Homeowners Discover Way to Buy New Home Without Taking a Loss
By: Jean Murphy
January 29, 2011
Linda and Matt Serafini found themselves in a bind. The two-bedroom duplex they bought in Joliet three years ago had lost $73,000 in value, thanks to the difficult real estate market and overall economic downturn. Add to that a new baby daughter with all of the toys and furniture that entails and you have an increasingly crowded situation.
The Serafinis knew they needed a larger home, but they didn’t want to sell their duplex at such a large loss. Nevertheless, each weekend they found themselves driving around looking at new home communities in Homer Glen and Lockport, near where Matt, now a banker in Naperville, grew up.
That is when they stumbled upon William Ryan Homes’ Maple Hill subdivision in Lockport and learned about the builder’s unique financial arrangement with Marketplace Homes.
Based in Detroit, Marketplace Homes is a company that offers long-term guaranteed lease programs for up to six years to homeowners who buy new construction homes from their partner builders. In Chicago, those partner builders are William Ryan Homes, WestPoint Homes and Orleans Builders.
The Serafinis are part of a growing segment of the population that know that now is a great time to buy a home if you can do it, but who don’t feel that they can take that step without selling their current home. Marketplace Homes gives them another option.
“William Ryan Homes and Marketplace Homes gave us the flexibility to buy a new home now,” Linda, a Schaumburg High School teacher, explained. “Without them, we wouldn’t have wanted to put ourselves in a position where we had two homes and had to rent one house ourselves and be landlords.”
After a phone interview with Marketplace representatives and a credit check, the Serafinis were approved for the program and given a guaranteed monthly lease amount that covers their mortgage and taxes. Even if Marketplace cannot rent the Serafini duplex, the couple gets paid.
The two parties also agreed upon an amount for which the Serafinis would be amenable to selling sell their unit and if Marketplace finds a buyer at that price, they will happily sell it and Marketplace would earn the sales commission.
With that Marketplace contract in hand, the Serafinis were then able to contract for the construction of a much roomier, four-bedroom, 3,000 square foot home with a full basement in Lockport. They expect to make the move in May.
“We are very excited. We could have physically stayed in our current home, but this is the first grandchild on my husband’s side of the family and after Christmas, we needed another home for the toys alone,” Linda laughed. “Toys filled every corner.”
Vice President of Sales for William Ryan Homes, Debbie Beaver is very enthusiastic about this new program.
“Since we signed our agreement with Marketplace Homes on December 5, we have sold seven homes to people using their program and expect to sell two more this weekend,” she said. “We have also been inundated with inquiries from other interested buyers.”
According to Beaver, there are many people with good credit scores (650 or above), good savings for a down payment and good jobs who haven’t been able to buy a new home because they can’t sell their current home.
“In most cases these are dual income families that have outgrown their current homes. They thought they had no choice but to stay in that home, however, because they are now upside down on it. Their only other choice would have been to do a short sale,” Beaver explained.
William Ryan Homes’ Florida division has been using a similar program for several years, so when they heard about Marketplace Homes entering the Chicago market, Beaver was one of the first to investigate and sign up. She is happy to pay the Marketplace commission for each William Ryan home that is sold using the program. It is a very worthwhile investment, in her opinion.
“As a financially-minded person, this totally makes sense to me,” she explained. “Our challenge now is to educate our salespeople and, in turn, our buyers, about how it works.”
So Beaver has found herself doing much of that one-on-one work with clients. But she said she is perfectly fine with explaining to homeowners how this works with regard to tax deductions, interest and insurance.
The homeowner gets the guaranteed monthly rent. Marketplace makes sure that all utilities on the home are paid, either by the renter, or by Marketplace itself. If the renter eventually buys the home, or if someone else does, Marketplace acts as the Realtor and earns the commission that was agreed upon in the contract. Marketplace also makes money from the new homebuilder who pays them a commission for facilitating a purchase that probably wouldn’t have happened without them.
“And I am putting all of these buyers into FHA loans with 3.5 percent down and William
Ryan is paying the closing costs,” she added.
William Ryan Homes currently has active single family subdivisions in Elgin, Joliet, Lindenhurst, Lockport, Naperville, Volo, Libertyville and Shorewood. Homes range from $175,000 to $300,000.
Mike Kalis, managing partner of Marketplace Homes, used to work for one of the large, publicly-traded builders and back in 2002 when they started encountering prospective buyers who couldn’t sell their existing homes, Kalis developed a guaranteed lease program that has morphed repeatedly over the years. In fact, it was even spun off into an independent company.
“We consider this to be solutions-based selling,” Kalis explained, “because if you have a growing family and you are stuck in a two-bedroom condo or small home that you can’t sell, you need a solution.”
“We have found that this is a great way for homebuilders to reach clients who otherwise have stopped looking for a new house,” he said.
According to Kalis, most of their clients don’t want to rent out their current home themselves because they don’t want to be a landlord. But through Marketplace, they can rent their home, have a guaranteed payment each month and also a guarantee that utility costs and maintenance will be handled.
Ninety percent of the buyers Marketplace works with have growing families or are relocating to a new city and cannot sell their home for a price they can live with, according to Kalis. While any size home will be considered, most they accept will eventually sell for under $300,000.
“Their only options, without us, are to stay in the home, execute a short sale of the home or rent it on their own. We are the best alternative for them,” he explained.
As long as they have a credit score of at least 640 and can qualify for an FHA loan with their prerequisite down payment, they usually qualify for the Marketplace program.
“This is a great time to lock in a low interest rate and they can also get some great tax write-offs,” he added. “They can depreciate the value of the rental home against their income, plus they get full mortgage interest write-offs on the new home.”
On the other side of the transaction are the renters. Since Marketplace Homes is willing to work with people who have been through a foreclosure, this is currently a very strong market. In fact, they boast 95 percent occupancy in their properties across the country in 13 diverse markets — Detroit, Nashville, Minneapolis, Denver, Orlando, Columbus, St. Louis, Chicago, Dallas, Houston, Cincinnati, Philadelphia and Indianapolis.
“Our renters are people with good jobs and good incomes who want to rent or who have to rent because they have recently been through a foreclosure or other setback. Many want to get into a rent-to-own situation,” Kalis said.
So far, most of the renters in their 200-plus properties have chosen to renew their leases. Few have purchased but Kalis is confident that will happen in time.
“It will take a few years for the real estate market to recover, but in the meantime, people can lease out their homes and move on with their lives while they wait for prices to inch up again,” he said.