The Financial and Consumer Services Commission (FCNB) has heard concerns from the New Brunswick Real Estate Association (NBREA) about consumers with complaints regarding Rent-To-Own arrangements for the purchase of a home. FCNB encourages New Brunswickers to learn about and follow best practices when they are considering a rent-to-own arrangement for a home purchase.
A rent-to-own arrangement involves two agreements: a lease agreement and an option to purchase. The lease agreement in most respects is a typical landlord-tenant agreement to rent the home at an agreed-upon price for an agreed-upon term. The option to purchase agreement gives the renter the right to purchase the property from the landlord and requires the landlord to sell the property to the renter, if they exercise the option within an agreed-upon time frame. The sales price may be determined at the time they enter the agreement or when the tenant exercises the option, based on the market value of the property at the time. During the term of the lease, the renter may agree to pay a higher rental rate so that the extra funds may be allocated to reducing the final sales price for the home. In some cases, this lowered sales price allows renters to qualify for a traditional mortgage with a financial institution.
FCNB encourages New Brunswickers to use the following best practices when considering a rent-to-own arrangement:
- Understand the agreement you are being asked to sign. Always read the agreement you are signing, be sure you fully understand what you are committing to. For example, ask whether you are responsible for maintaining the home or paying property taxes. What happens if the roof needs to be replaced or another major repair is required? Always have your lawyer review the agreement before you sign.
- Speak with a financial institution to determine whether you currently qualify for a mortgage, and if so, how much money you are qualified to borrow. This can help you determine whether the mortgage you qualify for will be sufficient to cover the eventual price of the home after the rent-to-own period is over.
- Treat the lease agreement like you would a home purchase. Keep in mind that when the rent-to-own period is over, and you still cannot afford to buy the home or decide not to buy it for other reasons, depending on the terms of your contract, you may lose the extra money you paid with each rental payment to lower the sales price of the home. Know whether any extra payments are refundable if you don’t exercise the option.
- Study the local real estate market for the area where your home is located. Are housing prices rising or decreasing in value each year? Are they staying the same? Is the sales price your landlord is requesting realistic for the market? It’s important to understand that if the home you’re renting to own loses value during the rental period, you will still be required to pay the final sales price that you negotiated with your landlord.
Consumers are urged to ask questions, to not act under pressure, to do research and to read all agreements when they’re considering a rent-to-own arrangement. When a deal sounds too good to be true, it very well could be.
The real estate industry is co-regulated in New Brunswick by FCNB and the NBREA. Consumers who have concerns about a real estate agent or salesperson should contact FCNB and the NBREA.