I’ve been selling real estate for a pretty long time and in the course of my career I’ve been involved in a few direct landlord to tenant transactions. The advantage for both parties is that the property does not need to go on the market. It is also the disadvantage because neither party can be sure of the true market value of the home without exposing it to the current crop of prospective buyers. The landlord might have gotten more by going on the market. The tenant might be overpaying.
There have been a few transactions that didn’t come together for a variety of reasons. Most often the tenant simply can’t afford the house, after all I mostly sell in Marin County which is a very tough nut to crack. Recently a tenant contacted me about buying the home they were living in. They had a laundry list of issues with the home and thought a good value for it would have been $900,000. That didn't go over well and the owner ended up asking the tenant to leave and putting the house on the market with another Realtor for nearly $1.5 million. Their opinion of value apparently was inflated as they’ve come down $100,000 and the property has yet to attract an accepted offer. We’ll see where the property sells, or if the landlord is even willing to sell the property for its current market value which I believe is somewhere between the current list price and the tenant’s price expectation.
In another case the landlord refused to sell to the tenant and would not entertain an offer. They wanted the tenant out so they could expose the property to the market as vacant and ready to go. The tenant was willing to make a pretty good offer too, but the sellers did some work to the house and ended up getting more for it than they would have by selling directly to the tenant. They may have gotten $10,000-20,000 more, I can’t remember exactly. Was it worth it? The tenant had been there for nearly a decade. Did they deserve a break? They weren’t entitled to it but a break would have been a very nice thing to do under the circumstances.
In the end a real estate transaction comes down to money and sometimes how the seller and buyer feel about each other. I had another landlord to tenant transaction that went very smoothly. The buyer and seller agreed upon the price after I did a valuation. Both parties appreciated the ease of the sale and felt like it was a fair deal. The buyer and seller were happy, and you really can’t ask for more. But sometimes the most important thing is to max out the value of the asset.
There are sellers who need to get as much as they can get from a transaction. In the case of a trustee sale it’s the fiduciary duty of the trustee to get the most money possible for the trust. Sometimes people are selling and it’s literally their nest egg at stake, money they need to make last for the rest of their lives. In those situations I advise putting the home on the market. There are lots of things to consider when a tenant buyers from a landlord. It can go very well, or it can go nowhere at all. In my experience I haven't seen it fall anywhere between those extremes: it's usually a great transaction or no transaction at all.