With the economy and housing market in flux, I'm getting tons of calls from buyers interested in lease options. The typical scenerio is one or more of the following: the buyer has: challenged credit, limited time on job, or no money. The sellers who are willing to consider said lease options have homes which are: generally overpriced, challenged in looks or locale , or dangerously close to foreclosure. Sometimes a Seller, in desperation, will consider a lease option because they need to move or have moved and are carrying two mortgages.
I take the time to explain to buyers why I think lease options are risky propositions. If they still want to pursue a lease option arrangement, I tell them that, before they step off in that direction, they should reach deep into their pockets and DO THIS ONE LITTLE THING: get the home appraised!
I don't know if statistics exist on lease options which show "total number of lease options" to "number of lease options closed," but I do know some of the folks who offer lease options NEVER expect or want their lease options to close. Call these folks what you like, but I consider them nothing more than lease option scammers. And this is how their little scam works:
1. An owner offer a house for lease option. The house is jacked up thousands of dollars over any realistic appraised price.
2. A Buyer sees the house, falls in love with it, and buys into the lease-option deal. Part of the deal, of course, is that he "gives" the seller upfront, non-refundable lease option money.
3. Time goes by and the Buyer either simply doesn't fulfill his end of the bargain (doesn't repair credit, never saves any cash, changes mind about buying, loses job, whatever), or they attempt to buy the house only to discover that the house won't appraise! If the house doesn't appraise, the lender won't loan the difference between the appraised and asked for price. I'm sure that there are benevolent, compassionate and integrity-loaded sellers who will lower their price to match the appraisal. But the typical end of the story is this: the Buyer doesn't get the house and the Owner gets to keep all that free, upfront, lease option money.
I recently met a Broker who runs a little lease option operation. He called me under the pretense of listing one of his homes, forgetting of course, to tell me until the end of the listing appointment that he was a licensed, but inactive, Broker. Prior to that little knowledge-sharing, I showed him the CMA I'd prepared for his property and explained he had priced the house about 15 grand above the top end of the market.
He went into a long-spiel about how he believed real estate was a relationship-driven business and then told me how many people he had "helped" with lease-options. When I asked how many had closed, he admitted that NONE had gone to the closing table!
Of course they hadn't, and I don't believe "building relationships" was the point behind his brand of lease option. Buyers need to exercise caution when dealing with the holder of several lease option properties. It may well be that you are dealing with a person who overprices his homes to assure the properties don't close! Again, here' a good thing to do before waltzing with a seller into a lease option agreement: get an appraisal!
When they finally get finished cleaning up the Mortgage crisis, maybe they should put together a little investigative team to look into predatory lease option arrangements (like they did in Texas). It's an old scheme which hurts Buyers and Sellers who really want to sell. Personally, ripping people off by feeding them an unclosable dream of home ownership is a rotten way to make money. And I can think of better ways to make money. Can't you?
Karen Beck
Realtor, Broker and Lease-option skeptic since 2004
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