While out showing homes on Saturday, I approached a particular house that was previously 'vacant' and staged.  I'd previewed it earlier in the week, and was quite impressed.  Much to my surprise, there was a U-Haul truck right in front of the home.  So, we approached the front door and noticed a family was moving in... Well, last I checked (on the 29th) it was still "active' -- so, how did it close escrow so quickly?

The answer was a bit surprising to me.  The people moving in said they were going to do a Lease-with-Option to Buy on the property.  Hurrah for them -- they've just bought front row seats on the Titanic, and the home seller is sitting next to them!

Let me explain myself.  The home in question is 4 bedrooms, 2.5 baths with 2,298 sf in Camarillo, CA.  It was very well-priced at $638K, much lower than the $675-699 "dreamers" in the same class.  Does it back out to a busy street?  Yes -- but they've added double-pane windows to the home and lots of planting to absorb the traffic noise.  Getting back to my point...

In another year, when the renters/buyers try to exercise the option to buy the home, it will very likely have dropped another $50-75K, or more, in value.  In Camarillo, we are experiencing a substantial 12-15% drop in median home prices year over year.  So, then this time next year if the market continues to fall (and there is no evidence it won't!), the home will not appraise for the purchase price -- the buyers will forfeit their deposit (ouch!) -- PLUS, the seller will have a lot less equity than they started out with today (ouch!).  Sure, the seller can keep the deposit -- but now, in '08, they'll have the home right back on the market, with the flood of foreclosures we expect to have beginning this month.

So, we've all heard of Win-Win.  Well, watch out Buyers and Sellers.  The Lease-with-Option, in today's rapidly declining market, is really a LOSE, LOSE for both the Buyer and the Seller...  In other words, the Lease-with-Option is NOT an option!  Don't let your realtor convince you it is! Stand tough, price it well and get out while you have as much equity as you do!  Save the deck chairs for the stubborn sellers that still don't get it!

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