Lease/Option? Now? Why would you want to do that?

After three contacts this weekend who mentioned the possibility of a Lease/Option purchase on a couple of Cary homes, I have to ask, “Why?”And folks can’t tell me why.

I think there are legitimate uses of lease/option approaches, and there are myriad approaches.  Every transaction is different, and buyers and sellers use lease/options for different purposes.

I can understand employing a lease/option in a sellers’ market, when it may be desirable to take a home off the market while making a decison to buy.  The appeal of a lease/option to a buyer is hard to grasp in the current market conditions.  Especially if the tenant/buyer is going to be expected to make a nonrefundable earnest money deposit, and pay a higher than rental market amount each month, with the excess to be used in the purchase.  We may be taking an affordable home rent and turning it into a less affordable home rent, on the chance that it may turn into a home purchase.  But, most lease/options do not develop into home purchases.

We have been told for a few years that interest rates will get on an UP elevator.  And they may, due to economic conditions and government policies.  But, the lease/option buyer cannot gain the protection of locking in a low current rate for a possible loan in 12, 18, or 24 months.  So that benefit is probably not real.

And, commonly, lease/option sales prices are set at the time the contract is written.  What happens if the home fails to appraise for the agreed purchase price in a year or two, after the tenant/buyer has invested a deposit and monthly sum into the purchase side of the contract?

I think a better strategy is to get into the one year lease, and test drive the home.  Decide if you want to own it.  Negotiate a purchase, or part way through the lease, buy an option to buy the property.  And then with the property off the market, save the funds and clean up the credit profile so you can close at your convenience.  After inspections and negotiations, appraisal and lending arrangements.

But to spend money on a lease/option before knowing if you can be a buyer within the terms of the lease?  It had better be a special, unique property that will not be duplicated in the current market inventory!

Otherwise?  Inadvisable!  Or, at least, that is the opinion here.

Leave a Reply

Your email address will not be published.