Las Vegas Area Seller or Sales Transaction Category #9: Lease Option to Purchase
A Lease Option to Purchase is a Type of Sale.
A Lease Option is technically a lease with the option to purchase the home and has two separate contracts secured by a non-refundable "option" deposit.
Lease Option to Purchase is generally best when used for speculating on market changes in price. So basically, the buyer is "locking in" a price to purchase a home during a certain timeframe.
In this current environment, buyers should NOT be speculating that their loan product will exist when the option to purchase is due. Case in point - Condo Financing became challenging after January 2009 in the Las Vegas Area. If you were speculating to finance your condo option purchase, you probably lost your option money due to your financing disappearing.
Another declining market scenario is that the property could fail to appraise at the end of the option period. Again, under most lease option contracts, you would have to forfeit your option deposit. This is the risk you take entering an option!
The option money usually isn't refundable if the buyer cannot perform because this type of transaction is a risk or gamble.
What is involved?
A Lease Option Deposit can vary and be negotiated between the buyer and the seller.
The "Option to Buy" terms may also be negotiated - such as - how long does the buyer have to perform before his option to buy runs out.
Due diligence to make sure the owner will perform by paying their mortgage, taxes, HOA dues, etc. The home going into default and foreclosure could possibly (I said possibly due to new tenant laws) make your contract voidable. The best way to avoid this scenario would be to escrow all monies involved, including the option deposit and the lease payments and have the escrow company pay the mortgage, taxes and HOA fees. If the seller defaulted, the option money can be put in dispute.
You can also read an older post of mine here for more information on Lease Options.
This type of transaction can be very tricky so it is advised (again) that the buyer (and seller) retain a real estate attorney to help draw up the contracts after negotiations have been completed!
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