- Trying to buy a house.
- Along with -- what is the maximum you are willing to pay -- this is the most frequent question.
- Why do they care whether I will live in it or rent it out? The two are not mutually exclusive.
Update: this is for UK
Why do real estate agents always ask me whether I am buying property to live-in or as an investment?
asked Dec 18, 2020 at 12:24
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8"Why do they care whether I will live in it or rent it out? The two are not mutually exclusive." - they are depending on jurisdiction and zoning.– TomTomCommented Dec 18, 2020 at 13:55
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10Be sure to appreciate someone trying to give you good service. Poor agents assume what you need, rather than what you actually need. I would hope they ask these questions and a whole lot more.– Pete B.Commented Dec 18, 2020 at 18:01
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7@TomTom the UK does not have zoning in the same way the US does.– TimCommented Dec 19, 2020 at 10:42
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3Never, ever, tell them an answer to question 2. Remember the estate agent works for the buyer not you (in the UK).– Jack AidleyCommented Dec 20, 2020 at 8:04
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4@JackAidley: I think you mean they work for the vendor, not the buyer.– eggyalCommented Dec 21, 2020 at 12:22
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6 Answers
I like the existing answers, but I'll add another thought:
- They want to know if you're looking for a house that you like or want one that is a good bargain. Investors will buy a house that they personally don't like just because they think that there's more profit potential. It changes the conversations from focusing on emotional to financial aspects (repair costs, rental market, etc.).
answered Dec 18, 2020 at 14:17
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15Without reading any answers or comments this is absolutely the first thing that came to mind. Second is tax implications. Third is zoning. Commented Dec 18, 2020 at 20:33
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3@MonkeyZeus In the UK: tax implications are completely irrelevant from the seller's point of view, and zoning doesn't exist.– JBentleyCommented Dec 20, 2020 at 18:19
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@JBentley I meant taxes for the buyer as in stamp duty rates. So instead of zoning the LPAs tell you what you can or cannot use the land for? Next, you're gonna tell me that the U.K. doesn't have fries... Commented Dec 21, 2020 at 13:11
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1@MonkeyZeus The question is why the (seller's) agent wants to know. The seller doesn't particularly care whether the buyer will pay an extra 3% stamp duty. Sure, planning permissiion is required for a change of use (e.g. business -> residential, or 1 house -> 3 flats), but going from homeowner to renting (or vice versa) is not a change of use in the UK and you do not need planning permission for it.– JBentleyCommented Dec 21, 2020 at 15:29
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1@iheanyi Yes, that is the question - it's in the title. "Why do real estate agents always ask me.....". Real estate agents work for the seller; certainly in the UK, which this question is about.– JBentleyCommented Dec 21, 2020 at 21:51
Depending on country, some residences are restricted from being rented out (HOA, local bylaws, zoning). Since it is the real estate agents job to match a buyer with a house, this is important information for them to consider.
It may also make a difference for financing, which can cause a seller to look at other offers more favorably (this is why cash is king, it doesn't depend on mortgage approval). Banks typically want to see more upfront equity and offer worse interest rates for mortgages on rental units.
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So seems like being a live-in is viewed more favourably from a financing perspective; although it would suck if I decide to rent out part of the house only to find out some local zoning law prohibits that. Commented Dec 18, 2020 at 14:03
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1@A.L.Verminburger if you think you might be renting, mention it. If you plan on financing the purchase with a mortgage, you will also need to let your financial institution know, or finish paying the mortgage before you rent.– GOATNineCommented Dec 18, 2020 at 14:42
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1I realize this is tagged UK. In the US, a mortgage will typically state that the buyer affirms they will live in the house for at least a year. No need to notify the bank when moving out, only the insurance company to change status. And for those so inclined, a way to accumulate rental property buy getting 'owner occupied' rates along the way. Commented Dec 18, 2020 at 17:44
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@JTP-ApologisetoMonica I have a recent US mortgage and mine doesn't have such a clause. Its not a universal rule. Commented Dec 21, 2020 at 19:26
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1Understood. I try to choose my words carefully. ‘Typically’ means usually, but certainly not always. And there’s actually a chance your does, but you haven’t read every word of the stack of pages you signed. Commented Dec 21, 2020 at 19:30
They ask if are you going to live in the place or rent the place because are trying to understand you the customer:
- If you are going to rent the property you might be interested in places for sale that already have a tenant.
- If you are going to rent the place, then you might be more interested in places that are empty.
- If you are going to rent the place, you probably aren't going to make the deal contingent on selling your current place.
This also why they ask: condo/townhouse/single family; how many bedrooms; how much land; maximum price; preferred locations; do you have financing in place?
answered Dec 18, 2020 at 14:08
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1Am confused by your second point. Are most condos built to be rented out? What do they need loans for? Commented Dec 19, 2020 at 2:07
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@AzorAhai-him- I believe that's a typo. There are issues with condo complexes when too many are rented out. The banks prefer them owner occupied. Commented Dec 19, 2020 at 3:55
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@jtp that makes more sense. Condos designed to be purchased to be rented sounds like a racket Commented Dec 19, 2020 at 4:53
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I dropped the bullet point for two reasons: It is a US only issue for what is now a UK question, and it is too complex to only be a bullet point. The two times I tried to write it is spun out of control and in an effort to reduce the number of words it ends up with a structure I didn't like. Commented Dec 20, 2020 at 12:19
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2Note that in some countries (Germany), if you buy a home that's rented out, you may well have to wait decades before it becomes available to live in, because the tenants right to keep living where they do is stronger than the owner's right to remove tenants without cause.– gerritCommented Dec 21, 2020 at 10:22
(EDIT: There seems to be some cause for debate in the comments as to whether I am answering the OP's question. My answer is based on the principle that, in the UK, the agent works for the seller (and indeed is obliged by law to act in the seller's best interests), not the buyer. When an agent does or asks a particular thing, they are generally doing so because it will either help them (e.g. by selling the property and earning a commission) or help the seller. If doing so happens to also help the buyer then that is a happy coincidence, but it is not the overriding factor.)
The question is tagged UK. Unfortunately many of the other answers are inaccurate for this jurisdiction. In particular:
- Tax implications are irrelevant. It makes no difference to the seller whether the reason you are buying the property is to live in it or rent it out. It does make a difference to the buyer because it affects the rate of stamp duty, but the seller is unlikely to care about this too much unless they think you can't afford the stamp duty.
- Zoning is not a concept that exists. We have planning permission but this isn't needed for renting. In some areas you may need an HMO or landlord licence to rent. As with tax, neither of these are the concern of the seller.
What sellers typically are concerned with in the UK is your ability to raise finance. All other things being equal, a seller will prefer someone with a good ability to pay (e.g. cash buyer or with a straightforward mortgage application) over someone who will struggle, becuase this can be make a different of weeks or months to the transaction timescale.
The main difference between someone buying as a homeowner and someone buying to rent is the type of mortgage you will need (homeowner mortgage vs buy to let mortgage). With a homeowner you will be assessed on your income. With a buy to let you will largely be assessed on the rental value of the property. Depending on your circumstances, either or both types of mortgages may be very easy to obtain or very difficult / impossible. Sellers do not want to deal with the latter case.
"Why do they care whether I will live in it or rent it out? The two are not mutually exclusive."
Actually they can be mutually exclusive. Taking a buy to let mortgage and then living in it yourself will almost certainly be a breach of contract. Renting out with a homeowner mortgage also often requires the lender's consent under the terms of the contract. Lenders do not like you to have the wrong type of mortgage product because it invalidates their risk assessment. It is not uncommon for people to attempt to abuse the process e.g. someone with a very low income taking out a buy to let mortgage where the rent is sufficient to cover the monthly payments, then moving in to the property themselves. In my experience I've seen lenders going to extreme lengths to satisfy themselves that this won't happen e.g. requiring evidence that you have and will continue to have another residence available elsewhere, or wanting to see copies of tenancy agreements from the rest of your portfolio to make sure you haven't abused it in the past.
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If you do a homeowner mortgage can you later rent it out after a given amount of time? In the U.S. for a homeowner mortgage you need to occupy the property for at least a year, but after that you can rent out the space. Most people would try to get a homeowner mortgage if possible because the rates and downpayment tend be lower; is it the reverse in the U.K.?– jdeyrupCommented Dec 20, 2020 at 18:47
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@jdeyrup The answer to the first question is that it depends on what the terms and conditions say. Some may not care at all (e.g. my current one requires you to be occupying on completion day, and gives the bank the right to treat it as an event of default if you leave and it causes affordability issues). Others might require the bank's consent. I've never personally seen a 1 year restricted period, but that's not to say it doesn't exist. Homewoner mortgages are generally cheaper, yes.– JBentleyCommented Dec 20, 2020 at 20:47
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1@iheanyi The question is asking why the agent (who works for the seller, not the buyer) wants to know whether it will be to live in or to rent. I've explained why the seller (via their agent) would want to know this information. The reason I have gone into detail about mortgage terms is because the OP wrote "[occupying and renting] are not mutually exclusive" and I was explaining that they can be. That is a separate part of the question to the part relating to the agent's question. The seller will not care whether you breach your T&Cs.– JBentleyCommented Dec 21, 2020 at 21:39
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1@user3067860 The commenter above me is not the OP. I don't think the OP is using the terminology incorrectly. He has asked a fairly short and straightfoward question: why does the real estate agent want to know what the property will be used for?. I'm answering with what I believe is the most realitic answer. I will edit my answer to make clear that the estate agent works for the seller.– JBentleyCommented Dec 22, 2020 at 16:01
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1@user3067860 Yes, I agree with you partly there. Although the OP accepted that answer before there were any UK-specific answers available. Given their use of the terminology I suspect they are a non-UK person trying to transact in the UK. Hopefully my edit makes it clearer the direction I am coming from. It's important to get the distinction right, because may of the answers are outright wrong for the UK.– JBentleyCommented Dec 22, 2020 at 16:08
The realtor is trying to help filter what houses he shows you; they don't have unlimited time to go to every open house. If you are not sure what kind of house you want to buy you can do some browsing online in your country's real estate listing. You will get the most out of your realtor if you go in with a good idea of what you want so they can help you find it, and can point out potential problems with a house.
The realtors incentive is to get you the to buy the top of your range for a house because they are paid based on a percentage of the value of the house. If you set your range correctly that removes the realtor's negative incentive. If you want to rent out a property, you are most concerned with the relationship between the rental rate, costs of ownership and price; if you want to buy a house to live in you are most interested in the relationship between quality of living and price. While these are not mutually exclusive it is hard to optimize everything.
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2This sounds like you're describing the role of an agent representing the buyer, which is a role that doesn't exist in a typical UK house sale. The potential buyer will be shown round each property by the vendor's estate agent.– thelemCommented Dec 19, 2020 at 14:11
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1@thelem I am curious how the buyer is advised and protected in the UK. In the U.S. the buyer's agent isn't that useful in finding properties anymore since most of the listings can be found online nowadays. The buyer's agent provides value by negotiating with the seller, pointing out obvious issues with the a house quality and potential future value, and helps determine an offer by comparing the offer with similar houses sales in the area. It is an expensive service though they usually charge 2.5-3% of the sale price.– jdeyrupCommented Dec 19, 2020 at 21:00
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That. Showings are actual work that you have to leave the office for and may not ever make any money. Investment properties can be done at your desk drinking coffee and just have to look good on paper.– MazuraCommented Dec 20, 2020 at 0:07
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@jdeyrup That's really a question in it's own right. Seller's agent negotiates with the buyer. After an offer is provisionally accepted by the seller, the buyer will often pay for a survey from a qualified surveyor. Mortgage will insist on a professional valuation, which may be done by the same surveyor. For a cash buyer (i.e. no mortgage) it is up to them what they want to pay, and any consideration of future value. Sellers agent charges around 1% and accompanies viewings, or less and viewers performed by seller.– thelemCommented Dec 21, 2020 at 11:17
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In the UK, some agents will reach out to people and encourage viewings that they know are unlikely to lead to a sale. This demonstrates to the vendor that they are working hard to sell their property and can help the agent to convince the vendor to lower the price of the property if it doesn't sell. Knocking a few percent off the price makes very little difference to the agent's commission, but makes the property much easier to sell.– thelemCommented Dec 21, 2020 at 11:22
The real estate agents might offer additional services to landlords.
I'm not certain about the situation in the UK (though a quick Google search found at least one company offering these services), but in Australia, many real estate companies offer property management services, effectively acting as middlemen between landlords and renters as well as finding suitable renters for the properties; this can be a major source of income for them as businesses. According to this page, in Australia, the typical fees that real estate agencies make from these services range between 5-15% of the weekly rent, depending on the area the property is located in.
As a result, if you're looking to buy a house, it may well be useful for them to know if you're planning on renting it out, in order to determine whether or not they should try upselling you on property management services as well.
