Expert: Jessica Bryan - 6/18/2006

Question
Hi we are trying to sell our home. We live just outside of St. Paul,
MN in a small rivertown in WI. We have to move do to job
relocation. We have had our house on the market for nearly 3
months with very little nibbles. Its a great house at a very good
price. It is priced below market value, but people just are not
buying houses here right now.

Anyway, we are researching our different options because we
HAVE TO move. We have two possible people interested in Rent-
to-own situations. What is involved in doing that? Is it
something we can or should do on our own or should we stick
with our realtor? Do you price the house at today's market value
or what it should be worth two years from now? How much of
the rent goes toward the purchase price? Where is the live where
we would be loosing money do to too much of the percent going
toward the purchase price? What are the risks of selling our
home this way? What are the advantages?

Thanks,
Jennifer

Answer
Hi Jennifer;
First of all, if your agent has helped you find the rent-to-own customers, then you should stick with the agent.  He/she is entitled to the commission once the home closes.  If the agent has not helped you with that then it is your decision what to do.  You will need an attorney to help with the lease and all of the paper work though.  It is similar to an offer to purchase only with a delayed closing.  There are certain forms used exclusively for a rent to own since there are inspection issues to be handled and earnest money in the way of a non-refundable security deposit.  Most of the rent does not go towards the purchase...it goes towards your mortgage payment and should cover it completely along with taxes and any other expenses you may have keeping this home until they close on it. If that amount were, say, $2,000 then you should charge $2250 with the additional $250 going towards the downpayment each month. (This is just an example.  The actual amount is something that you and the renter should negotiate depending upon their circumstance.)  However, the security deposit should be enough that they won't change their minds and walk away from the deal. That is always a risk.  The other risk is that they will damage the home and then claim it is your responsibility.  There should be a very "tight" contract about responsibilites of maintaining the home and all inspections should be completed before they move in. The price should be the full price you are asking now. Certainly the advantage to doing this is that you can walk away and move on to your new life without having a huge financial burden, but the disadvantage is not having the extra money for a purchase.  You can offset this by talking to a lender and seeing if you can get an equity loan to pay for your downpayment using the rental income as a means to help you qualify for a second home loan.
I hope that this helps.

Good luck and best wishes,
Jessica Bryan
Managing Broker
House to Home Realty Services