There was once a time when looking for a home involved driving through countless neighborhoods looking for “For Sale” signs or finding out about properties through the classified ads. While these methods helped match buyers, sellers, and renters to properties, they weren’t nearly as efficient as today’s online tools.The best real estate websites are helping people, whether they’re buying, selling, or renting, find what they want and need easily instead of wasting time looking at potential properties that aren’t a good match.

Gone are the days of finding a property and preparing to see it, only to find out that it is already sold or rented upon arrival. These websites update listings frequently, minimizing the frustration of finding the right home. In addition, the tools on these websites equip consumers with much more knowledge to avoid sketchy situations and get the best deal. Likewise, the best realtors, real estate agents and property management companies can avoid wasting time with prospects who aren’t serious about acquiring real estate. This guide has all the information you’ll need about the best sites for real estate.

1. BEST OVERALL: Zillow
2. BEST FOR BUYING: Redfin
3. BEST FOR RENTING: Apartments.com
4. BEST MOBILE APP: Trulia
5. BEST FOR FORECLOSURES: Auction.com

What to Consider When Choosing One of the Best Real Estate Websites

Choosing one of the best real estate websites is beneficial for many reasons. For one, there are millions of listings on these sites, meaning the potential to land the perfect property is better than ever. There’s also a spectacular marketplace for bringing buyers, sellers, renters, property managers, and agents together to do business much more efficiently than in the past. Here are some factors to consider when using these sites.

Site Type

Although most of the best real estate websites have similar tools and platforms, not all have the same offerings for users. Some sites offer buying, selling, and renting options. Others only offer selling options, particularly for those interested in a specific property type, such as investment properties. In addition to providing real estate listings, some of these sites offer various tools that can help users, such as valuation tools, mortgage estimators, and more. Users can search for or list properties using their computers or the best home buying app. Many of these sites allow people to perform tasks independently that they once had to rely on agents for. Users can now publish a rental listing or list a property on their own. These functions are great for those who are savvy with real estate. However, hiring a real estate agent may be a better option for those who aren’t sure how to execute these tasks from beginning to end successfully.

Search Parameters

The best real estate websites offer a multitude of search parameters to narrow down a home search. Basic search parameters include location, price, and number of bedrooms and bathrooms. More advanced parameters include amenities, school districts, square footage, and crime data. With these search parameters, users can go from general to specific with just a few clicks. Some sites also let users exclude properties by specific parameters as well. They can exclude for-sale-by-owner listings or any homes with basements, just to name a few examples.

Site Tools

Another great aspect of the best sites for home buying or selling is that they offer tools to help customers through the purchase process, including mortgage preapprovals and affordability calculators. Tools like home value estimators are especially beneficial for the selling side. A home value estimator can give homeowners an idea of how much their house is worth before they even meet with a real estate agent. Other useful site tools include property management and tenant screening tools for landlords. Renters can also use some of the best apartment website tools to figure out how much rent they can afford, find an ideal place to live, and pay application fees.

Finding an Agent

Before buying or selling, some customers may already have a real estate agent they want to work with. But many might not have that personal connection, which can make them feel like they’re behind a step in the process. Luckily, the best real estate websites let potential buyers or sellers connect with the perfect real estate agents. Users can find an agent familiar with the area who is well-versed in comparable properties. This takes the legwork out of reaching out to family and friends for recommendations and personally vetting each agent over the phone.

Ease of Use

Using a clunky and counterintuitive website is anything but pleasant. And when many buyers or renters are checking real estate websites daily to see the latest listings, it’s essential to have a real estate website that’s seamless and user-friendly. The best websites in this category will have a clear layout and navigable design. Most sites incorporate maps with the listings so users can quickly identify where a property is located. The listings will also be easy to read with clear photos and all pertinent information listed.

Our Top Picks

For those who are looking to buy, sell, or rent real estate, the following picks will yield high-quality results and useful tools.

Photo: zillow.com

Why It Made the Cut: Zillow is committed to improving the user experience through cutting-edge technology and valuable tools that help buyers, sellers, and renters.

After a frustrating real estate experience, former Microsoft executive Rich Barton and several colleagues formed Zillow in 2006. Barton believed that adding technology to the real estate process would revolutionize it—and his hunch was correct. Since then, Zillow has become one of the best in the online real estate marketplace, and it boasts high site traffic and the largest online database with millions of sales and rental listings. The site has a comprehensive collection of calculators, advertising, and Zestimate tools. Since Zillow’s inception, Zestimate has been a way for users to understand how much a property is worth without soliciting appraisers or agents. Zestimate has a relatively low median error rate of 1.9 percent for on-market homes, meaning that users are more likely to get an accurate valuation. Users can also access Zillow’s home value comparison tool to select two or three specific listings and directly compare features and home values. The platform lets users search not only for real estate agents but also for inspectors and builders, and Zillow serves as a real one-stop shop for all things real estate. Zillow’s listings may not update as regularly as other sites, but with all of the listings and traffic, buyers, sellers, and renters can’t pass up Zillow as a leader in online real estate.

Specs

• Site type: Real estate listings website
• Buying, renting, or selling: Buying, selling, renting
• Search parameters: Price, beds, baths, square footage, home type, amenities, view
• Site tools: Calculators, Zestimate, property management, advertising

Pros

• Relatively high site traffic and number of property listings
• Users can search for and post both sales and rental listings
• Home value comparison tool
• Customers can search for agents, inspectors, and builders
• Relatively low home valuation median error rate of 1.9 percent for on-market homes

Cons

• Widely variable completion times for new listings and updates

Photo: redfin.com

Why It Made the Cut: Redfin is not only an online real estate marketplace but an extension of brokerage services, allowing potential buyers and sellers to have direct access to professional real estate agents.

Founded in 2004, this Seattle-based brokerage has skyrocketed in the online real estate marketplace. While Redfin prides itself on its technology, much of its strength lies in connecting qualified, vetted agents to buyers. Redfin employs its agents, who earn salaries as opposed to relying on commissions. Redfin agents might have more clients than independent agents, so they may not be able to provide as much focused attention. But this approach may benefit buyers who prefer a slightly more hands-off process. Buyers and sellers who use a Redfin agent also can earn back part of the agent’s commission fees through the Redfin Refund program. Redfin understands that when dealing with a purchase as big as a new home, saving every bit of money counts.

One of Redfin’s other significant advantages is updating its listings every 5 minutes, providing users with the most timely information. Redfin has a comprehensive selection of search filters to make finding the right property easy. It also features site tools like an agent finder, mortgage preapproval, and home value estimator.

Specs

• Site type: Discount brokerage
• Buying, renting, or selling: Buying, selling
• Search parameters: Price, beds, baths, square footage, home type, status, stories, home features, listing type, schools
• Site tools: Affordability calculator, home value estimator, mortgage preapproval, agent finder

Pros

• Buyers can connect to vetted, qualified agents
• Buyers and sellers can earn back money with Redfin Refund
• Comprehensive selection of search filters
• Listings are updated every 5 minutes

Cons

• Agents may not be able to provide as much personalized support

Photo: apartments.com

Why It Made the Cut: Apartments.com is supported by a robust research team and uses innovative tools to make finding the perfect apartment easy.

Founded in 1992 and purchased by CoStar Group, Inc. in 2014, Apartments.com offers renters access to an online database of over 1 million properties for rent, including apartments, townhouses, and single-family homes. Local area guides provide in-depth information about a town or neighborhood, which is a great feature for users moving to a totally new place. Users can sift through listings with ease thanks to the wide variety of filters and amenities tags, so there’s no need for renters to waste time looking at properties that don’t have what they need. Apartments.com also has a helpful affordability calculator to help renters figure out how much they can afford to spend on rent per month. The app isn’t the most user-friendly, but luckily Apartments.com’s website is smooth and streamlined, so users should have no problem finding the perfect rental.

Specs

• Site type: Apartment listing site
• Buying, renting, or selling: Renting
• Search parameters: Price, beds, type, move-in date, lifestyle, amenities, affordability
• Site tools: Rental calculator, rental management tools

Pros

• Rental-focused site
• Area Guides provide information about listing location
• Robust selection of search filters and amenities tags
• Easy-to-use rental calculator tool

Cons

• App is not as user-friendly as website

Photo: trulia.com

Why It Made the Cut: Trulia provides users with a streamlined mobile experience. And backed by its parent company, Zillow, it offers users access to plenty of up-to-date real estate listings.

Established in 2005, Trulia has become a strong contender in the online real estate marketplace. In 2015, it became a subsidiary of Zillow, giving the platform an added boost. While there’s no option to list directly on Trulia, this app caters to renters and buyers with its plethora of purchase and rental listings sourced from Zillow. Trulia offers one standout feature: Users can search listings by keyword, meaning that if there’s a particular feature they want in a new home, they can enter that criteria to prevent sifting through search filters to find the perfect home. Trulia also highlights properties based on real estate markets or popular searches. There’s no better option than Trulia for users who want to tackle the home search from the palm of their hands.

Specs

• Site type: Real estate listings website
• Buying, renting, or selling: Buying, renting
• Search parameters: Price, beds, baths, home type, listing type, square footage, keywords
• Site tools: Calculators, mortgage prequalification

Pros

• User-friendly mobile app
• Syndicated listings with Zillow
• Users can search listings by keyword

Cons

• No option to list directly on Trulia

Photo: auction.com

Why It Made the Cut: Auction.com has created an online marketplace to access foreclosure properties more efficiently.

Since 2007, Auction.com has compiled an enormous amount of data in its online database about distressed properties that appeal to real estate investors. Buyers have access to over 30,000 foreclosure and bank-owned properties. Once a potential investor or buyer creates a profile, they can start saving properties, learning more about them through the various site tools, and even obtaining relevant recommendations for other properties that may interest them. Users can bid for properties online, or they can opt to attend an in-person auction. Auction.com’s team helps auction winners close the deal between the bidder and the seller in a seamless way. Although finding and purchasing properties on this site is relatively easy, most properties will need to be purchased up front with cash. As long as buyers are prepared for the out-of-pocket costs, Auction.com is an excellent place for users to find and flip that hidden gem.

Specs

• Site type: Real estate listings website
• Buying, renting, or selling: Buying
• Search parameters: Asset type, buying type, condition
• Site tools: N/A

Pros

• Comprehensive listings of local foreclosures and vacant properties
• Choice of online and in-person auctions

Cons

• Most properties need to be purchased up front with cash

Our Verdict

After researching a multitude of real estate websites, we determined that our top choice is Zillow because it is a one-stop-shop for buyers, sellers, and renters with a wide array of useful tools for all parties. Another one of our top picks is Redfin for its ability to connect clients to agents and its database that updates listing info every 5 minutes.

How We Chose the Best Real Estate Websites

Choosing the best real estate website was not easy because many options are available. The ones we chose provide consumers with many property listings, but they also offer plenty of valuable tools, making property search and marketing convenient for users and providers. Another reason we chose this mix of websites is that they have something useful for all types of property seekers, from renters to home buyers to those looking for an investment property. Additionally, we like the search parameters and filters these sites provide to make the user experience as accessible as possible.

Before You Use One of the Best Real Estate Websites

Although anyone can use one of the best real estate websites, there are a few things to consider to make the experience worthwhile and productive. Users should be clear on whether they’re looking to rent, buy, sell, or invest. Another consideration, especially when buying or looking for an investment property, is whether someone has enough money to make a significant purchase. Luckily, many of these sites have affordability tools built in, giving users an idea of what kind of payments they’ll need to make to purchase a property.

Shoppers should also identify the pros and cons of using a real estate agent. Real estate agents are educated by some of the the best real estate schools, and can smooth out the buying and selling process; but some shoppers may prefer to go down the for-sale-by-owner route. Many of these sites allow users to filter agent listing and for-sale-by-owner listings so shoppers can find just what they’re looking for.

Cost of Using One of the Best Real Estate Websites

One of the great factors about most of the best real estate websites is that they are free to use. Most users can accomplish much by using the free services to find the ideal rental property or buy a home. However, some sites charge fees, depending on how a person uses the site. For instance, customers who plan to list on Zillow can expect to pay a fee for listing on the site. If customers use Redfin’s agents, their agents will earn a commission upon completing the transaction.

The Advantages of Using One of the Best Real Estate Websites

Using real estate websites is a great way to learn about the state of the market. It allows buyers more independence than relying solely on agents to find potential properties. And because many of these sites offer additional tools to sellers and landlords, it is also a one-stop shop for marketing properties and receiving payments. These sites are also advantageous for real estate investors because they collate many properties into one location, so investors don’t have to search through the classified ads. For real estate agents, these sites can put them in contact with a wide range of customers who they wouldn’t be able to reach otherwise. Ultimately, the best real estate site is beneficial for users on all sides of real estate.
Searching the sites is free.

• Users have access to a large number of property listings.
• Potential buyers or renters can browse many properties without involving real estate agents right away.
• Built-in tools streamline the buying and selling process.

FAQs

The best real estate websites make it easier for buyers, renters, and investors to explore and access plenty of properties that would otherwise not be available to the public. They also are an exchange for real estate agents and sellers to make the public aware of properties for sale or rent. However, you may have more questions about these sites. Here are answers to frequently asked questions.

Q. How do real estate websites get data?

Real estate websites get most of their information from a multiple listing service (MLS), which is data typically owned and controlled by real estate agents. The MLS gives permission to these sites, which in turn provides them with greater reach and more opportunity to complete real estate transactions.

Q. Are real estate websites accurate?

It depends on what information or tool you are using. In terms of real estate listings themselves, most of these sites aim to keep updated information on the site. In terms of valuation estimators, these aren’t necessarily accurate but do provide a starting point for most home sellers.

Q. Are there fees to use real estate websites?

Using the sites to search through properties typically is free of charge. However, some of these sites offer additional services, such as rental listing services, that come with a fee.

Q. Do real estate websites charge a fee for a successful purchase of a property?

The real estate website itself does not charge a fee for a property purchase. Real estate agents gain a commission off of home sales, so they will earn a percentage of the purchase price if you found your agent on one of these sites.

Q. Can I find a real estate agent through real estate websites?

Yes, most sites will have a feature that allows users to connect to agents.

Q. Is it safe to buy real estate through a real estate website?

Most of these sites contain legitimate listings, and you can safely purchase, rent, or invest in these properties. However, some sketchy listings may exist on these sites. A user should use their best judgment to avoid unscrupulous activity and never enter into a deal without thoroughly vetting a property or the agents.

Buying your first home in Southern California can seem like a daunting task, especially if you’re not made of money. High on the list of intimidations for first-time home buyers are stratospheric home prices and cutthroat bidding wars.

Clearly, it’s still possible to become a homeowner — people do it every day, even in the land of $950,000 median home listings. It’s just a question of how.

You can spend years accumulating the savings you think you’ll need for a down payment, then spend months searching for a home that strikes you as both desirable and affordable. That’s what typical buyers do.

Or you can take the road less traveled to homeownership.

We asked real estate agents, homeowners and a real estate investor to share their stories of less-conventional first-time home purchases. Here’s what they had to offer.

Second choice leads to first

Three years ago, agent Kenya Reeves-Costa began working with a couple, an attorney and a nurse, who wanted to buy a Craftsman-style home.

They searched for a long time but couldn’t find a house that met their needs. So they bought a condo instead.

Three years later, Reeves-Costa said, the nurse learned that her elderly grandfather was moving out of his home and into an assisted-living facility. He offered to sell his home to them directly, without putting it on the market.

It’s a beautifully maintained Craftsman-style home from 1909 that’s in their desired neighborhood — exactly what they wanted. They’re putting their condo on the market to raise $100,000 for the down payment, Reeves-Costa said.

Even though it wasn’t their first choice to purchase a condo, she said, the couple made the right decision because they generated the equity needed for their second purchase.

“I always tell everybody, buy something, anything. I don’t care what you can get your hands on,” she said.

Then, you wait for your next opportunity. It’s a plan that Reeves-Costa understands is difficult. But the reality is in Los Angeles, it’s almost impossible to purchase your dream home on your first go, she said.

The prices of homes are so high that you have to be open to your second-choice home or neighborhood and something less than a single-family house.

“We’re pitched this Midwest dream of housing affordability, but it’s very hard in Los Angeles, even if you have two incomes,” she said.

Her advice is to make the purchase, pay your mortgage and improve the property. In five to seven years, you’ll be able to move forward to something else that feels more like your first choice. “When you have something in your mind, when you’ve got this vision, it’s interesting how the universe will bring that to you,” she said.

From renter to owner

Jorgie Zimring and her husband spent a decade watching the housing market and saving for a down payment before they started making offers on homes in the Carthay Square area in 2020. But they couldn’t win the bidding wars, losing out on three homes in a row.

Zimring, a lawyer, and her husband, an electrical contractor, were open to homes that needed remodeling, homes sold in trust or probate sales. They didn’t mind a project and believed fixer-uppers would be less attractive to your average buyer. However, they were still being outbid by $200,000 to $300,000.

Meanwhile, the Zimrings had been living in a rented home in Mid-City since 2012. The couple couldn’t afford the place on their own at first, so Zimring’s sister moved in as a roommate for a time to help with the rent.

The rental was in an ideal location for the family, and they approached the landlord several times about their interest in purchasing the home. “We kept asking every few years if she’d be willing to sell,” Zimring said, “and our price points just never matched.”

They maintained a good relationship with their landlord, who didn’t live in Los Angeles, making repairs whenever needed and sending her the bill. But in the last year the entire HVAC system stopped working, and other costly projects started to pop up.

It was the push the landlord needed to make a deal.

“She came down significantly [with her price], and we got to a place where we realized for the same price point we just couldn’t afford anything as nice or in a location we wanted,” Zimring said. “So we both kind of met in the middle.”

You don’t hear stories like this often, but Realtor James Randolph said landlords do sell their homes to their tenants.

He’s currently working with a client who is purchasing the home he’s been renting. The opportunity came up when the landlord shared his desire to sell the property and wondered if the renter would be interested in purchasing it before it was put on the market.

It’s easier for a landlord when the tenant is the buyer and not just a leaseholder with rights that can complicate a deal.

From the buyer’s perspective, this sort of deal works too because he or she already knows the seller and, if an agreement is made, doesn’t have to worry about being outbid.

If you’re a tenant who’s interested in the property you rent, Randolph advises you to make that interest known. He acknowledged that some renters don’t want their landlord to know they’re interested in becoming homeowners or moving out. So don’t broach this topic if you’re not ready.

To start the conversation, ask if your landlord has considered putting the house on the market. It’s a good way to understand if a landlord has a timeline for selling the property. If the answer is yes, make it known that you would be interested in being a potential buyer.

It takes two (or more)

Cristina Ortega is the owner and operator of Mrs. Property Solutions, which buys homes in the Los Angeles area for cash and renovates them for resale.

Since 2016 she’s worked with a variety of sellers and buyers.

Aside from a couple or business partners purchasing a home together, she doesn’t see a lot of friends taking a leap and buying a home together, but it is doable.

“It just depends on what your long-term plans are,” she said. “Are you going to live in the property, is it going to be a rental property, or are you going to flip it together?”

Ortega said two individuals can purchase a property as tenants in common or as joint tenants. Tenants in common share ownership of the entire property, although each can hold a different percentage of the ownership interest and buy in at different times. Joint tenants divide their shares in the property equally, become owners at the same time and have each of their names on the deed.

These are alternative ways to gather the funds needed for a down payment, share the costs of homeownership and build long-term equity without burning a hole in your pocket.

But Ortega cautioned that you and your partners need to have an exit strategy that you agree on. For example, she said, you can set up a trust with instructions for how to handle the shares of any owner who has to exit the agreement.

It’s also important to set a time frame for how long you’d like to be invested in the property — for example, you agree to sell after seven years.

This type of purchase can be done for a single-family or multifamily home, whatever works for the buyers. It’s also a way for people to make a first investment and generate equity that they can use to buy their ideal home.

Although it’s a tight market, Ortega said, you don’t want to be waiting on the sidelines for too long. Broaden your search and think about a friend you trust who’s in a similar position.

One of the biggest hurdles for buyers is the scrum of bidders that forms as soon as a house hits the market. That’s why it helps to find ways to grab a house before it’s listed by an agent, as Randolph’s client was able to do with his landlord’s house.

Sometimes, that means capitalizing on relationships.

For example, Realtor Derek Hirano recounted how goodwill between neighbors helped trigger the sale of a house by one of his clients. The client had taken over the home from his mother, who had developed a great relationship over the previous 20 years with the neighbors next door.

“They did neighborly things like bringing in the trash can, making sure she had what she needed and checking in,” Hirano said.

When the client’s mother died, he was looking to sell the home but didn’t have any timeline or concrete plan for when to put it on the market.

It wasn’t until the client talked with the neighbors that he was moved to sell the property to the adult son who was living with them at the time.

“If you think about it, it saved time and effort. I think both parties walked away happy with the sale,” he said. “The parents are especially happy about it, of course. Their son is now living next door. It’s kind of like an ‘Everybody Loves Raymond’ thing.”

Felicia Dowell grew up on a quaint roundabout street in Van Nuys, in a historical district known for unique homes and a close-knit community. Neighbors borrowed books from one another at the communal library, came together at block parties and went the extra mile to assist whoever was in need.

When she was house hunting years later, Dowell and her husband, Rodney, repeatedly came up just short on several dream homes. In late 2020, however, they had a revelation after visiting friends in Houston and seeing their newly constructed home: three bedrooms and three bathrooms in 2,400 square feet, all for just $450,000.

“We realized we couldn’t get something that new and that big in the San Fernando Valley, or anywhere in Los Angeles, for that price,” said Rodney, 32.

They signed a contract in January 2021 to buy a Houston home still under construction, personalizing the floors, fixtures and other features before moving in last August.

In less than three months, however, their plans were up in the air again after Rodney’s new job required him to return to Los Angeles in 2022.

The Dowells flew back to Felicia’s mother’s home in Van Nuys in November, renting out the Texas home they had just moved into. Two doors down in the Valley, however, their neighbors were in the midst of their own home-related nightmare.

The neighbors wanted to move to Palm Springs and had found a buyer to purchase their house with cash — but the buyer dropped out just before closing. The couple, who were in their 60s, were devastated, so the Dowells came over to cheer them up.

Midway through the conversation, though, the couple made a very big ask.

“We were just enjoying some cake, all together, and they said to us, ‘Would you like to buy our home?’” Felicia said.

The house was smaller than they had envisioned, but after a seven-year search, the idea of staying right in the midst of their beloved neighborhood was too good to pass up. A month after moving back to Van Nuys, they bought the house for $800,000, and they started the move-in process in February.

“We literally went 1,500 miles away to Texas, to come within 50 feet of my mom’s house,” Felicia said.

Kevin Santana, 32, and his partner were living in an upscale rental building in downtown Chicago for a few months when he got an email from his landlord about a new opportunity. The developer of his building was advertising a rent-to-own program for a brand-new condo in a similarly posh high-rise being constructed next door.

The advertising agency analytics director had been planning to stay in his rental in the up-and-coming Printer’s Row neighborhood for two years while saving to buy a home. But this program promised to give him a big head start at owning his own place, and he jumped at the chance.

He moved into a brand-new unit in a building with amenities such as a pool with cabanas and game rooms. The deal will cover up to 2.5% of the purchase price by applying 50% of his monthly rent toward the down payment. When he finally closes on his two-bedroom, two-bathroom unit next fall, he will have accumulated an additional $15,000 to $16,000 to put toward closing costs.

“Not having to put down that additional money for closing was really appealing,” he says.

The rent-to-own real estate concept has existed for decades, but over the past several years it has grown substantially in popularity. A number of new products and companies have popped up, including Divvy Homes, Home Partners, Dream America, and more. They’ve formalized what once were mostly one-off deals created by landlords and tenants into an entire business model.

Now the industry is booming, particularly as record-high home prices and bidding wars are making it harder for many first-time buyers to become homeowners. Inflation and runaway rental prices are also making it difficult to save up for a down payment.

How good of a deal these opportunities are depends on each potential buyer and the specifics in the contracts they sign. These programs can help buyers in a competitive housing market. However, in most cases, folks could ultimately wind up paying more than if they just bought a home outright. And the majority of folks involved in rent-to-own scenarios never close on their intended homes, despite often paying a markup.

“The pitch is, this is a way for the consumer to get into the market with 1% to 2% down,” says Barry Zigas, a senior fellow at the Consumer Federation of America. “But the question is, what is the cost for that money and how does it compare to a mortgage?”

How do rent-to-own programs work?

Santana’s program, for example, was set up by the developer, Lendlease, as a way to increase preconstruction sales for its newest condo building. As soon as a tenant at the Cooper rental building, where Santana lives, signs the contract, half of the rent gets applied toward 2.5% of the purchase price for the new condo at the Reed, the new building next door—up to $25,000. Unlike with most of these programs that charge extra fees on top of the monthly rent payment, the future Reed homeowners who are residing at the Cooper do not pay anything on top of the rent they had already locked in before signing up for the deal.

In Santana’s case, half of the monthly $2,950 he pays for his townhome—which is significantly below the current market rate of $4,000 to $5,000 because he signed the lease for his “pandemic special” in early 2021—is being applied toward his purchase. (The lease was locked in when renters were leaving the big cities in 2020, so landlords offered deals.) So half of his already reduced rent goes toward paying for the unit he is going to buy.

Lendlease, the developer of The Reed and The Cooper, admits the deal was designed to sell new units quickly, which was especially important given that the city’s condo market never fully recovered from the 2008 crash.

The Lendlease model, which offers 50% of the market-rate rent to go toward the purchase, is a stark departure from traditional rent-to-own setups, where tenants pay an additional fee on top of the market-rate rent that goes toward the down payment on the home.

There are different ways of structuring lease-to-own deals. Most include either an upfront option fee (usually 1% to 5% of the purchase price) and/or higher than market-rate rent that is applied to the principal for usually one to three years. In most cases, those extra fees cannot be recouped by buyers who don’t end up buying the property.

Why folks should carefully evaluate rent-to-own arrangements

The uptick of these long-established contracts where renters pay an extra monthly fee that is intended to contribute to a down payment has some real estate experts concerned.

“Rent-to-own schemes are seldom the most economically efficient way for a consumer to buy anything from furniture to houses,” says Zigas. “Generally, a borrower will have more security and more access to wealth building if they have a simple purchase agreement with the seller and get a mortgage to buy a house.”

When real estate expert John T. Reed first started researching single-family lease options in the early 1990s, he discovered the conversion rate—the percentage of lease-option tenants who successfully ended up purchasing the home—was just 5%.

That’s “horrible,” he says.

Most of these renters who cannot get a mortgage or down payment together at the beginning of the agreement are still unable to get it together when the time comes to exercise the option. That’s why the conversion rate overall has not changed much over the past 30 years.

Divvy Homes, a venture capital darling estimated to be worth $2 billion, claims nearly half of its customers end up buying properties. (Realtor.com® was unable to independently verify this figure.)

After a customer fills out an application, which includes a soft credit check and questions about income and current rent, the company offers the customer a pre-approval and a budget for finding a home. Like any regular real estate deal, the customers seek out properties with help from their real estate agent. But instead of going through the traditional mortgage process, the company makes an offer to buy the home with the customer putting down between 1% and 2% of the purchase price of the home.

So buyers still need to come up with a down payment—it’s just significantly lower than the regular 10% or 20% of the home price.

The deal is laid out in a three-year lease that includes two different prices for buying back the house—within 18 months or after 18 months—that are determined by the company’s evaluation of the market.

There is an appreciation cap, says Thomas Egan, Divvy’s chief financial officer.

Divvy makes its money off of that appreciation as well as the market rent it is charging customers. So the company is essentially acting as a landlord who not only has the monthly mortgage covered by the renters but then makes money off the increased value of the home when it sells.

The average buyback period falls at right around two years, says Egan.

Most frequently, a major life change like a job relocation, divorce, children, or other event is what prevents customers from buying the homes. Less often, it is about their inability to qualify for a mortgage, says Egan.

“In most circumstances, it’s the customer saying, ‘this just is not for me anymore,’” says Egan.

In those cases, the customer gets back 100% of the equity they contributed (an amount that gets paid on top of rent and is put into an escrow account that should equal 3% to 10% down by the end of the three-year lease) minus a surrender fee of 2% of the original purchase price. On a $100,000 house for which a customer puts down $2,000 for a three-year lease that has built up $10,000 in savings equity, the customer would get back all of the money minus that $2,000 down payment.

Rent-to-own companies aren’t always as strict as traditional lenders

Companies like Divvy often have more lenient approval processes than typical banks. The minimum credit score to qualify is 550 (which can work for an FHA loan, just with a much higher interest rate than a borrower with a very good score), and the maximum debt-to-income (DTI) ratio the company approves is 50%, which is right at the top of what FHA will approve.

“A lot of folks who use Divvy need a down payment to buy a home,” says Egan. “Other customers use the product because they’re moving to a new city and want to try out a neighborhood, or [they] just started a new job and need six months of income for a loan.”

Dream America, another rent-to-own specialist, accepts a minimum credit score of 500 with a 50% maximum DTI as long as the applicant has the income and funds needed for an FHA or VA loan (which requires a minimum 580 credit score) approval and an upfront payment equal to 1% of the 12-month purchase price.

Home Partners is a bit more stringent on the DTI, with a maximum of 45%, but its website claims the minimum credit score requirement varies by market and it takes the average credit score of all household members who will contribute to rent. Renters can exercise their right to purchase at any point during their one-year lease, which automatically renews every year up to five years in most states (three years in Texas). There is a predefined price to purchase the home for each year of the lease; however, if the home appraises for less than the purchase price, Home Partners is willing to terminate the contract and return all the earnest money.

What consumers should consider before entering a rent-to-own arrangement

While these programs have certainly come a long way in the past three decades and do accommodate some gaps in the conventional mortgage market, potential customers need to be wary and ask themselves and the companies some serious questions.

What happens if the price of the home exceeds its market value at the time of purchase? And what do they stand to lose if they can’t pull their finances together to qualify for a mortgage?

“If they were unable to buy a home when they started the lease option because they didn’t have a down payment, credit, or income, there’s a good chance that at the end of the option that situation has not changed,” says Reed. “They’re not likely to ever get a mortgage.”

But for folks like Santana, who have solid finances and some sort of life situation that makes rent-to-own worth their while, it can sometimes work to their benefit.

“Rent-to-own wasn’t a make or break for me,” says Santana, who just wanted the free money to buy a place in the kind of building that he already enjoys living in. “I still would have been able to put together a down payment in absence of the program.”

If you’re thinking of helping a friend, neighbor or relative buy, sell or rent a home, apartment or commercial property, you’d better think again. Conducting such activities without the benefit of a real estate license could be illegal and a felony.

In 2008, the New Mexico Real Estate Commission fined two Ruidoso-area property managers $1,000 each for managing 12 rental complexes without a license. At the time, their actions were considered a misdemeanor under New Mexico law. Were those managers found guilty of such behavior today, they’d be facing felony charges.

That’s because a change in the law that took effect July 1, 2011, makes it a fourth-degree felony to “lease, rent, manage, sell, exchange, auction or option property for others without a real estate broker’s license.” The penalty for conducting such activities can carry a fine of up to $5,000 and 18 months in jail on each count, according to former NMREC Chief Investigator Walter Mullen. Keep in mind that selling or leasing one’s own property without a license is perfectly legal.

New Mexico law also states that “the attorney general or the district attorney of the judicial district in which the person resides or the judicial district in which the violation has occurred or will occur may, upon application of the commission, maintain an action in the name of the state to prosecute the violation or to enjoin the proposed act or practice.”

More from Gary:How accurate is the assessed value of your home?

While the practice is particularly pervasive in tourist-driven communities, similar situations have occurred right here in Las Cruces. In one instance, a father advertised his daughter and son-in-law’s home for sale in a local newspaper and negotiated on their behalf when a buyer decided to make an offer.

If you’re a first-time homebuyer, the current economy could be putting a damper on your homeownership dreams. With rising home prices and inflation upping the cost of life’s basic expenses, is now really the time to dive into your first mortgage? And if you wait, could you be priced out of the market completely?

The good news is that, according to experts, first-time buyers still enjoy several advantages in the current housing market if they choose to buy.

While taking on a mortgage might not make sense for all buyers right now, here’s how to better understand what’s going on in the housing market, and tips to make the most of your home search—despite the inflationary market.

The Case for Buying a Home Now

Looking at real estate listings can be entertaining. From the comfort of your couch, you can scroll through photos of perfect homes in beautiful neighborhoods and imagine how it’ll feel to unload your groceries into that brand new stainless side-by-side fridge.

But then there’s the downside of looking at those listings. Your favorite homes probably fly off the market in hours, if not days. Homes are selling for over listing price—sometimes hundreds of thousands of dollars more. And the groceries you want to stuff in that fridge cost more each week thanks to inflation.

But Mark Zipperer, managing broker and founder of The Zip Group in Chicago, says there’s often one thing his buyers don’t think about in today’s fast-paced housing market.

“When a first-time buyer tells me that they’re not sure about buying in this market, I always ask, ‘Is your rent going down?’” says Zipperer. “A predictable mortgage payment each month not only helps you hedge against rising prices elsewhere in the economy. Homeowners typically have a net worth that’s 40 times greater than renters. Buying, even if you have to start small, is a path to building wealth.”

But how exactly does spending money to get into your first home help you build wealth?

• Building equity vs. paying rent. Each time you make a mortgage payment, you essentially build a bit of equity in your home, as long as there isn’t a housing crash. Each month you pay rent, you’re only building your landlord’s equity.
• Mortgage interest deduction. Homeownership makes you eligible to deduct your mortgage interest and property taxes on your federal taxes each year, which can reduce your tax liability and free-up money for retirement and emergency savings.
• Appreciation. Your net worth increases when the value of your home increases. In the current market, where housing supply and interest rates are low, home prices continue to rise, adding to your net worth and future resale value.

Yet even when Zipperer shares these benefits with prospective buyers, some remain concerned that they’ll get less house than they want when buying what they can afford.

For those buyers, Zipperer advises that not only are home prices not going down considering February 2022 prices were up 14% from a year ago. He says that buyers also have to think about starting somewhere so they can get to where they want to go.

“Few of us are lucky enough to buy our dream home our first time out,” he says. “So, instead of thinking about getting everything you want, think about finding your sweet spot. You can work with a realtor to strike a balance between home size, price, features and neighborhood.”

Perspective on Rising Interest Rates

Even if you’re ready to find a home that hits that sweet spot Zipperer mentions, you still might be worried about rising interest rates. Will you even be able to afford your first home if rates keep going up?

Take heart. Experts say that though rates will increase, mortgage rates are still at historic lows.

“Fixed mortgage rates have increased recently, but remain under four percent,” says Bob Griffith, general manager of home services at Houwzer. “Lower rates mean lower monthly payments, and fixed rates don’t change over the life of the loan.”

But what do today’s interest rates mean for your monthly payment on your first mortgage? It helps to put today’s rates into perspective by comparing them to decades past.

Here’s how today’s high-three percent for a 30-year fixed mortgage compares based on Freddie Mac data (note: figures have been rounded to the nearest whole number):

1970s: 9.03%

1980s: 12.70%

1990s: 8.12%

2000s: 6.29%

2010s: 4.09%

2020: 3.11%

2021: 2.96%

2022 (YTD): 3.61%

So, looking at a median home price of $300,000 (which is accurate for 2022), here’s how much your 30-year fixed rate mortgage payment would be per month in:

1970s (9.03%): $2,299

1980s (12.70%): $3,085

1990s (8.12%): $2,115

2000s (6.29%): $1,762

2010s (4.09%): $1,375

2020 (3.11%): $1,218

2021 (2.96%): $1,195

2022 (3.61%): $1,297

Note: Figures assume 5% down payment and a mortgage of $285,000 and don’t include taxes, insurance, or PMI where applicable.

Pros and Cons Of Buying in the Current Market

Even if the data above makes a solid case for buying your first home in today’s whirlwind housing market, it’s not the right decision for every buyer. Here are some criteria you can use to help evaluate whether your desire to buy translates into a wise financial and emotional decision:

You might consider buying now if:

• A mortgage payment would be less than rent. Do your homework and work out whether renting vs. buying makes sense in your market. A rent vs. buy calculator can help you crunch the numbers.
• You have a down payment saved up. You’ve done your research and know how much you want to put down, the types of mortgages you can get and have the money already saved up in the bank.
• You’re pre-approved for a mortgage. Pre-approval tells sellers you’re serious about an offer and also gives your parameters on how much house you can buy.
• You’re ready to be patient. It’s possible you’ll need to put in several offers on several homes before you have an accepted offer. Not feeling rushed or pressured will help you save money by not overspending and help you stay sane as you shop.

You might consider waiting to buy if:

• Renting is still a great deal in your market. If renting can save you money over buying, consider saving the difference between your rent and a mortgage each month toward your down payment.
• You’re struggling with a down payment. If you want a bit more in the bank before you put a down payment on your first home, you could be better off building your savings and researching down payment assistance programs.
• You could use some time to improve your finances. Paying down debt, boosting your credit score and building your emergency savings could score you a better interest rate in the future.
• Home buying and homeownership stresses you out. If you’re losing sleep at night about buying in a fast-paced market and then making that mortgage payment each month, putting the brakes on being a homeowner might actually make you feel better.

3 Tips For Buying a Home In the Current Market

For those interested in buying a home in today’s seller’s market, there’s still a considerable amount of planning to be done to make sure you make an informed decision. Here are three tips to help guide you towards the home of your dreams:

1. Do Your Research and Know Your Limits

If you haven’t gone through the mortgage pre-approval process, you could be in for a rude awakening when your dream home is of your price range. You can save yourself that heartache by researching your local market and getting your buying power sorted out before you begin your home search.

“We never want to see people get in over their heads or have them waste time looking at places they can’t afford,” says Leif Boyd, chief production officer, retail sales at AmeriSave Mortgage Corporation.

You can use online real estate search engines to get a clear picture of the market in the area where you want to buy. Then, find a lender and get pre-approved for a mortgage before you start shopping. Pre-approval will take a look at your entire financial picture and give you a borrowing limit you can use to keep your home search within your means. And in a competitive market, your real estate agent may need to submit your pre-approval letter with any offer you make.

2. Consider Emerging Neighborhoods

“Many people want plug-and-play homes with all the bells and whistles, but you’ll often get more if you’re willing to broaden your search,” says Mark Zipperer of The Zip Group.

Read more: 10 most affordable cities for buying a home in 2022

He often advises clients to look at homes that would require some sweat equity, especially in emerging neighborhoods. “Then you can get into a home at a good price, fix it up and get involved in the neighborhood groups with other homeowners,” he says. “Building neighborhood equity is an overlooked opportunity for buyers to build home equity.”

Neighborhood equity is essentially how desirable a certain neighborhood is for homeowners. Factors such as cleanliness, walkability, curb appeal, schools, access to public transit and overall safety can make or break a buyer’s decision to purchase a home.

3. Be Flexible With Home Type

What renter doesn’t have their heart set on a single-family home with no shared walls? But so does everyone else, which might mean that the type of home you want comes at a premium. Zipperer says that buyers in his Chicago market are getting more bang for their buck if they’re flexible with the type of home they’re willing to buy.

“Our market has seen a good amount of multiple-offer scenarios on single-family homes, so buyers are starting to look at alternatives like condos and townhomes,” he says.

Even though buyers might balk at condo association fees and shared walls, these home types often enjoy lower homeowner’s insurance rates and a built-in community that can make homeownership a daily joy. While condos tend to appreciate at a slower rate than single-family homes, they’re still a great way to start building some equity as a first-time buyer.

And never forget: Your first home doesn’t have to be your last. You can build equity in a condo and then parlay that equity into a single-family home later down the line.