Michael Edlen: Leasing vs Selling in Pacific Palisades

By Michael Edlen
Special to the Palisades News

Our team handles many leases and I am often asked to advise about the pros and cons of leasing a home versus selling it. Many people ask what the process is for leasing in Pacific Palisades and what are the owner’s responsibilities.

It is interesting to note that the Palisades lease market is similar in a few ways to the home sales market.

The number of local owners who decide to lease is nearly the same as those who sell, about 20 per month. The inventory level is similar, with less than a 3-month supply of homes for sale or lease, and it may take about 1.5 months to get a contract signed. Another similarity is that even in a strong seller’s and leaser’s market, 20-25 percent of those listed do not succeed.

Michael Edlen

The median Palisades leased price for the last year has been $7,900 per month. The current range of leases available through the MLS is $3,000-$50,000 per month, with the median being $12,000.

In some situations where it does not mat- ter to an owner whether they lease or sell the property, we have provided dual marketing.

In this way the marketplace can help determine whether the home will be sold or leased, or occasionally leased with either an option to purchase or an actual lease-purchase program. As there are 

many complicating issues when marketing in this manner, it is highly advisable to select an agent who has had experience dealing with such combinations.

The owners of a leased home will almost always continue to have all of the maintenance responsibilities as well as property taxes, and monthly fees if in a homeowner’s association.

Most often the owner pays for landscape and pool maintenance. Unlike many commercial leases, tenants generally pay for only their own utilities in a home.

Some owners prefer to handle the managing of their own property, others will ask a neighbor or nearby friend to watch over the property for them, and some prefer engaging a professional property manager to be responsible.

An alternative some clients have used is to provide an annual home warranty plan. With this arrangement, in case of some home repair needed, the tenant calls an 800 number and the warranty company sends a repairman out.

Typically, the repairman receives a service fee of $70, and their company covers additional costs of repair or replacement of whatever was needed in most cases.

Of course, there are exclusions from coverage, but most things that ordinarily might need attention are within the scope of the policy, subject to the exclusion of some parts or components. 

We know of a few different companies who provide such coverage. Some owners offer to reimburse the tenant for payment of the service fee while others have as a condition for leasing that the tenant is respon- sible for minor costs such as the service fee.

Although there are often some variations in services provided by agents, it is our policy to do full marketing for all of our leases, include personal showings by appointment in nearly all cases, and request the leasing agents get us tenant applications and credit reports so our clients can make initial informed decisions.

We usually suggest a letter of intent from the leasing agent, so the owners are able to respond more quickly to proposed terms and conditions before a full contract is drafted. Most of our leases include a two-month security deposit, held by the owner until the tenant vacates, to provide protection against damages that are beyond normal living usage of the home.

The fees for leasing are generally in the range of 6-8 percent, or often higher in cases of short-term rentals. The listing broker compensates the leasing broker as part of that fee, as it will be noted in the multiple listing service.

We usually have the tenants provide three cashier checks before taking the listing off the market: one to each Broker involved as their compensation, and the balance to the owner. 

Typically, there is additional compensation due to the Broker(s) if the tenant extends or renews the lease.

If an owner is planning to move from their home permanently, there are many issues to be considered in deciding whether to sell or lease. Many of these relate to cash flow, taxable events, advance financial planning and family emotional ties.

It is highly advisable in such cases for the families to meet with a seasoned real estate agent and to consult with their family financial and tax advisor before deciding which direction is the best one in their case.

My practice for many years has been to offer consultations on such situations, and there is never any obligation or charge for that service.

If an owner intends to return to their home after some extended period of travel or living elsewhere for his/her occupation or other temporary purposes, then leasing would usually be the preferred alternative to make. In this case, even though the property would not be made available for purchase, there are several safety actions that legally must be done before turning it over to a tenant.

(Michael Edlen has counseled hundreds of homeowners about the various alternatives and pros and cons regarding leasing or selling and can be reached at (310) 230-7373 or Michael@TheEdlenTeam.com)

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