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Selling a House With a Rental Furnace

Check out our list of pros and cons, and tips for a successful sale.

By Emily Southey | 7 minute read

Dec 27

Are you looking to sell your home but it currently has a rental furnace? There are a few things you should know before diving in. Keep reading to learn more about selling a house with a rental furnace, including a few of the challenges and benefits of doing so.

Homes with Rental Furnaces

First things first, what is a rental furnace? For those who don’t know, many HVAC companies lease furnaces to homeowners who cannot afford the financial burden of buying a new furnace outright. Furnaces can easily cost thousands of dollars, which is a lot of money to pay upfront. Homeowners who can’t afford such a large purchase can try to obtain financing to fund the furnace, but renting one is often a more convenient option. When you rent a furnace, there are typically no upfront costs whatsoever (many homeowners qualify for a reduced rate or zero-interest deals). You simply make monthly payments on the furnace (these payments vary but may be around $80 per month). The catch is that the overall price of the furnace will be inflated in the transaction. So the advantage is that renting a furnace will cost you less money in the short term but more money in the long term (in fact, if you lease a furnace on a 10-year contract, the overall cost of the furnace may end up being closer to $10,000 rather than the $5,000 or $6,000 it would have cost had you paid upfront). Ultimately, rental furnaces can be a great option for people who cannot afford to pay for a new furnace upfront, as it allows them to reap the benefits of a new, functional (often more energy-efficient furnace) without the same level of investment.  

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The Challenges of Selling a House With a Rental Furnace 

Selling a house with a rental furnace isn’t as uncommon as you might think, but it isn’t without a few unique challenges. That said, knowing what you’re up against is the best way to prepare for the process, so we outline some key information to know when selling a house with a rental furnace below

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Liens Against the Property 

When you rent a furnace in Ontario, the furnace rental company registers a security interest on the unit on your property. This creates a lien, which is designed to protect the rental company in the event that the furnace is damaged or the house is sold. The issue here is that prospective buyers may find homes with liens against them less appealing. Why? Due to the fact that liens stay with the property, meaning they will transfer to the new homeowners rather than staying with the existing homeowner who rented the furnace in the first place. As such, if a buyer sees a lien, they may not make an offer. Further, many mortgage lenders won’t issue a mortgage if there is a lien on the property. If this is the case, then having a rental furnace can significantly limit your buyer pool as anyone who requires a mortgage to purchase the home won’t be able to move forward. If such a situation arises, the seller might be left with few options other than to pay off the rental and eliminate the lien. 

“Many HVAC companies lease furnaces to homeowners who cannot afford the financial burden of buying a new furnace outright.”

Navigating Buyer Expectations 

Another challenge that selling a house with a furnace involves is navigating buyer expectations. Many buyers assume that a home they want to buy comes with a furnace. Therefore, learning that the home’s furnace is rented can be a bit of a shock. Especially when they learn that buying the home might mean having to transition the furnace rental contract into their names. Therefore, when a seller decides to list their home, they should be prepared to navigate buyer expectations. Have the details of your rental contract ready to discuss and be prepared to answer questions relating to it. We also recommend considering the possibility of paying out your contract before selling, as prospective homebuyers are likely to ask about this option. 

Selling a Home Without a Furnace

Another key consideration when selling a home with a furnace is whether your furnace is rented or on a rent-to-own contract. It’s worth noting that most rental furnace agreements are not rent-to-own. Rather, the furnace rental company maintains ownership of the unit throughout the lease, meaning they have control over it. Although this might not seem like a huge deal, it can become one if you decide to sell your home. In some cases, the buyer and seller, along with the rental company, might agree to transition the contract to the new homeowner. However, if a deal can’t be struck, then the rental company might remove the furnace from the home, leaving your home without a furnace. Given the cost of furnaces and the hassle of having one installed, selling a home without a furnace can be just as difficult if not more so than selling a home with a rental furnace.

Reduced Purchase Price 

Another reality is that any homeowner selling their home with a rental furnace should be prepared for a reduced purchase price. Since a rental furnace is not an ideal situation for most buyers, they may lower their offer prices accordingly. Although an offer will be based on many factors, such as the current housing market, you should expect to receive less money for your home if it has a rental furnace. At the very least, you should be prepared to negotiate with prospective buyers over the price owing to the rented furnace. While accepting a reduced purchase price might seem frustrating, the reality is that a rental furnace can be a hassle for buyers. They either need to transition the existing contract or in some cases, convince the seller to buy it out and then they have to shop for and install a brand-new furnace. Owing to the extra work that is required on the part of the buyer, a smart seller should be willing to compromise on price.

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The Benefits of Selling a House With a Rental Furnace 

Although selling a home with a rental furnace in Ontario comes with some unique challenges, such as those listed above, it can also come with some benefits. For example, if a rental furnace is the only way to install a new furnace in your home, and it allows you to install a newer, more energy-efficient model, this can have long-term advantages like reduced energy consumption and lower utility bills. Further, there are ways to avoid the challenges above, mainly by paying off the furnace before the home is sold. (Or alternatively, using the proceeds from the home sale to pay it off). Oftentimes, furnace rental companies will allow you to make arrangements with them in advance when you are putting your house on the market. 

The Importance of Informing Potential Buyers About Rental Furnaces

If you are listing your home on the market, make sure you inform prospective buyers about your rental furnace. Information you should provide to any and all prospective buyers includes the company that the furnace is rented from, the monthly payment amount, the number of months left in the contract, and the various options for how to proceed (for example, does the buyer have to take over the contract or can they cancel it). We recommend having a copy of the contract on hand to show prospective buyers. If you have a strong preference one way or the other in terms of transitioning or cancelling the contract, be upfront with the buyer. From there, let your respective REALTORS® negotiate and work out a deal that both parties are happy with. 

Frequently Asked Questions

Should I replace my rental furnace before selling my house?

Generally speaking, it is recommended that sellers pay off their rental furnace contracts before selling their homes. Trying to sell a house with an existing rental furnace contract can be difficult, as buyers might be hesitant to put the contract under their names and don’t want the hassle of having to buy and install a new furnace once the contract is up. A rental furnace might also make it harder for a prospective buyer to be approved for a mortgage, which can considerably limit your buyer pool.  

Will REALTORS® know how to sell a house with a rental furnace?

Many REALTORS® have experience selling homes with rental furnaces. However, as this is a unique circumstance, we recommend asking potential REALTORS® about their experience with rental furnaces when interviewing them. Working with a REALTOR® who has sold a home with a rental furnace and understands the implications of doing so can alleviate a lot of stress and anxiety. 

Can my REALTOR® reach out to the HVAC company I am using on my behalf or would I have to reach out to the HVAC company to ensure everything is ready for the sale of my house?

As the seller’s name is on the contract with the HVAC company, it is recommended that they reach out directly rather than having a REALTOR® do it for them. Even if your REALTOR® was willing to contact your HVAC company on your behalf, it’s best to take the time to do this yourself to ensure the new contract is up to snuff. 

Emily Southey

Wahi Writer

Wahi

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