s no certainty in real estate until the ink has dried. People purchasing houses through traditional routes walk away all the time.
Should You Work With Rent to Own Deals?
I’d recommend working with rent to own buyers and sellers when the opportunity presents itself. The deals have the potential to be lucrative if you’ve done a good job at setting them up.
More so, many agents avoid lease-options. If you’re short on prospects, there isn’t a lot of competition for these. Plus, the market of clients expands because there’s a large group of people who are two or three years away from purchasing a home that you can tap into before your competition is even considering them.
Featured image from Pixabay.