“I have a lot of listings of houses for sale. The only problem is, they don’t pay me unless they sell!” (Charlotte Realtor Frustrated and Bankrupt)
“FHA Bailout? New Real Estate Rates, Loan Rules to Avoid” (USA Today title, 1/20/10)
“The objective of a company is to make money doing what the client wants, in an ethical way.” (Marketing Professor Steve Nelson of the University of the Grand Canyon)
The biggest symptom of our current financial troubles 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 homeowners they delayed couldn’t pay. Why did the banks need to be bailed out? It’s because the customers they delayed couldn’t pay. Why are many companies going under? It’s because their customers are businesses that are going under (because they didn’t get paid).
In property management, there is a domino effect of people not getting paid. If tenants lose their jobs and their employers don’t pay them, they can’t pay their rent. If the rent is not paid, then the home owner (and not the property manager) is paid. If the owner is not paid, then the bank where the mortgage is held is not betting to pay. Then the bank sinks.
Okay, this isn’t a big reveal. Noah wasn’t famous because he saw that it was raining; He was famous because he built an ark in time to save his family (and most of the world’s animal kingdom). Plus point. So how can we make sure that we and our customers get paid?
For real estate agents who have vacant listings for sale, you can open them to accept tenants with a lease option (also known as rent-to-own and lease-purchase). With the number of homes for sale and the dwindling pool of buyers (see USA Today Previous FHA Title), most listings are vacant for extended periods. By getting a paying tenant on the property, you can make your clients pay. They, in turn, can pay the banks. This is good!
This is not essential for some agents, which confuses me. Just last week, we were working with a real estate agent who had his client’s vacant home open “for sale” and “for rent.” When we made an offer on behalf of our prequalified rent-to-own tenant, the agent said their client would accept a sale or direct rent, but not a rent-to-own. Our client wanted to own a home; It was important to begin the process of accumulating a down payment and closing costs as they built a life in their future home. When asked what the owner’s backup plan was, the agent said that the owner would give the house to a property manager if our client did not rent it out.
Let’s take a look at this backup plan. We are property managers, so there is no disrespect here. However, let’s look at the costs. Property managers charge fees to place tenants and there are many rental houses on the market; Look at the largest property manager in your city and see how many houses are available for rent! This is not the fault of the property manager; it is simply a function of the market, as houses are not sold and are put on the rental market. So there will undoubtedly be a few months of holding costs in addition to the property management fees.
In terms of charging, the agent does not receive any money for transferring their listing to the property manager And it’s costing your customer even more money. Agents who are in the habit of devising “lose-lose” deals (customers pay more and he doesn’t win) don’t usually last long in any business.
What might have happened? The lease option agreement could have been closed and everyone could have gotten paid.
1. The client could have had a tenant making his mortgage payment every month.
2. The listing agent could have been paid by asking for half the option fee as compensation. Option fees are typically 1% + of the purchase price.
3. The buying 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 in 1 year. This would have allowed agents to split the 6% sales commission at that time. The client would have loved to know that in addition to GETTING A FREE TENANT WITH NO ADDITIONAL MAINTENANCE COSTS, they would have had a tenant who could purchase their home in a year. It could have created a real mutual benefit.
There are many ways to charge on lease option offers, but this is a good equation:
½ of the option fee (provided by the tenant) for both parties + 3% of the sales fee at the time of sale = Satisfied Clients and Agents
Help customers get paid and get paid too! Isn’t this what companies were created for?