options can benefit both buyer and seller
We want to sell our house and have had several
people inquire if we would do a lease-option agreement with them. How do they
work, and would that benefit us? Thanks. -- Tyler
Under the right circumstances, lease options can work well for
both the buyer and seller.
In your case, handing over your home
to someone via the lease-option route -- meaning your "renter" will
get an option to buy the place at a given point -- works particularly well if
you're having a tough time selling the house and want to move without making dual
house payments. Even in a buyer's market, there are plenty of potential tenant-owners
who are willing to go the lease-option route to improve their lives.
you're not getting that big upfront cash sale you might like, there still are
plenty of advantages in this for you. In most lease-option arrangements, the tenants
agree to pay move-in "option" money that will be used for credit toward
a down payment on the house. You'll also want them to demonstrate their commitment
by paying above-market rent, the "above" portion of which (10 percent
and up) will be credited toward a sale. If the tenants back out of the deal at
the option point -- typically one to three years after move-in -- you'll get to
keep those monies, which can amount to a nice little chunk of change. Another
bonus is that lease-option folks are inclined to maintain a home better than conventional
renters, because they have a vested interest in it. In other words, you're less
apt to suffer the dreaded "renter trashing."
you get to retain the income-tax benefits of the house during the lease period
and won't have to pay taxes at all on the option money until it's formally credited
toward the house.
A lease option, by the way, is not to be
confused with a lease purchase, a very similar arrangement but one in which the
tenant is obligated to buy the house at the end of a lease.
there are a few potential drawbacks in a lease option for you, too. As the seller
in this arrangement, you are committed to the buyer, but the buyer is not committed
to you. Also, some real estate agents may balk at handling these types of transactions
because they take so long to consummate. Most agents, however, prefer them to
no sale at all.
It's important that you know what motivates
most lease-option buyers. Because the option money is less than a down payment,
lease-option homes are easier to get into for these folks and good credit isn't
as much of a prerequisite. The arrangement also gives buyers time to knock around
the house a little more, get a better feel for the neighborhood and local culture,
and perhaps establish or repair credit. They're also happy to be building equity
instead of just making a landlord happy, and glad to be able to lock in the purchase
option at today's home prices.
But if homes in your neighborhood
are moving slowly and you can find a solid lease-option tenant with good references
and decent credit, it's still a good move.