Seller (Rent-To Sell) Frequently Asked Questions
Q: How does the process work?
A: On the seller side, if you decide you would like us to begin marketing to place a tenant-buyer into your property, please refer to the two attachments that need to be completed, signed, and emailed to this email address ([email protected]), or mailed to us at 110 Coliseum Crossing #5441, Hampton, VA 23666 (Or, we can pick them up from you when we do our first property visit). Once we receive these completed and signed documents from you, we will schedule a property visit to take pictures, shoot a video, and then begin marketing your property immediately to a tenant buyer.
The tenant-buyer process works as follows:
1. Contact us to view the property
2. Submit a Rent-To-Own application
3. Submit a deposit (option fee) to the escrow company to secure the property
4. The buyer’s info is submitted to the seller for approval
5. Seller and buyer agree to the terms of the lease and option agreements
6. Sign documents at the title company
7. Get the keys
Q: How do we decide on a purchase price?
A: We can always go down on the purchase price, but not up, so once we see your home, talk with you, and review the comparable sales, we will set everything as high as possible but still keep it reasonable for the market. Again with Rent-To-Own, we can be on the high side vs. if you were trying to sell immediately via a Realtor in the MLS.
Q: What happens if the property does not appraise in 18 months at the price we set?
A: If it does not appraise, you have two options:
1. Lower the tenant-buyers purchase price to the appraised value; or
2. Extend the tenant-buyers terms until the home does appraise at the price you want.
Q: How do we decide on a monthly lease payment?
A: We usually go with either the market rent or mortgage payment, whichever is higher.
Q: Why should I offer a rent credit?
A: Offering a rent credit gives the tenant/buyer a powerful incentive to pay their rent ON TIME EVERY MONTH. A rent credit only accrues in a month where the tenant/buyer pays the rent on or before the due date. The rent credits are applied to the purchase price. The amount depends on the seller; however, we suggest a minimum of $100/month.
Q: How is the down payment transferred to the buyer at closing?
A: The tenant-buyer is required to put their option fee/down payment into our title attorney's escrow account. Once you and we have agreed to move forward with them, the money is released from the attorney's escrow account. The full first month's rent goes to you, and the option fee of up to 5% of the purchase price of the home goes to our company. If the tenant-buyer put more than 5% down, all of those monies go directly to you.
Q: If the option fee the tenant/buyer pays goes towards your compensation, how is the seller protected in case the buyer vacates the property and/or causes damage?
A: The contracts make the tenant-buyer fully responsible for all repairs and maintenance, and their option fee/down payment is not refundable. A tenant buyer who puts down between 3% and 7% of the purchase price will not jeopardize those monies. A tenant-buyer is truly a different caliber of person than a regular renter. They must come up with the option fee/down payment, full first month's rent, AND a security deposit. When a tenant-buyer does not purchase the property, they leave the house in excellent condition, and many have done improvements to the home, leaving the seller with an improved property. We do a thorough background, employment, and rental history check. Plus, 99% of tenant-buyers get into credit repair and keep us/you informed of their lendability and progress towards getting a loan.
This is not to say that there is no risk, but the benefits outweigh the risk. Tenant buyers rarely do damage to property. To handle the tenant-buyer being responsible for repairs and maintenance, the seller typically pays for a home warranty, and the tenant-buyer pays the deductible when the home warranty company sends out a contractor to do the repairs. We can send you information on what is usually covered under the home warranty. A home warranty is the most economical way for the tenant-buyer to be responsible for repairs and maintenance, and it encourages them to call and fix things, as the deductible is only about $100 when the contractor comes out.
The tenant/buyer wants to own the home and the option fee/down payment is an incentive to take excellent care of your home and purchase it. Some companies do lease options and fail to conduct a thorough investigation or get a sizable option fee/down payment which will lead to someone who is more like a typical renter and is not the caliber of person that we are looking to put into your home.
Q: Is the option fee/down payment just applied to the purchase price?
A: Yes, the option fee/down payment is considered a down payment on your home, and is applied to the purchase price. Therefore, we try to put this fee on top of what you want to net at closing when they go to purchase. For example, if you wanted to net $100K at closing, then we will market your property for something like $105,000 so that once the down payment is deducted, you still net 100% of what you wanted to net. Again, in this example, if you listed your property with a realtor at $100K, then you would only net between $80K and $85K after realtor commission (typically 5%-6%), seller concessions (Typically, 3%-6% of the purchase price), low ball offers (the average is 7% less than your asking price), and your side of the closing costs (between 2%-3% of the sales price).
Our Rent-To-Sell program allows you to net 20% to 30% more than if you listed and sold through a Realtor on the Multiple Listing Service (MLS).
Q: Is the option fee/down payment used for the tenant/buyer's closing costs?
A: No, the option fee/down payment is not used towards their closing costs, but is applied directly to the purchase price. When it's time for them to get the loan to purchase your home, they are contractually obligated to pay 100% of the closing costs (not split as it would be with a traditional Virginia Realtor contract). In the example above, if we marketed the example home for $105,000, and they put $5,000 down, then they will need to obtain a loan to purchase for $100,000 plus their closing costs.
Q: I know that certain mortgages like FHA do not allow a seller to give money to a buyer for a down payment, isn't this essentially what would happen?
A: No, you are not giving the tenant-buyer ANY money for their down payment with our program. They are putting their own money down upfront, and because it flows through our attorney's escrow account as a down payment, the lender will have no trouble counting the upfront down payment/option fee as a down payment. All accrued rent credits are applied directly to the purchase price, not the down payment.
Q: What are the benefits of the Rent-To-Sell/Rent-To-Own model?
A: The Seller has a family living in and taking care of their property to a much higher standard than a typical renter.
- If the tenant-buyer does not buy the property, and it is "turned over" (meaning - didn't sell on the first round and was re-listed for rent-to-own again) the property is normally left in move-in ready condition for the next family, except for maybe a thorough cleaning.
- The tenant/buyer also has time to repair their credit and secure financing on a property that they would otherwise not qualify for.
- Our tenant/buyers get to test out a neighborhood and find out if they like it. They get a strong feel for what homeownership is all about. Should the tenant/buyer not like either, they can move on.