Now you’re probably thinking that that’s crazy, but hear me out.
Yesterday the Wall Street Journal came out with an article about how there were only 2.19 million homes listed for sale in September which, according to Realtor.com was down 20% from a year ago (“Slim Pickings Are Latest Headache for Home Sales”, WSJ, October 17, 2011.) The article says that while typically the less housing inventory available, the healthier the market, that isn’t the case today. The blame is placed on home sellers who don’t want to sell their houses at discounted prices and the banks are moving through foreclosures more slowly than ever. In some of the biggest housing crash markets (Miami, Phoenix, Portland, Tampa, Atlanta and Detroit) have seen between 48% and 28%, respectively, decreases in listings.
However while this article accurately states the downer attitude in the housing market, it does not appropriately address WHY listings have decreased, nor has it mentioned that the MAJORITY OF THE UNITED STATES is not seeing these numbers.
Here is actually what is going on at an average national level.
- More homes are being listed as “for sale by owner” than by Realtors. This throws off the metrics of Realtor.com because that takes into account all MLS listings.
- Homeowners are becoming more aware of how to get the full price out of their property by selling it on their own. On average, it costs a seller 15% to sell the home at retail value. This includes, Realtor commissions, seller’s concessions, holding costs and closing costs.
- Homebuyers are becoming more desperate to get into homes. With the high requirements by the banks to qualify for loans, which include FICO scores in the upper 600s and 30% down payments, buyers are continually turned down and return to leasing.
- Investors are buying up REO properties like kids in a candy store at ridiculously low prices and aren’t buying what used to be more typical investment properties. But when they are buying, they are paying all cash.
What does all of this mean?
It means that buyers and sellers are finding more ways to buy and sell homes. In walk the lease option!
The lease option arrangement helps both the buyer and seller get into and get rid of a home, while allowing the buyer to not have to qualify for a bank loan and the seller not having to take a huge hit on the value of the property.
How is this accomplished?
- The seller gets the price they need and want out of the property by setting the option price at a bit of a premium for when the property is purchased in two years.
- The seller does not pay any Realtor fees (as long as they do for sale by owner or through investors such as, Colorado Home Trust), concessions, or closing costs. The seller’s only cost is the payments until the property is leased and the only risk is holding onto the house for a couple of years.
- The burden is on the buyer who must pay a down payment, pay a premium on the lease payments to have the privilege to option the property and agree to the option price of the property.
With a lease option, the power is transferred from the overly-picky, super qualified traditional buyer, to the seller who can accept or turn down buyers as they please.
The key to all of this though is understanding not only your market, but also your neighborhood, and making sure both parties are protected legally from being taken advantage of. If you are a seller, make sure you have all the protections in place so potential buyers are liable for all lease payments and damages to the property. If you are a buyer, make sure you have fail-safe’s as well, such as an escrow account to make sure the seller is making the mortgage payment while you are leasing the property.
*Disclosure: this is not an advertisement for Colorado Home Trust, LLC, but merely an attempt to illustrate the state of the residential real estate market as it exists today in 2011.
by Kate Vinson
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