Lease-Option Plan Is the Best Way to Dispose of a Hard-to-Sell Home
QUESTION: My three-bedroom luxury condo penthouse has been listed for sale with two excellent realtors for almost six months. Neither has brought me any purchase offers. The problem is that the condo is an over-improvement for both the condo complex and the neighborhood.
I live in an upper-income suburban town where there are mostly single-family houses and few condos. I had two professional appraisals plus the advice of the realty agents when setting the asking price, so I know it is reasonable.
Every prospective buyer who inspects the condo loves it but nobody offers to buy it. I really don’t need the money from the sale, but I am moving away from the area so am reluctant to rent it. I even offered to sell for a 10% down payment, but the monthly payments are too high for most people. How can I get rid of my condo?
ANSWER: There is only one way I know to sell a difficult home like yours. That method is the lease-option. Since you didn’t give the price, I can only guess at your numbers. Perhaps I can best illustrate by using a lease-option I recently concluded. I lease-optioned a $285,000 house for $1,500 monthly rent with a $500 rent credit each month toward the down payment.
My ad said “$3,000 moves you in.” Needless to say, it didn’t take long to find a qualified tenant-buyer. The $3,000 was credited this way: $1,500 to the first month’s rent and $1,500 to nonrefundable consideration for the option. At the end of 12 months, the tenant will have built up a $7,500 down payment. They would be foolish to walk away.
If you are especially anxious to sell the condo, you might wish to offer a 100% rent credit toward the down payment. I’ve done that when I was a highly motivated seller who wanted to get rid of a residence and be certain the tenant exercised the purchase option. However, my experience is that it takes some people two or three years to get their acts together, so I am always prepared to extend the lease-option for another year or two--often at a higher rent and option price.
What Can Happen to Buyer Who Defaults
Q: We thought we sold our home. In fact, we signed a contract to buy a larger home. But our home sale didn’t close because our buyer backed out. As a result, we couldn’t complete the purchase of the home we were buying. Our seller, a nasty home builder, refuses to refund our $5,000 deposit. Unfortunately, our home purchase was not contingent upon the sale of our old home. We talked to our attorney about getting our $5,000 back and she wrote a few letters, but the builder threatens to sue us for lost profits. How can we get our $5,000 refunded without running the risk of a lawsuit?
A: Sorry, if you could not afford to buy a new home without selling your old home, you should have made the home purchase contingent upon the sale of your former residence.
The “nasty home builder” kept his new house off the market at least several weeks, possibly missing a sale to another buyer. He is within his legal rights to sue you for lost profits if he can prove his damages. I suggest you settle by forfeiting the $5,000 deposit in return for the home builder’s agreement not to sue you for lost profits. In the future, don’t sign contracts you can’t honor.
Savings Clause Protects Seller From Paying Fee
Q: We listed our home for sale for six months with what turned out to be an awful real estate agent. She came highly recommended by a friend who, I later discovered, is her niece. This eccentric agent hardly ever showed our home to prospective buyers. I learned from another realty agent friend that local agents avoid showing our agent’s listings because she is so difficult.
Now my husband has located a buyer who is a friend from work. We showed our house to these people and they love it. Our listing expired, thankfully, last month. Do we owe any sales commission to the listing agent since we showed the house to our prospects during the listing period?
A: No. Most real estate listings contain a “savings clause,” which allows the listing agent to receive a sales commission if the home is sold, after the listing expires, to a client registered by the agent with the seller during the listing term. If the listing agent did not register the buyer with you during the listing term, the agent is not entitled to a sales commission if you sell the home to your prospects. Your attorney can explain further.
Check Home Values Before Making Offer
Q: My husband and I have been considering several different neighborhoods where we would like to buy a home. We have inspected about two dozen homes in these areas but are thoroughly confused about how much the homes are really worth. Should we hire a professional appraiser before making a purchase offer?
A: No. Obtaining a professional appraisal before you make a home purchase offer will not only take time but prove to be very costly. A better approach is to ask the realty agent to prepare a written “comparative market analysis” form showing recent sales prices of similar nearby homes, as well as the asking prices of comparable neighborhood homes presently listed for sale.
Only after you have this information will you be in a position to make an intelligent purchase offer. However, if you are unsure your offer is at a fair price, you can make the offer contingent on obtaining a satisfactory professional appraisal.
When to Refinance Adjustable Mortgage
Q: We have an adjustable rate mortgage and now pay 10.79% interest on it. I saw a newspaper ad for fixed-rate home loans at 9.5% interest. Do you think we should refinance our mortgage?
A: Yes and no. The general rule is that it does not pay to refinance a home loan unless you can reduce the interest rate at least 2% and repay the costs of refinancing within 36 months from your lowered monthly payments.
However, since you would be switching from an adjustable rate mortgage to a fixed-rate loan, you may want to break the general rule and refinance anyway to get out of your adjustable rate mortgage into a safer fixed-rate loan. If you will sleep better, go for the fixed rate loan even if such refinancing doesn’t meet the recognized criteria.
Two-Bedroom Condo Will Be Easier to Resell
Q: I can’t afford to buy a house, so I’m considering buying a one-bedroom condo as a starter home. But my realtor is trying to talk me up to a two-bedroom condo that is slightly more expensive and, of course, she would earn a larger sales commission. However, one-bedroom condos in the area where I want to buy are such a bargain. Why do you think the realtor is trying to talk me into a two-bedroom condo?
A: Your realtor is giving you good advice. The resale market for one-bedroom condos is very limited, therefore the prices are much more reasonable. I agree with your realtor that buying a one-bedroom condo is not a bright idea because they can be very difficult to resell. By comparison, consider how limited the market is for one-bedroom houses. In fact, there are hardly any one-bedroom homes. Listen to your smart realtor who is trying to talk you out of making a big mistake.
Is Owner’s Title Insurance a Waste?
Q: We are buying our first home and have to count every dollar. The real estate agent says we can save about $100 by not obtaining a title insurance policy. The lender will be getting title insurance so I don’t see any need for an owner’s title policy, do you?
A: Yes. Not obtaining an owner’s title insurance policy is false economy. As you know, virtually every mortgage lender insists on a lender’s title insurance policy. To make a mortgage loan without a lender’s title policy would be gross negligence.
An owner’s title insurance policy will protect your equity in your new home. If a title loss should occur, such as a forged signature in the chain of title, the lender’s title policy would pay off the mortgage lender, but your equity could be wiped out. For the small $100 cost, obtaining an owner’s title policy will be a very wise purchase.
Joint Tenancy Not What You Think It Is
Q: I think I was shafted by my brother, but I don’t know what can be done about it. About three years ago, he and I bought a rental house together. We knew it would have about $200 per month negative cash flow, but we felt this would be outweighed by the house’s appreciation in market value.
When I asked my brother for his customary monthly contribution to the negative cash flow last month, he informed me he had sold his interest to a mutual friend. I am very unhappy about this because I get along great with my brother, but dealing with the friend won’t be so pleasant. We held title in joint tenancy with right of survivorship. I thought a joint tenant couldn’t sell title without the other joint tenant’s approval. Am I now a joint tenant with a new co-owner?
A: In most states it is possible for one joint tenant to convey his property share without the approval of the other joint tenant owner. The result is that the new co-owner is a tenant in common, not a joint tenant with right of survivorship. I suggest you consult a real estate attorney for further details.
