In this market, we have to be able to think outside the box. A lease w/purchase option isn't for everyone, but may be a great option for a buyer who has found THE house they must have but they require a Sale-of-Home (SOH) contingency or they need additional time to come up with a down payment.
With a lease purchase option, the Buyer (after/along with the offer to purchase being negotiated and ratified) agrees to rent the Seller's subject property and the Seller agrees to rent the property through a predetermined/negotiated date. Once the Buyer takes occupancy of the subject property the maintenance MAY become the Buyer's responsibility depending on if they executed a Pre-Occupancy Agreement or a Lease.
Some of the Risks:
1. The buyer may be paying rent PLUS a mortgage simultaneously (if this is due to a SOH contingency). Sometimes a the Seller/Landlord will credit a portion of the rent to the Buyer at closing and if the closing does not go through, this $ is kept by the Seller. The Seller may also require an Option fee up front to cover their risks.
2. In the event the Buyer does not/can not buy the subject home by the date/price determined/negotiated in the agreement, the lease purchase option will expire and the Buyer MAY be required to vacate subject property unless you can acquire an extension.
3. The sales price of the subject property will be determined as of the date of the lease purchase agreement. Nobody knows where this market is heading. In the event the market declines in value, the Buyer will have already agreed to buy the home at today's market value.
4. If the market declines you may have issues obtaining an appraisal.
5. If interest rates rise or qualification guidelines change, the Buyer may no longer qualify for the loan to buy the subject property.
Benefits:
1. The Buyer may be able to move in ASAP.
2. The Buyer will be able to "try before you buy" .
3. While I have mentioned in the risks above that the property value may decline, it is more likely to increase.
4. If the Buyer has a SOH contingency, they will no longer be inconvenienced with showings. Vacant properties are sometimes easier to sell because the agent can "go & show".
Since I am NOT AN ATTORNEY, I highly recommend a real estate attorney review any lease/purchase agreement to protect the Buyer's interests.
Lots to think about.....
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