Trying out a home before you buy
If you're in the market for an easy chair, you can plop down in as many as you like before making a decision. The same with cars. As long as your driver's license is valid you can try out a Ferrari and a Honda on the same day. But when it comes to making the largest purchase most of us will ever make, you usually can't try it out before you buy. Or can you?
With the nationwide housing market still in flux, buyers are taking a harder look at rent-buy options. A rent-buy or lease option is when potential homeowners commit to a multi-year lease with a future option to buy the property.
Generally rent-buy arrangements involve some earnest money given to the homeowner, which can be used towards the down payment if the renter eventually does buy the property. If he/she doesn't, then the homeowner will want to keep the earnest money as compensation for keeping his house off the market for the term of the lease.
This differs slightly from a lease purchase agreement, which requires that the renter put down a percentage of the agreed upon sale price and/or pay a monthly rent premium with a share of the rent going toward the purchase price. Again, if the renter does not go forward with the transaction, the homeowner gets to keep the earnest money.
Neither one of these arrangements are set in stone, and you will find that renters and homeowners can agree to whatever terms they want as long as the contract is drawn up by an attorney and agreed to by all parties.
The advantage for renters is that they get to live in and determine if they really want this property long term. It also gives them the option to save more money towards the eventual purchase and to straighten out any credit issues they may have. However, any rent-to-buy plan should be made part of a plan to own the home, rather than just a way to test out the home, since fees and possible above market rents could end up costing more money in the long run.
The advantage to owners is determined by what's going in their marketplace. If a homeowner really needs to move and can't sell, putting a potential buyer in the home generating income is a good alternative. In the case of some homeowners, this could also help avoid a foreclosure.
Everyone involved in a real estate transaction that is out of the ordinary needs to fully understand all ramifications. A home could be on the verge of foreclosure, which would put a renter's money and living arrangement at stake, or a renter could change his/her mind at the last minute leaving the owner with an empty house and not enough financial compensation to make up for the time lost.
Since we're still experiencing a dynamic real estate market anything can happen that affects prices and the ability sell, so getting locked in, whether you're a renter or a homeowner, needs careful consideration. Test driving a home or allowing aothers to do so is just one more byproduct of the nation's collective financial headache. Don't allow this practice to give you the biggest headache you've ever had.
Here's hoping the new year will see the end of all our real estate headaches. Happy New Year!
