Renter wants to Buy Rental House
Investor · New Orleans, LA · Member since 2012 · 19 posts · 1 vote
Renter wants to Buy Rental House
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Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
14yLucky you! This happens as renters get renter's remorse and see rents going out the window, in this case they seem to be qualified, so lucky you.
While it sounds good to ask for a premium so they don't have to move, their appraiser won't see it that way and their financing will be based on the appraised value or sale price, which ever is less!
IMO you don't need a Realtor as you have the buyer. You can seek an attorney for a simple contract or probably scronge one up. If you do get a Realtor you could get one as a Transactional Broker to facilitate the deal at a reduced commission, probably a flat fee. I'd suggest offering $1,500 or even a little less as there is nothing to do except the contract and schedule closing and coordinate requirements. The Realtor has no advertising, no showings or time spent in marketing the property.
If you are willing to sell at the appraised value you can state that in the contract as an adjusted sale price, subject to seller's approval and initially set a price you know will be higher. Let the buyer seek financing and it will be appraised, if that price is agreeable to you then adjust the price and sell it.
And, BTW, if you don't have a sale agreement with your PM you can go straight to the tenannt and deal with them directly. Simply tell them you were not thinking of selling the house but that you guess you would as you don't keep any property forever.....that or something to that affect should keep the perception of your being excited at a minimum. Good luck....
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This is an ideal situation for you. They currently live in the house and do not want to move, therefore, the ball is in your court. They could move to another property, but who wants to move to another home to save a little bit of $$$. I've seen people pay upwards of $10K for not moving.
Here's what I recommend. First find the value of the home on the low and high end. Give them a price on the higher end of the spectrum. Also, since your PM is acting as an intermediary, get a second opinion Broker Price Opinion from another real estate company. Remember, the property manager's best interest is to get the sale done and may not be acting on your best interests.
You have a right to get a real estate agent represent you on this transaction. It is hard to represent the buyer and the seller at the same time.
Once you have the number, go a little higher on the number say add 5% on that number. One thing to take into consideration is that they will be requesting for closing costs (3-3.5% ) so be prepared.
Hope this helps.
I agree with Andy's approach. You need to make sure you know the true market value. Their borrowing will be limited to the appraised value so you will need to know that. If you do get an agent to represent you, remember that you'll be paying a full commission. That's ok if you need their expertise in order to get this closed and maximize value.
Since their lease is up in July, I don't think you will sound desparate by asking for a decision soon so you know how to plan.
Good luck!
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes14y
Lucky you! This happens as renters get renter's remorse and see rents going out the window, in this case they seem to be qualified, so lucky you.
While it sounds good to ask for a premium so they don't have to move, their appraiser won't see it that way and their financing will be based on the appraised value or sale price, which ever is less!
IMO you don't need a Realtor as you have the buyer. You can seek an attorney for a simple contract or probably scronge one up. If you do get a Realtor you could get one as a Transactional Broker to facilitate the deal at a reduced commission, probably a flat fee. I'd suggest offering $1,500 or even a little less as there is nothing to do except the contract and schedule closing and coordinate requirements. The Realtor has no advertising, no showings or time spent in marketing the property.
If you are willing to sell at the appraised value you can state that in the contract as an adjusted sale price, subject to seller's approval and initially set a price you know will be higher. Let the buyer seek financing and it will be appraised, if that price is agreeable to you then adjust the price and sell it.
And, BTW, if you don't have a sale agreement with your PM you can go straight to the tenannt and deal with them directly. Simply tell them you were not thinking of selling the house but that you guess you would as you don't keep any property forever.....that or something to that affect should keep the perception of your being excited at a minimum. Good luck....
- Investor · New Orleans, LA · Member since 2012 · 19 posts · 1 vote14y
Thanks, guys.
Just to add some details to the situation. My property manager is not representing them, nor do I have a contract with him to sell. I agree with Bill and was already thinking I would definitely not be willing to pay full agent's commission for something like this. I was actually getting ready to ask what an appropriate offer to an agent would be to facilitate since I am out of state.
So I would not be out of bounds contacting them directly? Or should I just tell the PM and leasing agent upfront I would be willing to let them broker a potential deal, but am only willing to pay $X. I do have another agent I feel comfortable using and asking that question to.
Not sure if I would be willing to sell at appraised value without knowing what that is first. I am affraid the appraiser wouldnt get everything without my being there to point it out. Zillow is giving me no useful sells comps and I have no MLA access. Suggestions?
Also, aren't there tricks to selling for above appraised if needed (ie: keeping rent/pet deposits, selling appliances separately)?
BTW, this is my first property. I am hoping - if I sell it - that it will help fund my 2nd and 3rd properties as well as prove to future investors that I am capable.
- South Bend/ Mishawaka, IN · Member since 2009 · 86 posts · 12 votes14y
I agree with Andy 100%
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes14y
Yes, contact them directly!
Getting a BPO is a good idea as well, you could work off of that number and if agreeable go eith it.
You can sell appliances alone, but if they are in the RE contract adjustments can be made in the appraisal and in the LTV for financing, depending on what appliances you are selling.
Saying get a Realtor...it's not that easy! The buyer may feel that they found the house and that by them getting a buyer's agent would require a commission to be paid that they would rather save, and that thinking is true, instead of giving the money to a Realtor they don't need why nnot knock it off the price?
So, if you get a Realtor and the buyer does not, by law, that agent becomes a Transactional Agency and they can only facilitate the transaction and they may not represent either party. So, as I said above, without repaeting myself, look for a flat fee Transactional Agent.
Sounds like you're trying to squeez every dime you can find. did I mention you were lucky? No, there are no tricks! This drops in your lap and works for you as you were needing to raise funds. If they leave and you place the property on the market like most other landlords, how long would it be empty, on the market, with expenses comming out of your pocket? Probably for months and at thousands in expenses for a conventional sale.
People who have brains that rent decent homes (you said upscale in a sought after area....so obviously they are not stupid) IMO would just be "pessed" if they were willing to pay an appraised value or top price when they can get much better deal and pay a mover, if the seller was trying to keep deposits, sell appliances seperately, pay some premium as opposed to moving and appeard to be taking advantage of them at every turn....I would. I'd walk in a heart beat!
Since you're starting out....those who attempt to squeez dimes get a reputation among Realtors and other investors. There is something about dealing in good faith and asking top dollar as opposed to trying to manipulate deals...you don't want that reputation if you want to buy and sell in an area. It's worth what it's worth, you can take it or rent it and just keep it. I can assure you that if you get the BPO or appriased value of the place with such reduced selling and holding expenses that is your best deal on the table.
The buyer will have other safeguards in place for them, the property will be appraised and inspected if it is not a cash deal. The lender will review the contract and if anything is odd they will tell the buyer. Some newbie will surely jump in saying that the contract was made....right and the lender can just turn them down and the buyer is off the hook! Any good lender will not let their customer get ripped in a RE contract and they will usually just advise them to find a better deal if it gets out of hand!
So, get a Transactional Broker/Agent, get a BPO, set a price, contract and pay a flat fee to the Realtor, split closing costs as customary in the area and walk away with your money!
- 14yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
If you get an agent to represent you ( which I think is a waste of 3% commission ) your also going to have to pay the management company a commission as I am guessing in their lease it states that if they bring a tenant who ends up buying you will pay them a 3%-6% commission.
Also keep in mind that most tenants end up not buying for several reasons so dont get too excited. Sell the home for 100% market value, pay their closing cost and try to close. Good luck
Curt Davis - KAIZEN Realty538 Reviews - Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes14y
Don't forget about 1031 Exchange if possible.
Appraised value comes out after a sales contract has been placed together. Also appraised value is still a value of opinion. Using a higher # is no different than a bank can someones list 20% above or below market. The appraisal will be influenced by the sales contract. If you are within the subdivision/ certain mile radius of normal sales range + or - 10%. the appraisal will often go in your favor.
Therefore, ask for a little higher don't sell yourself short.
- Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes14y
I agree with the 1031 exchange idea as well - you can certainly exchange one property for 2 others. Just be certain to follow all the rule required of an exchange so that you defer that tax bill.
- Investor · Cincinnati, OH · Member since 2010 · 1k+ posts · 928 votes14y
Posted by Curt:
"If you get an agent to represent you ( which I think is a waste of 3% commission) your also going to have to pay the management company a commission as I am guessing in their lease it states that if they bring a tenant who ends up buying you will pay them a 3%-6% commission. "
Comment: I would not permit a clause in my PM contract that pays the PM a commission if the property is sold. I struck this clause from my previous PM's contract, and my current PM had no such clause. They receive a leasing commission (1/2 mth rent) to locate a qualified tenant, and there is no reason they should be paid a commission if a tenant just so happens to want to purchase the property.
This is a good opportunity to nicely coach the appraisal, by providing the appraiser an extensive list of renovations that you have done (you will get their name and contact information), and explaining why your house compares favorably to the other sales and actives that will likely come up when the appraiser pulls comps. J. Scott has a nice blog article and forum post on this.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes14y
Originally posted by Andy Chu:
Appraised value comes out after a sales contract has been placed together. Also appraised value is still a value of opinion. Using a higher # is no different than a bank can someones list 20% above or below market. The appraisal will be influenced by the sales contract. If you are within the subdivision/ certain mile radius of normal sales range + or - 10%. the appraisal will often go in your favor.Therefore, ask for a little higher don't sell yourself short.
What banks list at is often a function of state law, the amount required to pay off the debt accrued and will ofetn be different than the :market v
value!As to the contract price influencing the appraiser.....when the appraisal order is received comps are pulled from the range deemed customary by that appraiser and comps are viewed. The analysis begins and if the market does not support the contract price of the subject more comps are pulled. The analysis is supported entirely by the comps and the contract price is irrelevant.
MAI does not stand for "Made As Instructed" and while 10 or 15 years ago there were appraisers who would fight to bring in the subject at the contract price, that is rare today unless the property was priced to market to begin with.If you get that reputation I spoke of above and are known for high listings, in time such contracts will influence the appraisal for adjustments and the adjustments will be down. To think that a certified appraiser is influenced by a contract price is not a good asumption and I was never influenced by any contract price when I appraised properties.
Being 10% high on an 80k property is not that big of a deal, it is getting noticable at say 125k and obvious at 160k for example. An appraiser will usuall try to bring a property to a contract price as agreed, but to say influenced by is not quiet right IMO.
- Investor · New Orleans, LA · Member since 2012 · 19 posts · 1 vote14y
Great. Thanks for all the advice.
-Seek a BPO
-Contact renters directly (might be hard since I don't have their names or phone number)
-Avoid paying full commission
-Consider a 1031 exchangeMy previous postings were from my cell phone, so I think maybe I wasn't conveying my thoughts well to save on tiny-button presses. So I will add a couple of more details.
This house was a complete renovation (gutted to the studs and then some) and customized by me for me. It was intended to be a long term investment that I could live in. I ended up living there for a year and then renting it out. Not relevant? Maybe not. However, my previous and current tenants have been in love with the house. When my previous tenants were leaving, there were at least 20 phone calls to rent the house the first day it was listed. We ended up going with a couple that was willing to pay more than asking price for rent in order to secure it. My PM felt bad it was so easy to rent out that he didn't charge the full amount for placing a tenant. My point here: this is a high demand house in a high demand area that was completely renovated 3-4 years ago. Repairs and vacancy have been non-existent to date.
I do not have to sell this house. I have no plans to list it if my tenants do not end up purchasing it.
There is no clause stating that I must use my PM to sell or that he would be entitled to anything from a sell, other then his monthly rental commission through the end of our contract.
My point was not to "squeeze dimes," but more because I was afraid the appraisal will be inaccurate. I was there to "coach the appraiser" last time, but I will not be there this time. Who will explain what the steam shower is or point out the double-pained energy efficient windows, spray-in insulation, tankless water heater, etc. These things add up, no? I appreciate the advice, Bill, but no reason to get testy. It was just a question.Even more info (if you care): this area was 8 feet under water after Katrina. Everything was destroyed. Everyone that bought there in the past few years bought gutted houses, empty lots, or investor-renovated houses. The neighborhood is back now. There are not many of these left, if any, comparable to my house. Thats gotta influence prices, right?
- Investor · New Orleans, LA · Member since 2012 · 19 posts · 1 vote14y
Oh yeah, is it normal practice / ethical to ask someone for a BPO if you have no intention of utilizing their service?
- Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes14y
Isaac, Seems to me the property manager is already slightly involved as he came to you with their request. Might be simpler to just let him know that you're not opposed to considering a serious written offer from them, then see what they come up with. Even the agent fee to handle the sale will be in there, so you'll know up front what he would charge (probably not much if he's writing it up for the buyers as he won't want them to know he's asking a lot to just write up an offer.) If it looks at all promising to you, then worry about BPOs or appraisals before you sign anything. If they are not fair or too low on price, just say, I'm sorry, we're just too far off.
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