Seller is eager to offer a nice-looking house on a rent-to-own scheme: could this be some kind of scam?

Question

A couple of years ago I was looking to move from the townhouse I was renting. After checking the rental adverts at craigslist I made an appointment to see an townhouse that looked quite nice and clean and was located in what seemed like a nice, safe neighborhood (at most 1 hour travel from Framingham, MA).

The gentleman who showed me the (empty) house explained that he was also willing to sell the house under a rent-to-own scheme, if I was interested. He said that we could set the down payment to anything I thought was reasonable.

Overall on the surface it looked like the townhouse would not have been a bad purchase. It seemed to be in a great condition and not too far from my work at that time.

What sort of concerned me at the back of my head was that the seller seemed quite eager in getting me to come and sign the contract and perhaps make a down payment on the house, but he had not asked me anything about what kind of (if any) work I do and how much I am making. Also the townhouse looked very nice, like something that I felt he should not have had problems selling through a real estate agent.

So I ended up with a feeling that something seemed fishy and I decided to rent another townhouse instead.

Of course, it may have been that nothing was explicitly wrong, perhaps the individuals behavior (or lack thereof) had made me concerned without any real reason. Anyway I eventually had to relocate because of work so in the end it felt better that I had not tied myself to buying his property.

Now I see quite a few "rent to own" properties on for example craigslist and have been wondering if there are any known scams with the rent-to-own schemes?

And what steps can be taken (questions to ask, etc.) to avoid being scammed?

Answer 1

Any thing can be a scam. More so when a deal of any kind seems to good to be true.

In this case, you need to ask why the seller is motivated. If the townhouse is worth what he's asking for it, how does it benefit him to rent (to you) to sell it?

There's something to be said for going with your gut. At the very least, check out the neighborhood (I live in Massachusetts, and your hour circle encompasses a majority of the state population, no idea what town you mean). And make sure this is the actual owner, I've seen scams where a tenant sublets, stops paying rent, but collects the money for a few months. You don't want to be on the short end of such a scam.

Answer 2

COULD it have been a scam? Sure. But there's nothing inherently suspicious about a rent-to-own scheme.

Details would depend on exactly what sort of contract you drew up. But in general, the advantage of a rent-to-own plan to the buyer is that,(a) he doesn't have to meet the bank's criteria to quality for a mortgage, (b) he has the flexibility to decide not to buy after living there for some period of time, and (c) there is typically no down payment. The big advantage to the seller is that he may get a buyer that he otherwise would not have gotten, and he probably not have to pay a realtor's commission.

If the seller never checked your income and such, it's possible that he was simply not experienced in real estate and didn't think to do it. Or maybe he was planning to get a full credit report on you and you just didn't get far enough along in the process.

The fact that the seller seemed eager doesn't really prove anything either. Just because a house looks nice doesn't mean that it is easy to sell for the price that the seller wants. I have no idea what the housing market is like in your area. It could be that the going rate for a house of this level of "niceness" is less than what the seller still owes on it. Maybe it's been empty for a long time and he just can't get what he considers a fair price. Or he might think -- rightly or wrongly -- that he'd get more with a rent-to-own deal than with a conventional sale.

If you know the market and you know that a house like this could easily sell for, whatever, say $200,000, and this person is extremely eager to sell it to you for $20,000, yes, I'd be suspicious. You should certainly take steps to protect yourself from scams, like someone trying to sell you a house that he doesn't own, or selling a house with serious problems at a pristine-house price. You always want to balance the old adage, "if a deal sounds too good to be true, it probably is" with being so afraid of being scammed that you pass up a good deal.

BTW I once rented out a house I own under a rent-to-own scheme. The deal ultimately fell through and they didn't buy the house, but I certainly wasn't trying to scam anyone. :-)