December 4th, 2008 by Michael Oliver

Share This Post

Interesting idea to get homes sold in New York City national builder Toll Brothers is employing. Toll Brothers is using a “Try and Buy” also known as a “Rent To Own”, (Not in the traditional sense that, that name “rent to own” is used here in Tucson but a different program with the same name.) what’s happening is to help sell some of their units in NYC, Toll has decided to allow several units to be “rented” for potential buyers to “try out” for several months to see if the units fit as something the buyer would want to complete the purchase on. So here are essentially the ground rules:

1) Pre-approved buyer likes the unit but not sure they want to buy they can “rent” the unit for up to a year to see if it works for them. At that point (when potential buyer wants to start the rent period) buyer must show pre-approval (in this case with Toll Brothers Mortgage company) and then furnish the deposit money that would be needed for a purchase (even though there just renting.) Also a purchase contract detailing the exact price and other incentives is completed on the condition that the buyer chooses to buy the unit. If the buyer chooses to not buy then rent is obviously lost and the earnest money is returned assuming no damage was done to unit.

2) Buyer lives in unit if they decide to buy the property (at the agreed to price before they started renting it.) buyer can purchase and use up to the first 6 months worth of “rent” payments against the purchase of the unit. This is a nice incentive to get the buyer to buy since it essentially amounts to the buyer getting a free place to live for those 6 months. After the first six months that amount of rent that can be taken off the purchase price reduces on a percentage basis.

So will this be coming to Tucson soon for all sellers to try to use to get their properties sold? I’m not sure, it’s an interesting concept but I see problems. What if the tenants destroy the property? I guess earnest money (security deposit) would need to be large. Truth be told that’s always an issue with tenants anyway that’s nothing really new. The real lynchpin of the deal is that when the tenant becomes a buyer the amount of the rent is credited back to the buyer off the price of the property…That’s easy for a developer to do, however for an individual homeowner in the current Tucson marketplace equity is an issue. A lot of sellers have very little equity making the ability to credit what could become $10,000 or more (over the course of the year) tough to come by. Also I can see other issues what if from the time the buyer started renting to the time they decide to buy the real estate market has fallen more and they #1 don’t want to buy at the higher pre-negotiated price or #2 the home no longer appraises for that price? This in most circumstances equates to the seller reducing the sales price to get the property sold. Now if rent is being credited to the buyer this could help to lessen the chances of this occurring.

I personally don’t see a lot of this possibly happening in Tucson, for one thing unlike a major developer sellers for the most part are physically living in the home they are trying to sell. So for them to move out for the “chance” that a pre-approved buyer wants to try-out there home to see if it works for them seems a little far fetched. Now for all the new construction homes sitting around town this could be a very viable option to sell a couple of those homes. If I were a builder I would for sure look into seeing if this “try-out” period would be attractive for a potential buyer to take advantage of. This of course is not ideal for the developer but selling a property anyway that you can is better then nothing and if Toll Brothers has started doing it rest assured you will see other builders/developers start to roll out incentives a lot like this in the future. Either way its interesting to see what other markets are innovating to entice buyers to buy in today’s challenging marketplace.