The Similarities of Renting & of Buying a Home

Consumer motivation influences the decision to buy or rent a home. The differences between buying and renting a home are clear. Owners benefit from tax deductions, usable equity and potential profit upon the sale of a home. Renters, on the other hand, have no stake in the properties in which they live, but benefit from living in a home free of obligations. The similarities between renting and buying lie in the process of acquiring a place to call home.

Buyers and prospective tenants sometimes hire real estate agents to show them properties, to handle communication with the seller, landlord or listing agent, and to provide assistance with the paperwork preparation. Real estate agents generally require buyer-clients to sign agency agreements because of the length of time of the relationship and complexity of sales transactions. Buyer agency agreements also legally bind buyers to pay commission, even if sellers normally pay on their behalf. Some agents may ask tenant-clients to sign exclusive agency agreements, although most do not because of the short-term nature of the tenant-agent relationship and the small commission.

Buyers and tenants locate homes by similar means: agent listings, classified ads and word of mouth. Buyers and sellers search for homes by location for the same reasons, which could include, but are not limited to, proximity to work, access to particular school districts and community amenities. Rental properties listed with real estate companies, like listed properties for sale, have lock boxes on the doors and require interested tenants' agents to call current tenants or owners before showing.

Homeowners who have mortgages and tenants both make monthly payments to legally occupy their homes. Generally speaking, home buyers must have good credit and proof of income in the form of pay stubs to qualify for a home loan. Landlords, especially those who advertise properties for lease through real estate and property management companies, pull prospective tenants' credit profiles, the perception being that tenants with bad credit may not pay their rent. Prospective tenants also must show the ability to make monthly payments by providing proof of income in the form of pay stubs or an employer's telephone number for verification. Although landlords use less precise criteria than lenders, they generally will not approve prospective tenants to rent properties that exceed their income.

A lease agreement -- the legal and binding contract between a landlord and tenant -- like a sales contract, features elements that specify the obligations of both parties to the transaction. Residential lease agreements and sales contracts include lists of permanent items found in the home, the condition of those items, payment deadlines and the conditions under which the contracts can be broken without fault. Both contracts contain beginning and end dates, the key difference being that sales contract dates refer to time between contract ratification and closing, and lease dates refer to the first and last dates that a tenant can occupy a property.