The Top 3 ways to Determine a Homes Value

In most states there are values determined by the tax assessor’s office. It might be called your tax value, assessed value or something similar. That number might not be 100% of the property value. Usually there is some type of formula that each city or state uses.

Unfortunately using the taxable basis fails to take into account a number of things, like:

1. What are homes actually selling for in your neighborhood?
2. What is the condition of your home?
3. What upgrades have been made to your home?

As you might be able to guess, all of these factors can have a huge impact on the value of your home and would be in no way reflected on the taxable basis. The result, your home will either be over- or under-priced.

Here are the top 3 ways to determine a value of a home:

1. Appraisal

An appraisal is probably the most accurate way of determining a home’s value. While it seems to be the most costly in the short term, what it can save you in the long run by having your home accurately priced offsets the upfront cost. If you are going to sell your home on a “For Sale by Owner” basis, I cannot encourage you enough to have an appraisal done. When you order the appraisal, make sure you ask for a market value. This will give you the closest possible pricing guide for your home.

1.     Real Estate Agents

Making use of a real estate agent can be an excellent way to determine the value of your home. Real estate agents, like appraisers, actually look at recent sold comparables and look at your home to determine how its condition affects its value, and then suggest a price before listing your home. Unlike appraisers, they also take into consideration the current competition. They will perform an analysis of value, for no charge in most cases.

When you meet with an agent, ask to see “comparables”. They should show you recent sales comparables as well as what is currently on the market. Ask the agent WHY they are suggesting a particular price. Also ask them what you should expect to receive for a sales price on your home. A good real estate agent should easily be able to justify the asking price with accurate comparables and condition analysis of your home.

2.     Your Neighbors

Another method I have seen employed quite often is to price a home’s value based on what your nearby neighbors are trying to sell their homes for, and then almost always adding some. Why would you add some? Of course, your home is better, right? It might be or it might not be. But most sellers think their home is nicer or more updated than their neighbors. Be careful with this, as it can be a dangerous way to price your home.

This method makes several assumptions that will likely lead to pricing trouble:

1. You are assuming that your neighbors’ homes are priced accurately.
2. You are assuming that your home is genuinely comparable to your neighbors.

Even if you happen to live in a neighborhood of identically sized ranch houses with identical lots, there can still be pricing differences based on the condition and improvements in the home. If you have a finished basement or a newly remodeled kitchen, you need to be able to accurately set a value for those improvements.

Want to learn more about selling your home as a rent to own?  See Wendy Patton’s book, Rent to Sell, Your Hands on Guide to Sell Your Home When Buyers Are Scarce.

If you have any questions or comments please feel free to leave them in the comment section!

How to Get Sellers to Call You and Offer you Their Home for a Rent-to-Own

Now that we’ve discussed ways to find rent-to-own homes, what would you say to having rent-to-own sellers call you and offer you their home? That’s right. You can just sit by the phone and wait for sellers to call you and tell you about their rent-to-own home.

Many of these sellers will not have their homes listed with a real estate agent, so if you are working with an agent, this may not be for you.

The advantage of having the seller call you is that you already know he is willing to consider rent-to-own. You just need to figure out if his home and terms will work for you.

“Alright Wendy! So how do I do this?”

Posting ads is a way to get sellers to come to you.

Posting Ads

The first way is by posting ads about yourself and rent-to-own. Here is one example:

This is a sample ad of what you would put in the newspaper where space is an issue – the more space you use the more it costs you. These ads though are just enough to get the attention of a home seller who has started to think about what choices he must make if he doesn’t sell soon.

You can also post an ad on FREE sites like Craigslist, Yahoo! groups and Google groups. I also recommend posting some flyers on community bulletin boards as well as posting flyers using these FREE Internet sites. These methods are much cheaper than the newspaper classified ads and may be all you need.

The whole purpose of these ads is to filter out the home sellers who don’t want tenants and to get the ones that would consider tenants to call you.

Here are some questions you can ask sellers once they call you:

• Where is your home located?
• Can you tell me what price you are looking to get for your home?
• How many bedrooms and baths does it have?
• Do you know what the rental rates are in your area? About how much were you thinking for monthly rent?

Not only will these questions help you gain more information about the sellers, it will also help you build rapport with the seller as well.  Check out my book Rent-to-Buy to learn more about other ways to get sellers to call you.

Rent to Buy is your hands-on guide to buying your next home as a rent to own.  You can get your next home NOW without having to qualify for a mortgage until later.  To Learn more about Option Agreements purchase your copy of Rent-to-Buy today.

Feel free to comment and let me know of other ways you  have sellers calling you!

If you are in the difficult situation of falling behind on your mortgage payments and trying to sell your home, offering it on a rent-to-own basis may help you stay out of foreclosure. I wish I could say for certain, because I hate to see people lose their homes to the bank, but obviously it’s no guarantee. The last thing lenders want right now is to foreclose on your home. They have gotten pretty flexible in working with homeowners to find solutions. Be sure to include them in the process when trying to find a resolution. As you read on you can evaluate whether you think selling your home as a rent-to-own will help you. Critical factors to consider are:

• Monthly Payment Adjusting Up? If your monthly payment has adjusted upwards, will you be able to rent your home to a tenant-buyer for enough to cover the new payment? If not, you will have to cover the difference yourself or get the lender to agree to a reduced payment. There are lenders that will work with you on your interest rate. This is called a loan modification. They usually won’t change your balance but they might change the interest rate and length of loan. Talk to your lender to discuss your options.

• Home Prices Dropping? Do you live in one of the areas where home prices have dropped dramatically? If so, is your home worth much less than your current loan amount? If this is the case you won’t be able to sell it to a tenant-buyer for enough to pay off your mortgage. Do you have the extra money to pay off the difference? Do you need to consider foreclosure? Maybe a short sale is your solution versus a rent-to-own. A short sale is when you get your mortgage company to accept a lesser amount on the payoff of your mortgage than you owe, when you sell your home. This is called “shorting” the mortgage. Many people and lenders have had to consider this alternative with the housing market decline.

• Behind on Your Payments? How much are you currently behind in payments? You will need to bring them current one way or another to stop the foreclosure. The option fee from your tenant-buyer may be enough to cover this. If it isn’t, you might be able to use the option fee to cover part of it and then establish a catch-up plan with your lender.

Yes, you do have choices other than the traditional way of selling your home! Obviously this is the part where I sing the praises of rent-to-own.

Want to learn more about selling your home as a rent to own?  See Wendy Patton’s book, Rent to Sell, Your Hands on Guide to Sell Your Home When Buyers Are Scarce.

Learn what a Sandwich Lease Option is and how to make a profit from the deal.

Rapport building is very important and key because you’re asking someone to give you control of their house with little to no money down in both lease options and subject tos. Getting the seller to feel comfortable with you is the most important technique to learn for these techniques.  This is equally true with Realtors.  If the Realtor likes you, they will translate their like and trust of you to the seller for the lease options.

Here’s a tip: When you’re in the seller’s house, tell them what you like about their house, not what you don’t like.  For example, perhaps you’ll see something unusual, like older wood work or a nice fireplace.  Ask the seller about it.  If you see that the seller likes golf, talk golf whether you like golf or not.  Always focus on the positives, the interesting things.  People like to know that you like their house, and that builds immediate rapport.   Sellers will give you a better deal and be more likely to negotiate if they like you.

Check out Chapter 06 of my book Investing in Real Estate with Lease Options and Subject-to Deals: Powerful Strategies for Getting More when You Sell, and Paying Less when You Buy to learn more about negotiating the deal and other steps to buying on Lease Options and Subject Tos.

When you are doing lease option deals you need to find the right type of seller.  A lease option seller needs to be motivated, this is pretty much the case with any type of real estate investing deal.  But you need to find the right type of motivated seller.  After all, you wouldn’t try to do a short sale with a homeowner who is current on their payments.

In lease options we are looking for sellers who have good debt, meaning they aren’t in financial trouble.  These lease option sellers also don’t need the money from the sale right away (even if they want it).

So what types of sellers are these?

Here are some examples:

1. Long-time homeowners.  They usually have low payments and have money saved elsewhere, which enables them to purchase another home without selling the current one.
2. Inherited property owners.  This gives them a second house without any need for it.  Avoid deals with too many heirs, it’s too hard to get them to agree.
3. Built a new home.  A seller who built a new home and is now selling their old home was able to get financing on the new construction without having to sell the old home.  They can afford both payments, but who wants to pay for a home to sit empty very long?
4. Newly married.  More and more single people these days buy their own home.  Then if they get married each spouse has a home.  They can afford both but only need one.
5. Job transfer.  A seller that has been transferred out of the area and has already bought a new home in their new town is a good lease option seller.  They can be especially motivated because no one is able to look after their old home since they’ve moved away.

“I must get my asking price or I’m not selling”

Every lease option investor will hear this objection from a home seller at some point during their lease option investing career.  Probably one of the most common challenges is getting the seller from “La-La Land” to reality!

Sellers usually think rigidly about pricing – they have a specific figure in their head and they don’t want to budge from that.

First you need to verify that their asking price is within true market value, not just for right now, but for where you market is likely to be at the end of the lease option period.  This is particularly true for declining markets.  The best way to do this is do get accurate comparables for the home.

The deal must be a win-win-win for you, the lease option seller and the lease option buyer.  If the seller’s asking price is too far out you’ll need to show them the comparables and try to get them to acknowledge reality.

The most important thing to keep in mind when dealing with a seller who is fixated on price is to remember that you have a lot of other terms you can negotiate to still make the deal work for you.  Just make sure the seller has enough equity for the deal to work.

Give them their price, but make sure the option period is for a long time and get a high dollar amount on your monthly option credits.  If they don’t want such a long lease option term than make sure your monthly payment is low (with full option credits) so that you can generate a high monthly cash flow.

Too many investors turn down a deal flat out if the seller’s price won’t work for them.  Just remember that you have plenty of choices with other terms when putting together a lease option deal.

This is a fairly common concern people have when it comes to lease options.  After all, repair costs can really add up if the home is older and needs maintenance or the option period is for a long time.

The answer to this really depends on what type of real estate market you do your lease option deal in and also it depends entirely on what you put into your contract.

In a seller’s market I usually have the  rent to own buyer be responsible for all repairs.  This is very convenient for a lease option investor.  My lease option contract will say that the lease option buyer is responsible for all maintenance, major and minor.  However, if I end up having to do any repairs, I’m going to add the cost to the purchase price at closing.  Let the rent to own buyer think through their own possibilities first, but if they still don’t know what to do, then send your own maintenance people and recoup the cost at closing.

For example, if the lease option buyer’s heat goes out in the middle of a Michigan winter, it’s crucial to get that fixed, both for the lease option buyer and to protect the lease option seller.  On the other hand, if the air conditioning goes out in the summer, it’s unpleasant but livable.  Do NOT make your lease option buyer unduly fix too much, because if you treat the tenant like an owner then the court may treat you like you provided seller financing instead of  a lease option.  The tenant can claim that they’ve put so many dollars into the property and the court may make you go through a forfeiture or a foreclosure versus an eviction should the rent to own buyer stop paying their rent.  In most states this would be much more expensive and much more difficult.

In a buyer’s market you can put more of the responsibility for maintenance onto the seller.  In a seller’s market, I don’t want my seller to do anything but be free and clear of that issue.  However, I have to preapprove in writing any improvements my lease option buyers do.

Keep a copy of any letter regarding maintenance in the lease option buyer’s record folder.  When a rent to own buyer calls, I record what was said for their records also.  The same goes for maintenance.  I track everything.  If the roof leaks, and someone slips and falls, accurate files will suddenly become very important!

As part of my lease option training I teach my students that when you are negotiating with a seller on a lease option deal you’ll find that all sellers have a sticking point.  Lease option sellers will have something that means more to them than anything else.  Find out what this is so that you can structure a deal that makes them happy while simultaneously meeting your requirements for profitability.

For instance, the price of the home may be more important to some lease option sellers than when they receive it – this can allow you to structure a longer term lease option deal.

Other lease option sellers might want a very specific monthly payment to cover their mortgage nut, but their overall price is negotiable.

Work with each seller to understand what makes them tick, so that you can tailor your lease option offer to suit them best.