WITHOUT HOMEBUYERS, SELLERS TURN TO RENTAL OPTION

MILWAUKEE - It’s a sprawling Arts and Crafts house on Milwaukee’s east side, with a brand-new kitchen, a brand-new master suite and vintage details such as leaded glass windows in the built-in china cabinet.

Last fall, David and Elizabeth Rubin put it on the market for $475,000. Now they’re asking $439,000 — a price that reflects a loss on the $100,000 they’ve spent on remodeling.

With no offers, they’re now offering the house for sale a month at a time: If a qualified buyer is amenable, the Rubins will consider offering the house on a rent-to-own basis.

They’d rather do that than drop the price. “It’s like the stock market: You don’t sell at the bottom,” Elizabeth Rubin said.

As houses sit, and sit, and sit on the market, some fed-up sellers are turning to rent-to-own, a tactic that all but disappeared from the market when home loans were easier to get. Also called lease-to-own, the arrangement appeals to would-be buyers who are stuck because of the same market dynamics: They want to buy, but their down payment is locked up in their own house that won’t sell.

Rent-to-own is fraught with pitfalls, say lawyers and real estate brokers. It’s harder than it looks to construct a fair contract, and sellers don’t always get what they want: an easy, automatic sale.

The Rubins bought their circa 1925 house when the market was hot and resale hassles were far from homeowners’ minds. As recently as 2005, according to statistics compiled by the Metro MLS, which records sales through brokers, the average time to sell a Milwaukee house was 59 days. Now, it takes an average of 100 days.

When buyers are scarce, sellers get creative.

“It’s filled with potential problems on both sides,” real estate lawyer Jeff Patterson said. “There are all sorts of situations that the parties can’t anticipate.”

Typically, a rent-to-own agreement stipulates that part of the monthly rent check is held in escrow for a down payment if the renter buys the house at the end of the lease. If the renter doesn’t buy the house, the seller gets the escrowed money.

The title is held by the seller, who is usually responsible for paying taxes. The rest of the details are up for negotiation: who pays for maintenance and repairs; how much money is held in escrow for the sale; security deposits; and tenant behavior and use of the property.

Too often, sellers are relieved to get someone — anyone — into the property, said Barbara Nichols, author of “The No Lawsuit Guide to Real Estate Transactions” (McGraw Hill, 2007) and a Beverly Hills real estate broker for two decades.

But sellers need to treat the deal as though the sale is imminent, she said. That means doing a credit check, ensuring that the buyer qualifies for a mortgage, and ordering an inspection to document the condition of the house.

What if somebody else wants to buy the house before the lease is up? “The seller is out of luck. It does tie up the seller’s property,” Nichols said.

If the renter decides to buy, the house still has to be appraised, financing arranged and the transaction completed.

Nasty surprises sometimes emerge, said Paul A. Maranan, a lawyer who often handles real estate transactions. If a prospective buyer doesn’t keep up with the rent payments, the seller might not be able to make the mortgage payments, and the house might teeter into foreclosure.

A long-term rental might violate the mortgage if it contains a clause requiring it to be paid when the house is sold, he said. And buyers need to make sure owners don’t run up liens against the property, such as home equity loans.

If the renters continue to rent, the sellers might find themselves running afoul of the requirement that the house be their primary residence for two of the last five years to qualify for favorable tax benefits, points out Patterson.

Of course, the whole point of rentto-own is that it’s a temporary arrangement for everyone.

Chris Muellenbach, owner of My Dwelling, a residential leasing firm in Milwaukee, has found a niche handling rent-to-own deals eschewed by real estate agents, who typically prefer to focus on transactions.

The sudden availability of houses for rent has been a boon to people relocating to Milwaukee who can’t sell their houses or prefer to rent while they get to know the area, he said.

The Gillespie family is moving from Michigan back to the Milwaukee area and isn’t having any luck selling a fourbedroom bilevel, asking $153,000, Erin Gillespie said.

“We’re going to rent until the house sells,” she said. “We don’t even want to write a contingent offer. It’s too scary.”

They want to rent where they’ll eventually buy so their children won’t have to switch school districts.

Every rental house she has found in the suburban areas they are targeting has been a rent-to-own.

So far, the Gillespies have looked at two rent-to-own deals offered by sellers who have already purchased their next houses. “But it makes me nervous,” Gillespie said. “What if the houses sell,” forcing the Gillespies out?