Purchaser can't pay now, but will rent for 6 months

I was hoping to find some info around rent to buy on this forum - as I am hopefully entering into one as a seller later today.

In our case, the buyer cannot secure a mortgage today - but the bank has promised that in 6 months to a year - if their current financial situation has not changed, they may be able to get a mortgage.

I can post up if this actually works out - but would appreciate if any has info on what I should look for/ worry about in a contract to post here as well.

My auctioneer is saying this is becoming a more common phenomenon in current climate.

Still waiting on a firm offer on paper - but verbally we have heard:

Very small deposit of 3000 euro being offered. This is noon refundable should the deal fall through - but I would imagine that this would only barely cover the costs of the Auctioneer!

1000/month "rent" being offered - on a property that commands 800/month currently. At the end of a year - 10,000 of this "rent" would come off the purchase price! This too is non-refundable should the deal fall through.

The seller would get a mortgage of the remainder of the mortgage as normal.

From what I can see - either the agent is desperate to make their fee - or they just don't know how rent to buy works. I know that a portion of the rent paid is credit towards the mortgage - but not the majority! Effectively it seems that I would be paying for this person to live in our house for a year (or more) and locking into a house price that could actually already bottomed out.

Happy to hear other views on this.

My auctioneer is saying this is becoming a more common phenomenon in current climate.

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Maybe so, but I have not heard of any actual cases. If it's common, there should be a standard legal contract. What does your solicitor say?



This deal makes no sense to me.

You are giving the buyer an option to buy your house for a set price at any time over the next 12 months.

If house prices rise, they will go ahead with the purchase.

If house prices fall, they will pull out or offer you a reduced price.

How much are they paying for this option?

If they don't go ahead with the purchase it will have cost them:

You will have to pay big legal fees and the house will probably be in a lot worse condition after your tenants have vacated.

You may find yourself caught up in legal action - either forcing them to complete or they trying to get their money back.

If they do go ahead with the purchase

This makes no sense to you but would be a great deal for them.

Your choices

1) Sell the property on the market to someone willing to pay cash now
2) Rent the property to these guys for a market rent. If they are later in a position to buy, then you can freely negotiate a price with them at that stage.
3) If you can't sell the property now, or if you think that prices may rise, rent the propert on the open market for a year.

Thanks so much for the detailed reply. I agree it seems very one sided, but i suppose it is a buyers market right? I do not think prices are set to rise in my area for q good while - so i am happy to keep a buyer happy - but not so much that i am heavily penalized. As you say - i have many offers to rent this place - several "long term" offers as well.

I will wait until I read on paper exactly what the offer is - so far only verbal. Let me draw a scenario that is a little more fair in my mind.

Say the the house was selling for 200,000. Say the best offer before from anyone else before this deal was 190,000 - but it never materialized anyway (could not get loan). So the rent to buy offer was asking price - no quibble - and 10000 more than any other offer.

Now the deposit has been offered at less than 2% of purchase price - simply too low. But if i could get a slightly higher rate - say between 2.5%-5%.

And if i could get them to move on the rent credit - say they offered 83% of the rent initially (10,000 of the 12000 total rent as credit) and i asked them for "closer" to 50%.

Also add in a clause that any and all repairs are the buyers problem - and add it that this deal is time sensitive - as in they have to get the bank to grant a mortgage in 1 year - otherwise the rent credit is hugely reduced - or even void.

Sound better?

Trustmeh said:

In our case, the buyer cannot secure a mortgage today - but the bank has promised that in 6 months to a year - if their current financial situation has not changed, they may be able to get a mortgage.

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Cannot – Promised – If – May, these words would concern me greatly.

Run, suits the buyer and auctioneer, but nothing in it for you except a possible sale at a reduced price sometime in the future.

I would suggest no ‘’Rent to Buy agreement’’, giving you the freedom to rent or sell with none of the numerous costly (To you) issues this agreement could produce.

It is indeed a buyer’s market, your preferred scenario may look better on paper but still does not get round the ‘’ Cannot – Promised – If – May’’

So the rent to buy offer was asking price - no quibble - and 10000 more than any other offer.

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But there are not really offering you any price at all. They may as well offer you €300k now. In a year's time, they can pull out or offer you a lower price.

If you give someone an option to buy your house fixed at today's price, you should charge heavily for this option.

If the house is worth €190k as it appears to be, then you should charge them €10,000 now for an option to buy the house at €190,000 anytime over the next 12 months.

That is, they pay you €10,000 now and they pay you €190,000 if they proceed with the sale.

In the meantime, you can rent them the property at the market rent.

As buyers, they are worried that house prices will rise. Buying an option gives them some protection, but they have to pay for it.

But why not just give them a one year lease at the market rate of rent and then if they qualify for a mortgage, they can buy it from you at the then market price which might be €200k, €190k or €180k.

Brendan

Brendan Burgess said:

But there are not really offering you any price at all. They may as well offer you €300k now. In a year's time, they can pull out or offer you a lower price.

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True. But they would suffer a loss - right now that loss is not big enough, i agree with you. I should say that originally they said they had 30,000 to offer as a deposit - but that the solicitor on their side told them it was too much. It may have also been posturing a bit.

Brendan Burgess said:

If you give someone an option to buy your house fixed at today's price, you should charge heavily for this option.

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Fair enough, I will counter offer. I'm happy that im not crazy - their offer is simply to low, to good for them. This season is over - so either way im back being a landlord it seems. It would be nice to have a tenant that may take the property off my hands in the long term. (dont think of this as an investment property - think of it more as a 2nd home that id rather not have).

Brendan Burgess said:

But why not just give them a one year lease at the market rate of rent and then if they qualify for a mortgage, they can buy it from you at the then market price which might be €200k, €190k or €180k.

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That is a fair point - and one i would consider. There is no point putting the house on the market again until Spring - so maybe i will offer them something similar.


Thanks again for all the advice. I will update with their firm offer and my counter proposal.

Trustmeh said:

This season is over - so either way im back being a landlord it seems. ...

There is no point putting the house on the market again until Spring .

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That is not my understanding of how the housing market works.

Houses sell throughout the year. The spring might be busiest and the summer might be the slowest, but in a couple of weeks, there will be plenty of market activity.

Some other possible considerations:

You don’t say if you have a mortgage or if the property is your PPR. Your lender could charge a higher interest rate if you rent your PPR.

If applicable, you would also lose any mortgage interest relief.

If you rent the property, you will have to pay to register with the PRTB, pay additional insurance for a rental property and the rental income will be taxable.

Hi there,

I have to say that I would be wary. I don't have any metrics on differing scenarios but I was in a position where I sold a house and allowed a clause in it nullifying the contact if the sale of their house fell through (stupid I know, but their place in France was already sold supposedly) and a lot of promising was done). The end result was a waste of the guts of a year, their sale falling through, me ending up taking 10k less than they were paying to have a quick cash sale. Also, a lot of stress! These people were and your purchasers may be kosher but if it falls apart you can be left in the lurch.

The way I see it (and I am far from an expert) it puts you in a lose / lose scenario if you want to sell rather than rent It keeps the house at a low price if things have indeed bottomed out. Or if prices fall further in the next year and these people pull out, you are left in the position of trying to sell in a worse market than the current one.

However, if the are the only ones interested at the moment, perhaps a contract where the house could remain on the market with them renting and having first dibs (so to speak in the case of another equal offer - otherwise they get their deposit back). Not sure how that would work with them though.

Anyway, be wary - people can waste your time no matter how kosher they seem.

Best of luck,

E

I agree with all the posts even tho my situation is a little different I'm selling apt at mo and buyer iniatally was so eager.. Deposit down, asking when to close sale, all plain saling for few weeks telling estate agent how much she loves place, delighted etc.. Until she asked for 10k price reduction day she was to sign contracts and subsequently pulled out when we couldn't give it iniatally. We did in end. What I'm trying to say is no matter how certain you are that these people will buy etc you just never know and you have to protect yourself at end of day.

Thanks everyone. Appreciate all the advice. Every situation is different i guess. Here is more info about how mine turned out!

Offer came back from my auctioneer, in his writing, and it recommended the following deal:

1. 2 year contract.
2. Full asking price.
3. 3000 deposit, non refundable if sale falls thru.
4. Rent paid monthly for 2 years at 1000/month. At the end of year 1, 10000 of this rent is taken off the sale price, after year 2, a second 10000 is taken off the price. This money would be non-refundable should the offer fall thru.

I was gutted. Mostly I was gutted that my auctioneer put this offer to paper, and in the opening line, gave it the thumbs up - saying it was a good deal for me.

I gave him both barrels. Accused him of working for the buyer, and not for my best interests (a bit heavy maybe). I should have parked my emotion - but i was really shocked at how he failed to protect my interests. I was satisfied when he finally admitted that the deal was NOT favorable to me - but that it was the best we could expect in this poor market.

I thank everyone here that warned me off - it made me think twice about the deal BEFORE it arrived, so i was prepared for the worst scenario.

With a cooler head i did make a counter offer. You may not agree with it, but it suits me. I am not hopeful it will be accepted.

1. 1 year contract.
2. 9000 euro deposit. (enough to cover almost a years rent, should they turn squatter!)
3. Rent paid monthly in full at normal market rate. Any additional monies would be counted as rent credit - but importantly - my rent is paid in full.
4. I dont intend to keep any deposit or any rent credit, should the bank fail to loan them the money. I would not be able to sleep profiting from others misery. I also dont have faith that if i did try to retain deposit would i even win in court! Not worth the hassle.

Like i said, i dont expect my offer to be accepted, and im content with that.

Hi Trustmeh

They were chancing their arm with a request like that. So they were taking advantage of you difficulty in selling.

Your auctioneer is either incompetent or dishonest or both. You should fire him.

The offer you have made is very generous. They won't accept it as it would be a lot of money to lose if they don't get mortgage approval within a year.

Offer to rent them the property on a normal basis for one year with no strings attached. At any time, they and you would be free to enter into a deal.

Brendan

If i could like yer post i would. Thanks. Sadly its a small town, and he would be the 2nd auctioneer i have fired in the process, i think ill keep with the devil i know for now. He forced us to sign a contract to list for 9 months, all the local agents are doing this now, thats why u dont see 2 signs up on properties anymore.

In reality, my offer expires tomorrow night. I already have shown the house to a potential new tenant, interested in long term lease, deposit is on its way. I would be nervous about renting to my buyers as i have never actually met them yet.