Sell, Buy or Rent?

Our local market for entry-level homes is showing signs of slowing in recent months with higher inventory, longer listing times and price reductions becoming more common. As a result we are seeing increasing numbers of aspiring move-up buyers whose equity on their current homes has dropped to the point where they aren’t able to come up with the down payment to buy their next home. This has moved many of these households towards a decision to at least temporarily rent until they can get sufficient proceeds from their current home for sale. In the short run, this has produced a growing number of well-qualified applicants who are themselves experienced property owners. And it follows that they will tend to take better care of the home they are renting because of the possibility that they may someday own it. Traditionally, when both sides would like for the tenant to eventually buy the home they are renting, the arrangement is structured as a lease option, where a non-refundable fee is paid up front for the right to purchase the home at an agreed price. The option period is usually for a year or less due to the limited horizon of likely property values, with the non-refundable fee applied towards the down payment when the buyer is able to exercise their option and complete the purchase. However, in the current uncertain market conditions it doesn’t make sense for many of these households to commit non-refundable money towards a purchase when they don’t have a clear path to coming up with the down payment until the economy turns around. And in order to be fair to the would-be seller, it also doesn’t make sense to lock In today’s price on them when the purchase will be reliant on the market having turned to the point where their buyers are able to get more for their home, as the value of the move-up home will likely have also increased. Instead of structuring these transactions as lease options at a fixed selling price, parties are increasingly leaning towards us including a general right of first refusal in the lease, which allows the would-be buyer to match the price and terms of a competing offer in the future. For these arrangements to pan out, it will likely rely on interest rates coming back down to where everyone’s buying power has returned to a level that supports the sale and the purchase for both sides. In the meantime, our aspiring sellers have the means to make their mortgage payments and our aspiring buyers are able to enjoy a home they like so much that they would want to buy it. This holding pattern creates a comfortable dynamic for both parties, where the current property owner gets a contented tenant, and the would-be property owner is provided the means to feasibly avoid being displaced when the market comes back to a point where they and others can once again afford to buy the home of their dreams.