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I have made an odd offer on a house in a suburb of Denver, Colorado. I want to do a lease purchase offer as I do not have the down payment for a purchase now, but my income is about to increase drastically, and I will be able to start saving for a down payment and afford to buy a home in 2 years or less.
So the home I am interested in is listed for $899,900. The home has been on the market since last June. The price has only been reduced once by about $30k last August. Since August there have been no changes. There is a similar house that just listed last month for $1 million and has already been reduced to $949,900. This similar house has the same amount of space, but has about $200k of updates throughout the house. These are new homes by the way.
So I offered to rent the house for 2 years with 30% of my monthly payments going to the purchase price of the house and then to buy at or before 2 years at $780,000. I also offered to do all maintenance of the home and pay HOA fees, etc. Basically I offered to treat the home like my own in all respects while I am renting it. I have not been given a response from the seller.
Here is what I know about the seller. The house was purchased for $795,000 last year. They planned to buy the house to live in it themselves, but changed their mind and decided to sell it. So I guess they have two houses now. The home was listed to sell or rent. And the seller said they would be amenable to a lease purchase option with some conditions that we agreed to.
I based my offering price on comps in the area. I focused on comps that were also willing to do a lease purchase option and comps that have sold in the area in the last 6 months.
Any advice on what to do next? I have asked the seller’s agent about what is going on and he just tells me he will find out and get back to me. I never hear back from him. I am representing myself, so when I wrote the offer I explained where my price came from – so they would not think I was crazy. I am afraid they are taking this as some sign of arrogance or non-willingness to negotiate. But in reality that is not the case. I just think it is better to know that an offer is based on certain facts/assumptions so that if those facts or assumptions are wrong, they can let me know that.
but an offer like that would not be taken seriously here (NC). Lease options or lease/purchases are difficult and unpopular for many reasons. When they do occur, it is standard for less than 10% of the monthly payment to go toward principal. You should essentially be paying for their mortgage on similar terms as their mortgage. Also, you may know what they paid for the house, but you do not know what they currently owe on it. It could be more or less than the purchase price.
The seller also takes the risk that you will damage the house and then skedaddle. Even if you put your offer to treat the home like your own in writing, that could (and does) happen. People walk away from contracts all the time, as we have all learned more about lately and have varying ideas about what constitutes "maintenance".
If the price you offered were attractive in any way to the seller, they could lower their price to that NOW and get it sold without the protracted two year wait, a large benefit to them. Also, the house could be worth much more in two years. Explaining the reasons behind your offer is fine, but do not expect that to make it more palatable.
I do not know all the details on how you analyzed your comps, but from everything you have written, I would guess you might some help doing that. There is a lot more that goes into comparable analysis. A lease purchase offer should be at a fair price with the rent covering the seller's mortgage payment, with an extra percentage thrown in to cover their risk. Even then the seller takes a risk that they will lose value from damage, then be faced with selling it that way or making repairs. They also risk losing out if the house goes up in value, which is likely in a two year period, especially since prices are so low now. Receding prices have never lasted in real estate.
Last, the tax laws that give them a break on any profit could change so that a two year rental period might have tax consequences for them. There has been a lot of talk about changing deductions related to both owner occupied and rentsal property. No telling what they will come up with, so it is another unknown and potential risk.
There are books written on this subject. You may be able to get some help that way. Otherwise, you need to get a savvy buyer's agent to help you. You don't pay the commissions and the seller's agent has already set fees in their listing contract, so you have nothing to lose. You could also look at homes that you can afford NOW, and then save whatever you want toward a downpayment for the dream house.
If these folks are desperate enough to take this kind of offer, please let us know. It will help everyone on the boards guage how bad things are in Denver.
I should also add that I offered also to have the price of the house determined at the time of sale based on market value (the appraisal from a neutral party or the average of multiple appraisals). I know that if I was the seller I would not want the price to be set now. But they asked us to make an offer with a price set now, so I did that. Since I do not know where the market will be in 2 years, I can only base the offer price on the current market value.
I should also add that I offered also to have the price of the house determined at the time of sale based on market value (the appraisal from a neutral party or the average of multiple appraisals). I know that if I was the seller I would not want the price to be set now. But they asked us to make an offer with a price set now, so I did that. Since I do not know where the market will be in 2 years, I can only base the offer price on the current market value.
If you expect to be able to have a contingency like that, then you should expect to pay full price.
I had a full price lease purchase offer on my home in CA. The buyer wanted to move in immediately and bring two horses on to the (horse approved) property. They wanted to do a lease purchase for a year.
I refused the offer because of the liability of the horses and the fact that my house had just been remodeled and if they didn't end up buying I could possibly have to redecorate. And if they turned out to be dead beats they could have cost me several hundred thousand dollars.
It would have been a nightmare for me, and I wouldn't take the chance. I would advise any of my clients to be very careful with this type of situation, especially when one is also wanting to buy the home at a discount from listed price.
I guess I am as confused as you, EXCEPT that the end purchase price seems very low. They said they were amenable to a lease purchase before you even wrote the offer, so I'm pretty surprised they aren't countering with something.Was this a written offer? If it's not written with an expiration date, they may not think you are serious.
To answer another's question about Denver specifically. Denver did not see the run ups that many markets did. IN fact, Denver experienced a wierd cycle where it was a buyers market from 98-2001 and things cooled off here around 2001. Some areas have grown exponentially since then, but not many and not by much. In all, most areas have been holding steady, at 2% growth with some pockets having foreclosure problems (particularly far outlying areas where they overbuilt and lower income areas). In my submarket within Denver our prices increased by 4% over last year and where I want to buy within Denver area I'm having trouble finding a house I like b/c they are all going under contract within a week (in that area specifically it is a sellers market!)
Yes, this was a written detailed offer. They know we are serious. We told their agent up front what we wanted to do and why and ask them to get back to us if this is an arrangement they would consider. They got back to us and said they would be willing to do a lease-purchase and that we should write up an offer, which we did.
Also, we are from out of town, and we do not want to take possession immediately, so we gave them an out - that they could continue to try to sell the home until one month before our possession date.
and their agent didn't give you a response at all? Even a response to say "they won't be countering, they are just not going to respond?" I think they just feel the price too low- maybe they are trying to figure out if they are going to drop the price again and continue to market it. I can imagine going from 899 price to 780 (in 2 yrs) felt a little bit like an insult to them.
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