Real Estate Search

Milwaukee Journal Sentinel

Saturday, September 22, 2007

It’s a sprawling Arts and Crafts house on Milwaukee’s east side, with a new kitchen, a new master suite and vintage details like leaded glass windows in the built-in china cabinet.

Last fall, David and Elizabeth Rubin put it on the market for $475,000. Now they’re asking $439,000 — a price that would be a loss for them, considering what they have spent on remodeling.

With no offers, they’ve changed their strategy: If a qualified buyer is amenable, the Rubins will consider putting the house on a rent-to-own basis.

They’d rather do that than drop the price again. It’s like the stock market: You don’t sell at the bottom, Elizabeth Rubin said.

As houses sit and sit and sit on the market, some fed-up sellers are turning to rent-to-own, a tactic that all but disappeared from the market when home loans were easier to get.

Also called lease-to-own, the arrangement appeals to would-be buyers who are stuck because of the same market dynamics: They want to buy, but their down payment is locked up in their own house that won’t sell.

Rent-to-own is fraught with pitfalls, say lawyers and real estate brokers. It’s harder than it looks to construct a fair contract, and sellers don’t always get what they want: an easy, automatic sale.

It’s filled with potential problems on both sides, said real estate lawyer Jeff Patterson. There are all sorts of situations that the parties can’t anticipate.

Typically, a rent-to-own agreement stipulates that part of the monthly rent check is held in escrow for a down payment if the renter buys the house at the end of the lease. If the renter doesn’t buy the house, the seller gets the escrowed money.

The title is held by the seller, who usually is responsible for paying taxes. The rest of the details are up for negotiation: who pays for maintenance and repairs, how much money is held in escrow for the sale, security deposits, and tenant behavior and use of the property.

Too often, sellers are relieved to get someone — anyone — into the property, said Barbara Nichols, author of The No Lawsuit Guide to Real Estate Transactions (McGraw Hill, 2007) and a Beverly Hills real estate broker for two decades.

But sellers need to treat the deal as though the sale is imminent, she said. That means doing a credit check, ensuring that the buyer qualifies for a mortgage and ordering an inspection to document the condition of the house.