Special offer

Lease With Option to Purchase

By
Real Estate Agent with Coldwell Banker Residential Brokerage, Lancaster PA RS134746A

In today's uncertain economy, credit for traditional mortgages may be more difficult to obtain for buyers, and sellers may have more difficulty finding qualified buyers.  In the early 1980s there were similar conditions, caused not by a lack of credit but by extremely high interest rates.  The lack of mortgages from traditional institutions forced sellers to come up with creative solutions to enable buyers to purchase their properties.

In Lancaster County, PA, Rent to Own, Lease/Purchase and Lease with Option to Purchase were some of the creative solutions developed to work around temporary obstacles.

In certain cases with problem properties, or buyers with temporary problems such as high temporary debt or not enough seasoning on the job, there can be several advantages to a Lease/Purchase or Lease/Option. They are far more powerful than a "glorified lease", as rent-to-own may be.  In Pennsylvania, in case of a default, the original seller may be able to reclaim the property in about 45 days, as opposed to up to a year or more in the foreclosure of an  Installment Sale.  At the same time, the sellers get management and costs of the property off their backs, since properly written up, the lessor/buyer is responsible for all that.  Meanwhile, the buyer gets a guaranteed price for a fixed period of time.  

Of course, buyers must realize that in return for the opportunity to be the equitable owner of such a property, they are in the temporary position of being just a lessor rather than the owner of record.  They will not be the owner of record until they obtain a permanent mortgage, pay off the seller, and the deed passes to them.

Either side can be written up to take the tax benefits, which may be quite advantageous for one side or the other.  I have negotiated many of these.  They are extremely flexible and can address a wide  variety of individual situations.  Most have ended successfully.  In the cases of the ones that didn't, the property went back to the seller, who was, if desired, able to do it again with someone else, sometimes with properties that had actually been improved by the lessor.  

Agents may negotiate to receive a fee upon the settlement for possession, not waiting for the later settlement for deed.  As much work is required of an agent for this type of specialty as for any other real estate transaction, and as much liability as well.  This kind of sale is for sellers who are motivated, not those who are looking for reduced fees.   One caveat for agents is not to go too far in writing "creative" clauses, lest they be accused of practicing law without a license.  An attorney specializing in real estate law should be consulted if needed.  Realtors may pose questions to the Realtor Legal Hotline.

©2009BrianSchulman

Posted by

 

Brian Schulman offers expert real estate representation for buyers and sellers of homes in Lancaster County, PA.  To learn more, visit http://www.FindLancasterHomes.com/

Lancaster County Facebook Business Page Brian Schulman LinkedIn R.E. Lancaster County Newsletter 

Interested in Receiving Information on  Local Lancaster County Events?

Lancaster Local Events  

 

Comments (4)

Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

"settlement for possession, not waiting for the later settlement for deed."

This is where the buyer needs a significant "non-refundable" security deposit or down payment.  To pay the agents. 

If they really look at the numbers, a buyer can recoup the amount of a non-refundable deposit in tax savings through the interest payment tax deduction.

Good info.  Sure beats a vacant house.

Feb 09, 2009 01:08 AM
Jo-Anne Smith
Oakville, ON

Brian,

This looks like an excellent option for many of today's buyers and sellers.....thanks for posting about this. In this part of Ontario, with so many sellers also looking to lease, it may be a very viable alternative....

Jo

Feb 09, 2009 01:14 AM
Brian Schulman
Coldwell Banker Residential Brokerage, Lancaster PA - Lancaster, PA
Lancaster County PA RealEstate Expert 717-951-5552

Lenn, having a significant down payment is an excellent point.  This is definitely NOT a "nothing down" type of transaction.  In addition, knowing the difference between settlement for possession and settlement for deed can make the difference between getting paid and not getting paid.  Sellers should ask for enough deposit to cover their expenses and reduce the risk of the buyer walking away.

Jo, it certainly can be a viable alternative - but there are potential pitfalls for buyers, sellers and agents that all parties should be aware of.  I would recommend only agents with experience and training in lease/options to do these.

Feb 09, 2009 08:33 AM
Jeff R. Geoghan
Coldwell Banker Realty - Lancaster, PA
REALTOR, Marketing Manager

I'm very leery about lease purchases.  Maybe we should set up a program for the team that involved a custom contract for both parties to sign.  The PAR form seems too general.

Feb 09, 2009 02:03 PM