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Has anyone here done it before? I'm seriously considering buying the house I've been renting for the last nine months, but I wonder how people go about honestly brokering a good deal when you know the home owner and the various issues with the house. I should add that I know the owner wants to sell, and that he's already offered it to me.
Edit: mod, perhaps this should be moved to the Real Estate forum?
Theoretically, there is no such thing as a "good deal". It's almost purely based on comps. And, in your case, you have the advantage as you really do know the ins and outs of the house.
Consider the cost savings of not having to physically move.
Also, consider the benefits of not having to have your kids potentially change school districts.
Even if you didn't get the absolutely best deal (and I don't know why market equilibrium wouldn't apply in your case anyway), you still have all the benefits of staying put.
I don't have a family, so I don't have to worry about kids or school districts. The house is old - 1920s era, with radiator heat and no central air. It also doesn't have a garage, and I would really like to have one at some point.
But trust me, the idea of not having to bother with moving is a big plus! My new employer paid for me to move here, and I don't fancy paying to move now after the last two moves have been paid for by employers!
He owes 190,000 on the house, but says that he's got some money saved up and could sell for $180,000. I'm kind of thinking proposing he pay for a ductless a/c system, and then I buy for $190,000 (or $180k plus whatever the ductless system costs). That way I can incorporate that one improvement into the mortgage. I think that's a reasonable price for the area.
I have sold a couple of houses to tenants and a few houses "by owner" and the deals when the buyer uses his own realtor have never been to either of our advantages. That said, here are a couple of my recommendations:
1. Educate yourself on the value of this house. Hire an appraiser and get a true market value. Since you live there, you don't have to share that info with the owner unless you feel it makes sense.
2. If you need a mortgage to buy the house, go apply for a mortgage and get pre-approved. You should have the pre-approval letter in hand when you make a formal offer to the owner.....but, before you make the offer..
3. Make an appointment with a Title company and go speak with a closing agent. Explain you want to make an offer on the house you are renting and ask for guidance on the process and all the fees involved. They should provide you with an offer contract to submit to the owner and closing fee information. They will want to sell a title policy. That's usually something the seller pays for but is negotiable. Years ago, I would offer my buyers a better discount on the price of the house if they would accept an abstract (shows title history but doesn't insure against future claims) since I 100% knew my properties had clean titles. However, on foreclosed houses I sell, I always want them to get a title policy.
4. Now, you may be ready to make your real offer! After all this work, expect a 3-6% discount off the "market value" of the house for all this stuff you did that a realtor would do for you. Also, you might want to look at a few other similar homes just to make sure there's nothing out there on the market you would prefer. If you do this and engage a realtor to show you some properties, make sure you don't sign an exclusive arrangement that would allow the realtor commission if you buy the place you are renting.
5. When you make your offer, get the verbal agreement straight, and then complete the offer/sales contract together with the owner so you guys can hammer out the terms in one sitting. Then take the completed sales contract to the mortgage company (if you are getting a loan) loan officer you worked with when getting pre-approved.
Do NOT use a realtor. That is just money out the window in your situation. Find an attorney that handles RE and use him/her to draw up the paperwork. You will pay a fraction of what you would pay a realtor to "show" the house to you.
I guess the part about him putting in the AC for you to have that against your mortgage is confusing me. What do you think you will gain from that, equity? If he is willing to sell you the house for 10K under value, don't ask for extras. He is already giving you a great deal, assuming that the value of the house is 190K--it might even be more. Look on Realtor.com or another site and see what houses that are similar in your area have sold for--that is what a realtor does for their comps. It's not rocket science really. If houses in that area with similar square footage and finishes have gone for 190K, take the 180K offer and buy the house!!
1. Educate yourself on the value of this house. Hire an appraiser and get a true market value.
2. If you need a mortgage to buy the house, go apply for a mortgage and get pre-approved.
Another vote for learning the value/price by objective means.
But you WILL need a mortgage. Don't even consider 'lease option" or any other scheme like that.
Which in turn means you'll need a nice pile of CASH for down payment closing costs and reserve too.
Quote:
Originally Posted by campion
Would we need to go through a realtor?
Nope. But you WILL need a good local RE attorney. Find him.
Don't sign ANYTHING until you have it reviewed and approved.
Thanks folks. I've been following the housing costs around here since I moved in November, and based on them it seems like a reasonable price. I would of course hire an appraiser if and when I got very serious about buying.
@golfgal: it's a bit complicated. I figured that if I asked for the a/c and offered to up the sale price for it, I could roll the cost of the a/c into the mortgage instead of trying to pull together the cash myself next summer. If I decide to buy in October/November when my lease is up, I will be scraping the bottom of the barrel to pull together the closing costs because of the requirement (apparently) in PA that one put a year's-worth of property taxes in escrow, making closing costs on a house for 180k around $23k (according to the good faith estimates I've seen). Matter of fact, it'll be so tight that I might not be able to pull it off. In that case, I'd have to sign another lease anyway, and that would be yet another year without central air, which is a real pain. I spent many years in grad school and then in lower paying jobs getting my dream job (which I now have) and thus, with massive student loans, it's difficult to save quickly, though I am finally in a position to save and thus buy a house.
But of course, I'd prefer to buy sooner since interest rates seem to be going up rather quickly.
Anyway, what kinds of savings can be expected by not going through a real estate agent? I would think they'd all be on the buyer's side, not mine.
One more question: why would a lease to own arrangement be so bad? Everyone seems to speak badly of them, but if one signs a contract, etc., are they really that bad?
I was renting a house and the landlady passed away (she was 100). Her son came to me and said they were going to sell the house and offered me first refusal. The price was right (according to the appraiser) and I was approved for a mortgage. There was no RE agent involved, just my attorney and the seller's attorney and the abstract company.
I was convinced this was my best course of action when I began looking for comparable rentals. Doing the math, the mortgage payment with taxes escrowed in was less than the rent on any similar properties in my area.
I don't have central air, but I do have a two-car garage with a loft.
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Step #1, spend the $350
