"I have a lot of home listings for sale. The only problem is I don't get paid unless they sell!" (Frustrated and Broke Charlotte Realtor)
"FHA bailout? New real estate fees, loan rules to avert one" (USA Today headline, 1/20/10)
"The point of a business is to make money doing what the customer wants, ethically." (Marketing Professor Steve Nelson at Grand Canyon University)
The biggest symptom of our current economic problems is that people don't have the money to pay their bills. Think about it. Why is the FHA in trouble? It's because the home owners they lent to couldn't pay. Why did the banks need to get bailed out? It's because the clients they lent to couldn't pay. Why are many businesses going under? It's because their customers estate agents in nelsonare businesses that are going under (because they didn't get paid).
In property management, there is domino effect of people not getting paid. If the tenants lose their jobs and don't get paid by their employers, they can't pay the rent. If the rent isn't getting paid, then the owner of the home isn't getting paid (and neither is the property manager). If the owner isn't getting paid, then the bank where the mortgage is held isn't betting paid. Then the bank goes under.
Okay, this isn't much of a revelation. Noah wasn't famous because he saw it was raining out; he was famous because he built an ark in time that saved his family (and the majority of the world's animal kingdom). Point taken. So how can we make sure that we and our clients get paid?
For Realtors that have vacant listings for sale, you can open them up to accept lease option (aka rent-to-own and lease purchase) tenants. With the number of homes for sale and the dwindling pool of buyers (see USA Today FHA headline above), most listings are sitting vacant for extended periods of time. By getting a paying tenant in the property, you can get your clients paid. They, in turn, can pay the banks. This is good!
This is not paramount to some agents, which is confusing to me. Just last week, we were working with a Realtor who had his client's vacant house open "for sale" and "for rental". When we entered an offer on behalf of our prequalified rent-to-own tenant, the agent said his client would accept a sale or a straight rental, but not a rent-to-own. Our client wanted to be a homeowner; starting the process of building up a down payment and closing costs while building a life in their future home was important. When asked what the owner's back-up plan was, the agent said the owner would give the home to a property manager if our client wouldn't just rent it out.
Let's take a look at this back-up plan. We are property managers so there is no disrespect here. However, let's look at the costs. Property managers charge fees for placing tenants and there is a lot of rental homes on the market; look at the biggest property manager in your town and see how many homes are available for rent! This is not the property manager's fault; it is merely a function of the market as houses are not selling and they are being put on the rental market. So, undoubtedly, there will be a few months of holding costs in addition to the property management fees.
In terms of getting paid, the agent is not getting any money for passing on his listing to the property manager and is costing his client even more money. Agents that make a habit of engineering "lose-lose" deals (clients are paying more and he is getting paid nothing) don't typically last very long in any business.
What could have happened? The lease option deal could have closed and everyone could have gotten paid.
1. The client could have had a tenant making their mortgage payment every month.
2. The listing agent could have been paid by asking for half of the option fee as compensation. Option fees are typically 1%+ of the purchase price.
3. The buyer agent could have collected the other half of the option fee.
The best part of this scenario is that the rent-to-own tenant could have bought within 1 year. This would have allowed the agents to split the 6% selling commission then. The client would have been thrilled being that in addition to GETTING A TENANT FOR FREE WITH NO ADDITIONAL HOLDING COSTS, they would have had a tenant who might buy their home within a year. A true win-win-win could have been created.