by Phil Hoover, Real Estate Broker

Buyer Beware: Boise Lease-Options

Residential lease-options can work in the best of situations, but they often don’t.

If you are a buyer considering entering into a lease-option agreement, you should be very careful.

Opportunistic sellers love people like you because people like you want to believe they will be able to buy a home in the future when they can’t buy it now.

You are easy prey for those sellers because:

  • You don’t have the money for a down payment.
  • You think you will have the money for a down payment by the time your option period ends.
  • You can’t qualify for a loan now.
  • You think you will be able to qualify for a loan when your option period ends.
  • You are willing to put up substantial option money so you will feel like you are buying a home.

Yeah, I know ~  you really, really want to feel like you’re buying a home, but here’s what you need to understand:

  • Your lease-option is a legal document that should be properly-drawn by a knowledgeable real estate attorney (Realtors® are not allowed to practice law and this is a complex legal document – RUN AWAY from a Realtor® who says he can draw up a thorough, tight, binding lease-option agreement!).
  • Your option money is totally non-refundable.
  • The seller may charge you more than fair market rent in return for promising to credit some of your rent back at time of purchase.
  • You probably will not qualify for a loan at the end of your option period if you can’t qualify now.
  • The seller wouldn’t be offering a lease-option to you if he could sell the property otherwise (is it overpriced?).
  • If the seller loses the property in foreclosure, you will be evicted and lose all of the money you have paid the seller.
  • You may be committing to pay more than the property will be worth at the end of your option period (how do you set a future value in any market?).

Still sound like a good idea?

(P.S.  Before you commercial brokers start flaming me, I am not talking about commercial lease-options ~ this post is about residential lease-options).

March 23rd, 2009 Posted in Inside Real Estate Print Print

  1. 2 Responses to “Buyer Beware: Boise Lease-Options”

  2. By Randy Gridley on Mar 27, 2009

    Wonderful.. Very enlightening..

  3. By Jon Gosche on Jun 2, 2009

    Phil,
    Some of what you are saying is very true. But a purcahse often is EVEN MORE RISKY for SELLERS. Because it gives the right but not the obligation for the buyer to buy. It gives the SELLER the obligation to sell at the agreed on price. It is simple to right a lease option in a normal purchase and sale agreement. You are right that the reason most do lease options is they cannot sell there property and it MAY be overpriced. But a good agent should be able to do a CMA and show the present Market Value. The value might drop. But then the buyer can walk. I would NOT pay very much money for an option to buy. But I would not ever do a lease option as a seller. Instead I would, and have several times done a simultaneous lease with a long purchase and sale agreement. That is a far better deal for a seller and if the price is right it can help a buyer who is sure they are going to have the ability to buy. A good candidate to do this as a buyer is one who has a good stable income, but no money down.
    Jon Gosche
    Broker, GRI

Post a Comment