Boulder Real Estate: December 2009

This article deals with some of the issues and potential pitfalls of home sellers considering a rent-to-own scenario.  It is not intended to be legal advice, but if you consider some of these potential problems you may avoid a situation that will be much more trouble than it's worth and may not have the outcome you intended.

For many years now, the thought of renting to own a home was rarely an issue.  In fact, in many real estate markets across the country, sellers could sell their home in such a short time that it was never a thought.  However, the changes we have seen in virtually every real estate market across the country have made this issue more common today and sellers considering it may want to think twice before diving in.  Despite what seems like at least a short-term solution to a home-seller's problem of not being able to sell their home and move on, renting-to-own brings its own set of problems that many sellers don't realize until it's too late.

A buyer who proposes this scenario usually presents with a problem:  They love the home and want to buy, but because of some "minor" issue with employment verification, job history, credit misunderstanding, etc., they cannot get a loan right now.  They can, however, make the payments so they offer to rent while their "situation" gets cleared up.  The devil is in the details, though, and typically the deal involves fixing the price at the outset of the lease, the buyer/tenant has to give notice at some point during the lease that they intend to buy, and some or even all of their rent is applied toward the down payment.

For a seller who has had their home on the market for months with no prospects and another mortgage payment due, the prospect of renting and selling can sound pretty good.  However, before diving into this situation, sellers may want to think about some of the pitfalls and consider either avoiding it altogether, or at least getting some legal advice.  From an owner's perspective, fixing the sales price today and giving the tenant/buyer in effect an option to buy later at that price, may not be financially sound.  In most cases, the buyer has no obligation to buy - only to rent - and they are usually only interested in buying if the value goes up over the lease term.  Good for the buyer - but bad for the seller.  There are other issues as well, like a tenant actually going down to the county and recording the lease, which would cause the seller headaches they never considered or planned for.

There can be legitimate situations where this type of transaction can work well for both parties, but they are relatively rare and even then, sellers should consider all the potential problems and get some sound legal advice before signing any documents.  The vast majority of the time these types of transactions never end up like the seller thought when they signed up and at the end of the day, they end up with far less than they would have if they had simply waited for a traditional buyer who could qualify to buy today.

If you are considering selling your property under an arrangement like this, you may want to consult with a Realtor and attorney in your state before deciding.  A traditional buyer in the hand may be worth more than a tenant in the bush!

For more information about Boulder real estate or to contact Phil, visit www.BoulderHomeResource.com.

Many home buyers today are still wondering whether it's time to jump into the housing market.  After all, it would be great to wait until the perfect moment when prices, inventory, and interest rates all converge and the stars align, right?  There's a weakness in that thought process, though, because trying to "time" the housing market is as difficult and risky as trying to do the same thing in the stock market.  Those that try it usually end up disappointed.  Even so, the stars may actually be pretty lined-up right now in many real estate markets.

One of the leading indicators we watch is the national Pending Home Sales Index (PHSI).  Pending home sales have risen for nine months in a row now, a first for the series of the index since its inception in 2001, according to the National Association of Realtors®.  This is an indication that buyers are, or at least should be recognizing the signs by now.

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in October, increased 3.7 percent to 114.1 from 110.0 in September, and is 31.8 percent above October 2008 when it was 86.6. The rise from a year ago is the biggest annual increase ever recorded for the index, which is at the highest level since March 2006 when it was 115.2.

On a local level in Boulder and Broomfield Counties, the median price of a sold listing has remained relatively flat over the past 12 months.  For residential re-sale properties from November '08 through November '09, the median price stood at $337,500 - up a modest 2% year over year (Source: IRES MLS).  The MSI, or months' supply of inventory, is actually down 32% over the same time period to an average of 7.7 months at the end of November '09.

These stats can vary significantly from neighborhood to neighborhood, so be sure to consult with your Realtor® if you would like to see what your specific market looks like, but in general these are encouraging numbers.  It remains a good time to buy a Boulder home, with interest rates remaining at historic lows, the possible federal tax credit for 1st time buyers and many other buyers as well, and home prices at attractive levels.

The Boulder real estate market has fared better than most across the country and was recently recognized as the "Strongest Market in the Country" by BusinessWeek Magazine, with the highest projected ratio of homes that have increased in value over the last year (60%).  Also recently named as the #3 real estate market in the country "...poised for recovery" by Forbes, the Boulder real estate market may just be the place where the stars have aligned for home buyers.

For more information about Boulder real estate or to contact Phil, visit www.BoulderHomeResource.com.