Example of how to do Rent-to-Own Home Transactions

Now, let’s take a look at a sample transaction to help you understand the process. John and Joan Homebuyers were told by their loan officer that they couldn’t qualify for a mortgage right now. “Not until you’ve improved your credit score.” They live in a down real estate market and know that now is a good time to buy. They have always dreamed of home ownership. They want a home NOW. They enlist the help of Sally Agent, a local real estate agent, who understands how to do rent-to-own home transactions.

From talking with their loan officer, John and Joan have determined that once they qualify for a mortgage, they can afford the payments on a $220,000 home. So they begin to look in that price range.

Alan and Ashley Homeseller live in the same market. A few months ago Alan received a promotion at work that requires them to relocate to another city. Alan and Ashley know the real estate market is down, but they have no choice but to sell their home now. They have it listed with real estate agent Thomas Broker (and yes, I do go to great lengths to come up with these names).

Alan and Ashley have had their home listed for 4 months at $225,000 without any offers. The need to get their home sold is getting urgent. Their agent, Thomas, recommends Alan and Ashley reduce the asking price to $215,000. He also suggests that they market their home on a rent-to-own basis for $225,000 (Wendy is very impressed with this agent because this agent knows that a rent-to-own is worth more than an outright sale – in almost all cases). After Thomas explains how it works to them, Alan and Ashley agree to add rent-to-own to their listing agreement.

Not long after, Sally Agent shows the house to John and Joan, who decide to make an offer on it. For their initial offer they offer $215,000 for the purchase price, agree to the asking rent amount of $1,500 per month, but ask for a $500 per month option credit. For their option fee, John and Joan offer 1% or $2,150 and a $250 security deposit. They also ask that all appliances in the house (refrigerator, stove, dishwasher, washer and dryer) be included.

After receiving their offer through Thomas, Alan and Ashley make a counter offer of $220,000 for the purchase price, $200 per month option credit and an option fee of 2.5% or $5,500 with a $750 security deposit. They agree to all appliances, except for the refrigerator which is brand new and they want to take it with them.

Getting closer to the agreement, John and Joan counter back, accepting the $220,000 purchase price, but ask for a $350 per month option credit and an option fee of 2%, or $4,400 with a $500 security deposit. They agree to let Alan and Ashley take the refrigerator, but they ask for an 18 month lease and option period instead of 12 months to give them extra time to get their credit in order. (By the way, most tenant-buyers will require 18 months or longer. Very few buyers can repair their credit in less tim with the current mortgage climate.)

Happy to finally have buyers for their home, Alan and Ashley accept the last offer. After conducting the proper screening, they agree to sign all of the paperwork and move in within two weeks, giving Alan and Ashley time to move out.

 
 

 
Excerpt taken from Rent-To-Sell: Your Hands-on Guide to SELL Your Home When Buyers are Scarce, Chapter 2, Pages 20-21.



To view this article in its original location http://www.wendypatton.com/blog/example-of-how-to-do-rent-to-own-home-transactions