Use a lawyer.  Set a time limit. Set how the price will be or is established. Set consequences/action if the option is not exercised.

I am interested in seeing what answers you recieve. Local laws will certainly play a part. I have done a lease purchase in the past (here it was called an Agreement of Sale); the same term can mean different things in different locations. For instance, here the difference between a Purchase Money Mortgage and an Agreement of Sale is that the title transfers on the PMM, but not the Agreement of Sale, but the Buyer can have Equitable Title and take the tax deductions on interest paid.

The commision can be taken up front if the Agreement is structured like an Option, with a non-refundable Option Fee or downpayment. An escrow company handled the receipt and distribution of payments to the Seller and his/her underlying mortgage, which had to have no alienation or due on sale clause to make it all work. Like Heath said, hire a lawyer if you are unsure of what to do.

In Florida the contract can be a lease purchase where the purchase should be imminent. 

In the case of a lease option the contract is unilateral and the buyer can walk away at the end of the term.

Sounds like an attorney is a great idea. 

Also, what do you think about a lender to monitor the credit worthiness of the buyer.

Specific examples of past deals would be helpful.  Purchase price, amount of option money up front, length of lease option, how much per month is credited to purchase should they exercise the option?

I can see this being a more viable option (no pun intended) with the amount of people that, for the short term, can't get the loan, but do have the income to make the payments.

As you suggest a lease purchase is two things...a purchase and sale agreement with a delayed settlement and a lease... In these agreements the buyer is obligated to buy and the seller to sell at a set price sometime in the future.

I much prefer the lease option agreement where as pointed out in one of the previous comments, the buyer has the option to walk away.

Although I dont have the facts to back me up my feeling is that either way, not many of these actually get to settlement. and speaking purely from a selfish perspective, I dont like to do them because I do the work, but never get paid.

They can be a great deal for the seller.  The vast majority (from what I've read) fall apart.  And here, the amount credited to down payment has to be "above market rate."  So, the seller get to charge an above market rate rent, and if the sale fails, keeps the extra payment... 

I have not had too much luck with these deals.  I think now though with the market having declined as far as a seller trying to move on its a good option.  They get someone in the house.  I would say 50% rent credit is good. Of course you have to adjust the price according and know if it will appraise in the future or now.

I think the credit check is a must. Also, why not just go with an Option agreement? That should minimize confusion. The option fee can be token, if the buyer is short on cash. Is the Seller intending to carry the loan for the entire amortization? If there is a set time limit (as in an option) keep in mind that when it comes time for the buyer to get a mortgage, lenders often will not accept the partial payments made by the Buyer as credit towards the purchase price. I ran into this problem myself. We had to renegotiate the sales price, and only the option money was credited, as a down payment. (BTW, are you experiencing trouble with AR? I keep getting kicked off the site, not able to sign back on)

In this market they rarely come to fruition.  With declining prices the buyer would be better off renegotiating after the lease term.

Great questions and can already see that many folks have provided great information and feedback.

I have done several lease purchase type transactions and have found that the best ones generally had the following characteristics:

*Thorough review of credit and credit-action plan was done on prospective tenant prior to a final contract. 

*Tenant had good employment history, was stable and not in flux.  (i.e. worst lease purchase deals we have done were related to folks that had recently moved to area and were going through job change, life change, etc.)

*Tenant placed at least 2% to 5% down as an option fee.  With the current financing climate I have found that there are a good amount of persons and families that have that type of option fee but don't have the ability to get financed. 

*In Georgia, our firm chooses to structure these on option as someone else has described in their reply to you.  Effectively we have a standard lease contract that describes the lease terms and rules and a second option contract specifying details on option exercise.  

*I would recommend applying no more than 10% of the monthly lease as contribution towards the monthly lease purchase credit.  (i.e. Option Exercise Price of Home - Option Down Payment - Accrued Monthly Lease Purchase Credits = Amount Financed by New Tenant Buyer)

*Credit Monitoring is critical and should be a key component of the overall agreement.  In some cases we take slightly less on the lease purchase down payment and use some of the funds to enroll the tenant buyer client in a formalized credit management program.  If you find the right credit management company this can really help immensely as it will ensure the tenant buyer feels "ownership" and "involvement" in the process which is critical for success.

Best of luck in your deal!

Over the years I've done several lease-purchases.  Some worked out, and some fell apart. The ones with lengthy lease periods were the ones that fell apart. It has been my experience that few buyers understand the difference between a lease option and a lease purchase, and sadly, some agents don't either, and that creates confusion. If you have a short lease period to allow someone to sell his home or obtain employment, it might work. I'm not familiar with Florida's real estate laws or contracts, so get advice from an attorney in your area who is. Here we do not apply any of the monies from the lease toward the purchase of the property. However it is structured, keep the length of the lease to 3 to 6 months. I had one once for a longer period of time. The buyer wife ended up leaving the buyer husband and leaving the state. He quit making his lease payments and made side deals with the seller to let his lease pmts ride.  In the end, the buyer husband ended up being kicked out of the house, and the seller ended up cleaning up his mess. Yes, we had safeguards in place, but the seller was willing to do anything to keep the buyer. When we caught up with all that was going on, we convinced the seller he was not helping himself. The long and short of it-- lease-purchases can have some big pitfalls.

Doug,

It appears as though you have worked this scenario before.  I appreciate your input.

Best of luck to you in your endeavors,

So how about this scenario:

Option money is 3% of purchase price.  Agent (split if 2 are involved) gets 50% of first month lease payment plus 6% of each months lease payment.  If it goes on to a purchase seller is credited with payments made to agent(s) against commission due them.

Escrow company could handle payments?

If this wouldn't work, why?

Just doing a little research on Lease/Purchases and found great comments here!  Thanks everyone for sharing!

Debbie,  I hope the information helps you close a big deal. 

Thanks to the AR professionals who added their helpful comments!

i have a lease purchase, negotiated in 08/2008 when the market was dicey, as all know where it is now.

Am I dreaming that considering the lower market today, should I attempt to re-negotiate the original purchase price to reflect a lower value/appraisal in today's market?

On one hand I could walk away, lose the down payment and 12k of lease $ applied to purchase price, but the home is currently 100K under the original lease purchase selling price.

Thnks for input of any / all