Bad credit can keep consumers from many things, but buying a good home shouldn’t be one of them, said real estate agent Ann Ezell.
Ezell, an agent with ReMax True Advantage in Martinez, frequently works with lease option- to-buy or rent-to-own contracts. These arrangements allow potential buyers to lock in a price for a house while providing a renter for the landlord in the meantime. These options are not common, but for the right situation, Ezell said, it can be a solution.
“There are a lot of people who have squirrelly credit right now,” she said. “The rent-to-own buys them time to clean up their credit.”
Ezell deals mainly with lease option to buy, which allows the tenant to have first right of refusal to buy the house for a period of time by paying an option fee. The fee is usually 2 percent of the purchase price of the house, which is guaranteed for the length of the option agreement, usually two years.
The average Augusta-area house in April 2010 spent 165 days on the market, compared to 194 in April 2011 and 186 in April 2012. The average selling price went from $163,364 in April 2010 to $151,803 in April 2012. The
longer selling time and reduced selling prices are hurting sellers, and banks’ more conservative lending is affecting buyers, Ezell said.
“The market is depressed now, and the advantage to the tenant is that if they can agree on a price with the seller, maybe in two years prices will have come back up,” she said. “They would have their price locked in.”
Most of Ezell’s landlords would be willing to sell their property, but a surplus of homes for sale and fewer qualified buyers have made it a buyer’s market. The lease option to buy allows them to get a renter in the home immediately, with the possibility of selling in the future. This option has proven helpful to military families being transferred to other posts, Ezell said.
“The way the market has been, they realize they either can’t sell it or they can’t get enough on it,” she said. “This keeps the option open.”
Aldo Aguirre, who is selling a home with the option for rent to own, said the option can be beneficial for the right buyer and seller. As a member of the military, he buys a house wherever he is stationed as a side investment. After he invests in improving the home, he is able to rent or sell the houses once he moves. He did not expect his house in Augusta to sell quickly, so he listed it as a rental with the option to rent to own.
“Rent to own essentially buys you time for the value to come up,” he said.
Aguirre, who has a house in North Carolina that is under a rent-to-own contract, said it has worked well for him and his buyer so far. His standard contract is for 24 months, and the buyer and seller agree on a selling price of what they expect the house to be worth at the end of that time. The buyer puts up a retainer fee of 3 percent to 5 percent of that selling price, which the buyer forfeits if the purchase is not made. There is a fair amount of risk, he said, but it’s one he is willing to take.
“I’m willing to gamble because I’ve gotten my money when I bought the house for a good deal,” he said.
In a rent-to-own situation, Aguirre is not only getting rental payments that cover his mortgage on the house, he also has tenants with a vested interest to take care of the property.
“The person that’s going to own it is going to take better care of it as a renter,” he said.
Dian Smith, a broker at Morgan Smith Realty in Augusta, said her firm offers the option for rent to own if both the tenant and landlord are willing, but each case is different.
“It’s all negotiable, and there really aren’t any hard and fast rules,” she said.
Rent-to-own options are attractive to buyers who have found a house they want to buy but aren’t quite ready financially, Smith said. The buyer and seller agree on a sale price after a home inspection, and how long the agreement will be valid, and the buyer continues to pay rent until ready to buy. Anything paid past the fair market rent price goes into an escrow account that will go toward the down payment, she said.
For example, if the fair market rent for the house is $1,100 and the rent is $1,200, the $100 difference will count toward the selling price of the home.
“You have a lot of folks who are needing a good house but have to get some things in order before they can get financing,” Smith said. “Sellers love it because, worst case, they’ve got a renter. Best case, they’ve got a buyer.”
Rent to own and lease option to buy are great options when everything is conducted properly, but CSRA Better Business Bureau President and CEO Kelvin Collins said he has known scam artists to use those phrases to swindle potential home buyers out of thousands of dollars.
These swindles are most commonly conducted online through a Web site such as Craigslist, and the interested buyer is asked to send a cash deposit before receiving the keys to the house. The seller poses as a member of the military or someone living overseas, and says the price is unusually because he is desperate to sell. Collins said there are several things buyers can do to avoid rent-to-own swindles and recognize legitimate rent-to-own companies: never send cash, never sign a contract before reading it entirely, never buy a house you haven’t seen, never deal with someone exclusively through the Internet. If it sounds too good to be true, he said, it probably is.
“That’s always a good rule of thumb,” he said. “We’ve seen these scams come through, and when the housing bubble burst it made the market a prime place for con artists to operate.”
Collins said that he has dealt with five cases where buyers found themselves in rent-to-own scams, and many more cases where buyers became suspicious.