Tenant wants to buy rental ... what's next?

Question

We have a rental house in Pittsburgh that we've been thinking about selling, and we just got an email from our tenants that they would like to open the discussion about buying the place.

If we did come to some sort of an agreement, I know that we do not need a realtor, but I'm not sure what we DO need. When do we involve a lawyer? Just for closings? Do you use a lawyer to help negotiate as well?

I'm also not sure of strategies to use to help us decide on price. We do not have an asking price ... should we put that ball in their court to make an offer first? Do we hire an appraiser or do we ask the tenants to do that?

If you have been through a similar experience I'd love to hear from you ... especially if there is anything you wished you would have known before going through the process.

We purchased the house 10 years ago in an area that has recently been more in demand. Similar properties are going for much higher prices than we had ever dreamed we would see. We don't want to short-change the sale, but we also don't want to hold out for top dollar because selling to the tenants will save us a bunch of steps and time. (Not to mention stress ... our relationship has been kind of a rocky one and it would be a relief to no longer be their landlord.)

Looking forward to your thoughts. Thanks in advance!

Deanna McCormick · Answer

1st hire appraiser,, cost average 350.00,,

Next hire attorney,, cost not as much as you think,, I paid 1300 last time I sold.

Use a closer that the buyer usually set up that... if buyer can get their own attorney it will avoid any agent fee's and like is great when that happens..

You set price / negotiate.. closing dates ect.. Go online and see what average price homes are selling for in your area,, not zillow or trullia,, use a agency listing view source..for starters for comps.. If they buy as is no contingencies.. then that would be great..

buyer's attorney would write up PA agreement,, your attorney would check it over before you sign,,

Buyer's bank would appraise property and then it moves forward. to closing.. like bammo done..

Kathy Brasby · Answer

@Kate Stoltzfus We just did this last spring. We talked to our real estate agent and she was willing to do the deal for half her fee (2.5%) We might have been able to do better through a lawyer but we'd have had to do a lot more legwork. She met with the tenant, informed him he needed to get financing in place before she'd move forward, helped him get an inspection and appraisal done. She comped the house and did a lot of work knowing she wouldn't get paid if we didn't close. But the tenant was able, with her help, to get his part done. We were pleased with the entire deal. She held his feet to the fire a couple of times but everybody was happy in the end.

Kate Stoltzfus · Answer

Thank you so much for all your replies! This is incredibly helpful. We're waiting to hear back from them to see just how interested they are. I feel much more informed now. Thanks for your help!

Alex Deacon · Answer

@Kate Stoltzfus Kate I can recommend a great RE attorney. I also would not waste my money on an appraisal. They are only opinions and not really the fair market value just a point of reference. You can come up with a value on your own. most importantly make sure your tenant is qualified to get a mortgage. You may waste a lot of time doing all the work and find out they cant even buy the home. PM me for contacts of attorneys and if you do want to get an appraiser I can alse receomentd one.

Thomas S. · Answer

Don't spend any money or hold your breath expecting them to buy. Find out first if they have confirmed financing in place to match your market. They likely do not have the money to buy so if you really want to sell list it with an agent.

James Wise · Answer

You need someone to draft a contract & handle the closing.

You could use a combination of Realtor, Attorney & Title Company to get everything done. Lots of Realtors will handle this stuff for you for a flat fee. Attorneys as well. Title companies typically won't write a purchase agreement for you but they can & do have attorneys to refer you to.

Bettina F. · Answer

When we sold a rental FSBO, we just decided upon a price, went to a title company and they walked us through the process.  People do not typically use attorneys for straightforward transactions where I have lived.   If you did not use an attroney when you bought the property, try going the title company route.

Mike H. · Answer

I've had some tenants ask me that over the years and I would say it really depends on what you're looking to do as to what things you consider.

For me, I don't want to sell anything. But I would always consider it if I got the right price. And for me, the right price and what I offered those tenants was that I would take the appraisal price minus 6% (since we weren't using a realtor).

Again, I didn't really want to sell so thats why I came up with that formula. I gave them the 6% off (which would be about 10k to 12k or more on most of my stuff) because I knew I was saving on the realtor fee and figured I'd just pass that on to them.

In your case though, it sounds like you made out really well on the house and it also sounds as if you really want to sell it. So maybe you throw something else in there for them. Maybe you do 10% off the appraisal fee. Ultimately, you're saving 6% so you're really only giving them 4% and thats a pretty good incentive in this market for a buyer to jump.

Or you could do the 6% off the price and give them some sort of closing credit so they have some cash to do some remodeling or buy some new appliances or something.

To me, it seems like your goal is to sell so I would approach your options with that in mind and throw out some ideas to them to see if you can get a sense as to which ones move the needle.

Maybe the 6% is enough to get them to bite. But those would be some of the things you can do. I would base everything off the appraisal though. Even if you want to give them nothing for a discount - just make the sales price whatever the appraisal price comes in at.  At the end of the day, thats the only amount their bank is going to allow them to buy the house for anyway - unless they have a large chunk of cash laying around .....

But a great problem to have. You can take the profits and go buy 3 more and do it all over again in 10 years. :-)

Tenant wants to buy rental ... what's next?

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