Submitted by Vicki Owens, ABR, CRS, GRI, Andy & Associates, Realtors, December 2008
With the market as tough as it has been, I have received yet more calls and emails from people who have had a lot of difficulty with their lease purchase arrangements. It unfortunately seems this always comes after the fact and always reiterates the reason why I always advise against these sort of agreements.
One gal contacted me who was at the end of her 2 year agreement. I spoke to her way back in 2006 when she was contemplating a home purchase. At that time, she had been visiting many open houses and could not seem to get the price that she needed for a house the age, size and quality that she wanted. She went to a For Sale By Owner open house and the owner offered her a lease purchase agreement. Because there was no way at that time she could quality for a mortgage on the home at an asking price of $235,000, she loved the house and the idea she could move right in and signed right up.
She actually called me the week after she had signed the agreement back in 2006. I was familiar with the home which had been on the market for nearly 2 years and listed on and off with a variety of agents to no success. At that time, I commented that the home was priced awfully high for the area compared to others that had recently sold on the block, but welcomed her to the neighborhood. I was happy that she found something that she liked and wished her and her family all the best.
In her call now, two years later, she explained that she was at the end of her lease agreement and now it was time to purchase. She had now been approved for the loan! But the bank, after appraising the house recently, would not approve a loan for the contracted amount. The appraisal was just too low even after she had paid the owner nearly $35,000 (at $1400 a month and a deposit) and the sale price was still what it was when she signed the document 2 years before. She had redecorated, put in carpet, finished a room in the basement. The owner will not lower the price to what the bank would agree to finance for the home, now valued at under $200K due to declines in the market. He cannot afford to. He had 2 mortgages and the rent she pays covers just the first. After expenses to sell, even without a real estate agent, he would have to bring funds to the closing table to clear the liens, he just will not do that.
Now she is struggling to decide to stay and see what happens or go forward to buy another home. And she is actually leaning toward buying another home with the prices and interest rates so low now, but troubled about all that she spent on this one. In the meantime, the homeowner is getting lots of nice work done and gaining equity on the home as he makes payments. Hope he does not decide to take out yet another equity line of credit, or worse, quit making payments. Guess we will see what she decides and how it all shakes out.
Then an email recently. Another gal who signed a lease purchase agreement that was based on the fact that she could be financed once her home (that was on the market in another state) sold. Well, the home has still not sold and her year is up. So she is now moved out from the home that she had intended to purchase. She had put $1200 into new carpet and done some other renovations and redecorating in the home and made all of her monthly payments on time to the owner. In this case, an agent was involved representing the home seller attempting to sell the home with the sale of her current home a contingency to go forward with a true purchase. She did not mention what she was paying per month, but my guess is that she probably had spent $12000 minimum plus some sort of up front deposit/down payment.
Upon her move out, she had a walk thru with the agent that was assisting the seller who stated the home was in good condition and she moved on. Well, low and behold she has a bill at her new address from the owner wanting money for the renovations that he is now doing to get the home sold. My advise was that she needs to have her own attorney look over the agreement that she signed to see if in fact she is responsible and if she has any rights to recovery of the money that she spent. She admitted that she was more focused on the sale of her current home and relocating her family than what she was signing to get into this one.
Circumstances and emotions can be distracting, and a good buyer's agent or real estate attorney can be worth their weight in gold to avoid bad situations that can cost literally thousands for an unsuspecting home buyer. Slow down and get some professional advise BEFORE you sign because "hind site is 20/20".
Copyright 2008 Andy & Associates, Realtors. About the author: Vicki Owens is an experienced real estate agent in the Central Ohio area. Highly trained as an Accredited Buyers Representative, Certified Residential Specialist and Graduate of the Realtor Institute. An award winning multi-million dollar agent for Ohio and the Columbus areas and highly recommended locally. These opinions and experiences shared are from the standpoint of a Realtor and are meant as education for the public. None of the information within her articles or blogs should ever be considered as legal advise, an attorney should always be contacted regarding any real estate transaction. Email her at email@example.com and visit her website www.vickihelpsu.com for more blogs, professional assistance and information about her services. Cell direct 614-440-5174.