Q: As sellers, what do we need to know to protect ourselves in considering a “delayed sale” or “rent-to-own option”?
These are being presented as a way to do better than the “low” offers that have been received verbally by our agent. Who can I ask in my community that would be knowledgeable and neutral at the same time? Thanks!
A: By “delayed sale,” I assume you mean selling the property in stages to a buyer. This is more commonly known as an “installment sale.”
An installment sale (also known as an articles of agreement) is a form of seller financing where you sell your home to a buyer a little bit at a time. The buyer receives an interest in the house, but you hold title until the buyer has paid off the loan in full.
If you sell your home in an installment sale, you must have paid off all or most of your mortgage.
To minimize your risk, you may want to rewire the buyer to put down a significant amount of money. If you still have a significant loan on your property, selling it in pieces might force your lender to call your loan or foreclosure on your property.
“Rent-to-own” is the same as lease with an option to buy. Essentially, the buyer pays you a fee (which you keep) for a 1-year option to purchase the property. The future buyer will then rent the property from you.
Often, with a lease/option agreement, you’ll credit a portion of the monthly rent and perhaps even the option fee toward a future down payment on the property. After a year, your renter will decide whether he wants to pick up the option and purchase the property at an already agreed-upon price, renew his option and continue to rent, or move on.
You should talk to a qualified real estate attorney who can walk you through various options and the risks and potential rewards that they carry.