A rent-to-own arrangement provides the seller earnings in a slow housing market and the purchaser the opportunity to work toward homeownership, but possible drawbacks exist for both parties. The buyer pays the vendor monthly lease and also an alternative fee, which is money that goes toward the house’s purchase price. The purchaser receives a purchase option on the date specified in the agreement which entitles him to purchase the home at the agreed-upon purchase price.
Gain or loss of Economy Value
A loss or gain on the market value of the residence is a drawback for the purchaser or the seller, depending on which change of value happens. The vendor must sell the purchaser the home for the sum agreed on from the rent-to-own arrangement. If the home gains value, the vendor loses prospective cash once the purchase option is utilized by the purchaser. If the home loses value, the purchaser can’t legally force the vendor to decrease the cost. The purchase price may be changed only if both parties agree to a new quantity.
Landlord Losing Potiental Buyers
The landlord can’t sell the home while the rent-to-own contract is busy. Potential buyers who have solid financing may make offers to the vendor during the rental period, but the landlord can’t take advantage of those offers.
Tenant Losing Option Fee
If the tenant decides not to exercise the purchase option once the option becomes available beneath the rent-to-own arrangement, he also loses the option fees paid to the landlord up till there. The option fee is known as income for the landlord if the tenant doesn’t finally purchase the home.
Maintenance Issues
Maintenance and repairs of the home in a rent-to-own agreement are the duty of the party who assumed the duties under the arrangement. The seller generally assumes legal responsibility for repairs and maintenance, but in some cases, the purchaser agrees to do this in exchange for concessions, like a lower purchase price or monthly payments. The party who assumes repairs and maintenance but doesn’t perform the duties sets the other party in a position to terminate the contract. However, termination takes time, since the cancellation of this contract must follow the procedures set forth in the arrangement and state laws. Meanwhile, the home might be in a condition of disrepair and receive further damage as a result, dwindling the value of their investment.
Deal Falls Through
Although the seller does earn additional income if the buyer doesn’t or cannot fund the final purchase of the home, the seller now must find a new purchaser and deal with the condition the home was abandoned from the purchaser. The purchaser might have to find a new place to live and has lost any money she put toward purchasing the home and into the home for improvements.