When I’m
selling my home myself, which is most of the time since I’m a real estate investor, I have various methods to sell my home quickly. One of my methods is not an actual sale, but it often works for me and for the buyers as well. If I’m negotiating with prospective homeowners who are interested in my home but don’t have all the necessary down payment or credit rating needed to get a mortgage loan sometimes I pull a trick out of my bag that solves their problems and allows me to get some potential homeowners in my home. It’s actually a well-known legal form used in commercial real estate, but not so well-known or commonly used in residential real estate. It’s called a Lease Option Agreement and it is a lease with an option to buy the home.
As the landlord/seller, I agree to allow the prospective buyers to move into the home and make a monthly rental payment. And in addition, they pay me a flat fee at the time they sign the lease, and they pay me an additional amount each month for the right to purchase the home at an agreed-upon price on or before the last day of their
lease. They are paying for two advantages really; the first advantage is a negotiated purchase price that will not change over the course of the one or two year lease agreement, and the second is that nobody else can come along and buy the house during that time. They are protected. All the money the tenants pay for the option fee up front and on a monthly basis is credited toward the purchase price when they close on the sale. If they never close on the sale they forfeit the option fee money. That money represents my compensation for keeping my home off the market and making it unavailable to other buyers during the term of the lease.
Most importantly, I have an obligation to sell the home to these tenants if they decide to buy it within the specified time frame. But they are not obligated to buy the home at all, they have a choice. So a lease option agreement is often a good solution when I need to sell my home quickly and provide my buyers with a flexible, practical deal on a home they want to buy. A lease option agreement can work for everybody if it’s done correctly, which means the proper forms are used and everyone understands the terms of the agreement in advance of signing the agreement. I encourage my buyers to show the agreement to a lawyer as a matter of good business practice.