A client called yesterday asking if maybe a lease option would help to sell his home. Maybe so.
Buyers who inquire about lease options often think that they can move in with no money down, apply half of their monthly payments to a down payment and, if they want to, they can own the home without putting any cash into it. Sellers are on a slippery slope if they don't get some cash up front. It's too easy for the buyer (in this case, also known as a tenant) to simply walk away at the end of the option period while the seller will probably have to spend money on deferred maintenance to put the house back on the open market.
Conversely, if the prospective buyer has some cash to put down, even if it isn't 10% of the purchase price, it typically means that buyer won't walk away at the end of the option period. Our office recently "sold" a $1.8M house on a lease option: the buyer put up more than $100K as a down payment and agreed to $6K a month for 12 months. It's unlikely that the buyer will walk away at the end of the option period with that kind of money left on the table.
How much is enough? Well, it depends upon some variables. For example, how long is the option period? How much of the monthly payment will be applied to the purchase price? How much is the buyer willing to make as a down payment. This down payment should go directly to the seller and is not refundable, regardless of the outcome. This will almost always separate the serious from the non-serious.
Buyers often think that the "deposit" should sit in an escrow account with an attorney or a real estate company and, if they decide not to buy at the end of the option period, the money will be returned to them. That is the real difference between a buyer and a tenant. In a lease option, the option money goes directly to the seller and is not refundable. In a lease, the deposit is held (in North Carolina it must be held in an escrow account) until the property is returned to the seller in good condition and then the tenant gets the money back.
Don't rule out a lease/purchase. There can be valid reasons why the buyer can't close right away, such as being dependent on an inheritance or the closing of a different property.
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