In real estate, a listing contract allows a broker to act on behalf of the property owner when dealing with their associated properties. The broker is a real estate agency, such as Funkhouser Realty or Old Dominion Realty. These are collectives of representatives whose jobs are to protect the interests of the property owner while serving as the middleman between the owner and their clients.

Real estate agents are the representatives of the brokerage firm who assist clients in renting, buying or selling a property. Legally speaking, these brokerage firms are required to host these transactions much in the way that stock brokers are needed to handle the purchase and relinquishment of stocks in a company. If one were to take the broker out of the picture, one has removed the legal grounds for certifiable exchanges to take place.

In particular, rent-to-own listings are a noteworthy topic because of the unique nature of the rent-to-own platform of exchange. While not considered a traditional means of putting a roof over one's head, it does merit consideration for the serious buyer whose needs are satisfied by the chance that a rent-to-own setting will provide them to buy their way up from a rented unit into an owned one.

When dealing with a rent-to-own unit, understanding how the upgrade into a mortgage works and who's responsible for what is an essential factor of the tenant's relationship with the real estate listing contract. Because every rent-to-own contract is a little different, the duties that are expected of the owner and the tenant can change over time and take unexpected turns without a closer look. Naturally, overtures of this nature should be handled by an experienced real estate attorney.

Factors to Consider

When seeking out a rent-to-own unit, the prospective tenant might be staring down a collection of opportunities without knowing which ones will suit their needs best. Since the home is going to be purchased, the first step is determining if the unit being checked out is a place that one would want to stay in for several years going forward. However, there are dangerous drawbacks to some contracts that can result in a great deal of wasted money on the tenant's part.

1. What exactly is an "option premium"?

This is money that's paid up-front when signing the lease that gives the tenant the option to upgrade from a rental situation into a mortgage over the course of that leasing period. The premium is usually between 2.5 percent and 7 percent of the final purchase price, which can be pretty expensive.

2. Where does the option premium go if the house doesn't end up purchased?

More than likely, the money will go into the owner's pocket — end of story. However, not every contract entails this, and some will allow the tenant to carry over some or all of their option premium into a new lease.

3. What relationship do the selling price and monthly rent have with each other?

Normally, the homeowner will charge an overhead to rent that contributes toward the purchase of the house. This overhead is determined as a percentage of the rent itself, which can vary. However, some contracts indicate that failing to buy the home by the end of the lease period will relinquish all of the overhead expenditures.

4. Over what time span does the leasing contract bind the client?

It's normally one to three years. The most important point to consider is if one can successfully meet the down payment and credit requirements to mortgage the unit before the lease expires, because failing to do so will typically result in four- or five-figure investment losses on the tenant's part.

Helpful Links

1. Wisebread.com - This article is a good resource to discover what to watch out for when contending with rent-to-own listings.
2. Investopedia.com - Investopedia is an excellent resource for understanding how to properly invest in a home, especially when it comes to the risks of a rent-to-own situation.
3. Zillow.com - For those who need a resource on where to find rent-to-own homes, Zillow is considered one of the best places to check.