Justin
Sprinzen took a chance on an abandoned Capitol Hill townhouse
last spring, despite the faltering housing market.
The 34-year-old novice developer saw potential profit
in the vacant District-owned property on D Street NE,
about a dozen blocks from his home.
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So
he bought it from the District in March and went to work
gutting and refurbishing. He knocked down walls; added
bamboo floors, modern lighting and new appliances; and
installed a small backyard patio. He put the property
up for sale on July 4.
It went nowhere.
At least two serious buyers were not able to get financing,
Sprinzen said. After four months, with the economy getting
worse, there were still no viable takers. So he began
searching for alternative ways to sell.
The house was advertised on Craigslist
with the headline: "Rent/Lease/Option to Buy." Sprinzen
said he will consider tenants who are committed to buying
the house but cannot buy just now for whatever reason
-- shaky economy, bad credit, not enough for a down payment,
no longer able to qualify for a mortgage. These arrangements
are often known as rent-to-own.
"The name of the game is to stay above water," Sprinzen
said. "If I can break even and cover my mortgage and get
through this, I am open to it."
Renting to own, also known as renting with an option to
buy or a lease-purchase agreement, had practically vanished
during the days of easy money. Now real estate professionals
say the practice is reappearing as sellers grow increasingly
desperate and buyers with damaged credit scores find it
harder to secure mortgages.
Glenn Kelman, chief executive of the Seattle-based online
brokerage firm Redfin, said he has seen a spike in requests
from buyers looking for listings with rent-to-own arrangements.
He said his agents are telling him that homeowners are
also increasingly willing to consider such requests.
"Normally, sellers will tell you to pound sand if you
ask them for an option to rent," Kelman said. "But now
because the sellers are in a vulnerable position, they
are more likely to do it."
However, several real estate professionals said they remain
skeptical of the practice. A volatile market could lead
a buyer to lock in a price that is higher than what the
property will be worth at the end of the term. That can
be bad for both seller and buyer if a bank is unwilling
to make a loan. In a world of falling real estate values,
the homeowner can be foreclosed on, leaving a potential
buyer high and dry. And if a potential buyer cannot secure
a mortgage now, then there is no guarantee that he or
she will be able to do so in the future.
"There is substantial risk for buyer and seller that the
other won't be able to perform given the volatility of
the real estate market," said Mark E. Simon, a real estate
lawyer with Village Settlements in Montgomery
County. "Each side should look at each partner carefully
on this."
By
Alejandro Lazo - Washington Post Staff Writer
Real
Estate Vocabulary Builder:
Real Estate Broker:
A middle man or agent who buys and sells real estate for
a company, firm, or individual on a commission basis.
The broker does not have title to the property, but generally
represents the owner.
Refinancing:
The process of the same mortgagor paying off one loan
with the proceeds from another loan.
If you would like to suggest a topic for comment in one
of our future emailers, please let me know. You can always
reach me at rory@coakleyrealty.com
or by phone (301) 340-8700 ext. 101. I look forward to
hearing from you!
Rory
S. Coakley
Coakley Realty, Inc.
20 Courthouse Square - Suite 106
Rockville, MD 20850
www.coakleyrealty.com
