Selling a rental house question

[paynointerest]

Hello,

I decided to sell my rental house and my tenant expressed interest in buying it.  The house is 6 hours from my primary residence and so making updates that it needs is challenging, unless I hire it out, but that presents its own set of challenges since I don't have a 'contractor' that I worked with previously.  I was planning to sell the house "as is" so I would not have to deal with major updates.  Since I have the chance to sell the house directly to my tenant, I was thinking I would save the realtor costs and avoid getting a real estate agent.

Has anyone on this forum had experience with selling a house "as is" or even by owner?  Is there anything I should think about before I move forward? Can anyone think of a reason why I would want to hire a real estate agent?  I thought about hiring one but negotiating the commission fee down to 2%.  In my mind the most work goes into marketing and showing the house and I found the buyer for the agent. 

Other important facts that might help:

• There is a major housing shortage in the area that my rental house is in and sellers in the price range my house would be at are paying more than asking. I think the house will sell quickly if sale falls through with my tenant.
• If I put it on the market, it would be May/June 2022 after lease ends for my current tenant.  This would give me 9 months to do updates that would be needed.
• The house is paid off.
  

I appreciate any advice anyone has.

[Bonny]

Sept 6, 2021 8:42:42 GMT -5 paynointerest said:

Hello,

I decided to sell my rental house and my tenant expressed interest in buying it.  The house is 6 hours from my primary residence and so making updates that it needs is challenging, unless I hire it out, but that presents its own set of challenges since I don't have a 'contractor' that I worked with previously.  I was planning to sell the house "as is" so I would not have to deal with major updates.  Since I have the chance to sell the house directly to my tenant, I was thinking I would save the realtor costs and avoid getting a real estate agent.

Has anyone on this forum had experience with selling a house "as is" or even by owner?  Is there anything I should think about before I move forward? Can anyone think of a reason why I would want to hire a real estate agent?  I thought about hiring one but negotiating the commission fee down to 2%.  In my mind the most work goes into marketing and showing the house and I found the buyer for the agent. 

Other important facts that might help:

• There is a major housing shortage in the area that my rental house is in and sellers in the price range my house would be at are paying more than asking. I think the house will sell quickly if sale falls through with my tenant.
• If I put it on the market, it would be May/June 2022 after lease ends for my current tenant.  This would give me 9 months to do updates that would be needed.
• The house is paid off.
  

I appreciate any advice anyone has.

I sold the condo I "inherited" from my mother about 5 years ago to the across the hall neighbors by owner.  I still got a real estate agent's opinion. Property wound up appraising for $30k more than I sold it for but that offset sales costs and taxes. My buyers accomodated my request to do an installment sale over two years which saved me a boatload on capital gains. Of couse that condo is now worth almost double what I sold it for.   I'm not sorry I sold it. I made plenty of money and it was a headache and 500 miles away. My mother had done a bunch of unpermitted improvements which I disclosed to the buyers.

If I were in your shoes I'd get opinions from three agents who work in the area. I'd also do a pre-sale home inspection which I would disclose to the buyer. In my state (CA) we usually don't use attys for simple real estate transactions but in your case you might want to use one who has a good purchase contract.

Good luck!

[bookkeeper]

DH and I have bought and sold several for sale by owner properties.  Last one we sold, I paid a realtor for a market appraisal.  It looked a lot like an appraisal for a bank.  She helped us determine price and we discussed the problems the house had.  For this I paid her $300.  

We had a boiler plate sales contract that we worked through with our buyer.  We closed with the help of our attorney, who we paid for ($600 I believe).  He took our agreement and cleaned it up and handled the closing.  Our buyers had cash and were buying the house in as is condition.

My piece of advice after having done this several times is this:  Make sure your buyer is serious about moving into your home.  Require a large earnest money deposit.  A buyer with $500 in earnest money can just walk away if they change their mind or find another property they like better.  If this happens, your property is tied up on the first sales contract and not on the market for anyone else to purchase.

Your deal sounds pretty easy if your renter has some money.  It is not out of line to ask to see the account statement of where the buyer is getting their money from to complete their purchase.  I bought a house in AZ and the seller's agent required proof of funds before signing the sales contract.

[MN-Investor]

I've never done this, but I do remember people advising that you have a real estate lawyer involved if you are selling a house on your own. For such a large financial transaction, that sounded like good advice to me.

[Tiny]

Do you think your tenant will be able to get a loan?   That's really the biggest thing.    There's a way to word the sale contract that limits how long the contract is in effect if the buyer can't get approved for a mortgage.    As in they have 15 or 30 days to secure financing... if they can't do that - the contract is null and void.     The tenant's lender may want the house appraised (and that there are no big local government impediments involved  - unpaid bills or fines). 

I was planning to sell the house "as is" so I would not have to deal with major updates.

What constitutes a major update? If the tenant is willing to buy the house - I'm guessing they aren't expecting you to tear out and redo the kitchen and baths. The tenant may have some concerns about the roof (if it's 25 years old and is 30 year shingles or if the HVAC is 20 years old).  Is local government involved in the sale?  Will the local government require any code violations to be corrected as part of the sale? 

Since I have the chance to sell the house directly to my tenant, I was thinking I would save the realtor costs and avoid getting a real estate agent.

I have sold a house to a tenant. I used a real estate lawyer who was familiar with all of the steps involved with selling a house in my suburb (the City is very involved in house sales - there's a city inspection, there's "transfer stamps" - a tax on the sale of the house, the city wants any and all "debts" paid - so water bill up to date, no outstanding Blight issues or fines outstanding on the property. My lawyer recommended/took care of the title company stuff and the city stuff. OK, his assistant did 95% of the work - cause it was all paperwork and scheduling.  All the paperwork parts (the city OK with no outstanding debts, the city OK with it's inspection and how we were handling the code violations, etc had to be there at the closing.  My lawyer held the escrow money as well (for the fixing of the code violations that the tenant was going to under take after the sale). My lawyer earned his money by making sure the sales contract was in order and all the paperwork with the city went thru. In fact I got the "boiler plate" contract from my lawyer. I and my tenant made some changes to it. The lawyer made sure it was all on the up and up. The changes to the contract were basically what conveyed with the house (all the appliances, the outdoor furniture and grill, the lawn mower and yard tools - the tenant maintained the property with my equipment/tools).

I hear in places with less local government involved in sales - that just using a title company will handle most of the ins and outs of the transaction.


In your shoes, I would get some opinions from real estate agents. You don't have contract with them to sell the house. If the house you are selling is a "cookie cutter" house in a cookie cutter suburb - you might be able to do some online research to see what other houses like yours have sold for recently. You can check out the pictures of the recently sold houses to see if they have painted grey (staged for sale) and what was done to the kitchens and baths.

If you go the sale by owner route - you will save the realtor fees (3% to 6%) of the sale price.

If you sell to the tenant - you may also save on NOT having to carry the cost of the unrented house for months (utilities, property taxes, insurances, lawn care, checking on the house, etc...)

If the roof is really old and HVAC is really old you may need to make some concessions for that if the buyer brings it up during the negotiation phase.

When you sell by owner, depending on how much leg work and time/effort you want to spend doing all the paperwork (finding a boiler plate sales contract online, making changes to it as needed for example), making lots of phone calls, going to City Hall, scheduling, and what not - you will need to use either a title company or a real estate lawyer (who is VERY familiar with handling local real estate).

A lawyer or a title company familiar with the local area will be invaluable.

The most stressful part of my sale to the tenant - was the tenant having trouble getting a loan for the house.  The lender was local and didn't like the way we structured getting the code violations on the house fixed.  The lender wanted them fixed BEFORE the sale not after.   The violations were things like "no railing on stairs" with the biggest issue being  the bedrooms each needed a special "escape" window to be "code".   The tenant wanted to fix these things with what they wanted when they fixed up the house after the purchase.     We got the local lender to agree to what we wanted via the Lawyer holding escrow money for the fix ups.       All the code violations where fixed within 3 months of the property being transferred to the new owner.    

[Tiny]

I'm biased. I look at and buy houses that I feel have good bones but need some DIY TLC or may need a new roof/HVAC in the next 3 to 5 years. I expect to NOT pay the same price as house that will NOT need a new roof or HVAC in 3 to 5 years.

That said  the tenant may be thinking they will get a BIG DISCOUNT on the house because a realtor is not involved. It will be up to you to decide how big of a discount if any you are willing to give the tenant.

The pros to the tenant are that they 'know' the house they are buying. They 'know' the area, the schools, the neighbors. They also will not have moving expenses.

The cons to the tenant are they "know" the house they are buying - so they may know if it will need a new roof or how old all the appliances are or the quirks with the HVAC and want an "allowance" for them in the price of the house.

If you aren't planning on doing a big repair (roof/HVAC, appliances,etc) before the sale  also remember a flipper (or just someone who is looking for a house with good bones to fix up the way they want it) aren't expecting to pay top dollar for a house they have to fix up .

You need to decide on a sale price that is agreeable between you and your tenant.

[countrygirl2]

We have done it and used a title company to make sure everything was in order.
It can save you money, if the buyer truly can afford to buy it.

[resolution]

I haven't sold a rental before, but I sold my previous residence last April. I would recommend getting an appraisal on it or at least a price estimate from a real estate professional. We were quite a bit off on what we thought our house was worth, our realtor had us price it 30k above what we expected, and then we accepted an offer for 30k over our asking, so it ended up being 60k over what we would have asked if we had done it on our own.

[kadee79]

I highly recommend having an attorney furnish all the proper forms & make sure they are all legal if you are going to be the "lender" on the sale...aka contract for deed. 

We sold one this way & were super glad we had the attorney do all the legal aspects.  It wasn't very expensive either. 

[ohmomto2boys]

We sold our last house ourselves.  We got all the necessary documents (including a purchase agreement) from a title company and our buyer hired her own attorney.   It went really well with the title company - her attorney was a pain at times, but that was her problem and money.