Is a lease option right for you?

Question: Dear Kari, Can you explain what a lease option is? My friend at work mentioned that she and her husband are moving into a nice home using one, and I'm not familiar with the term. Answer: Great question. There are a lot of terms out there like lease option, rent to own and lease purchase, but they all describe a similar process. Let's break down the basics so we can understand how a lease option works: The basics of the lease options are defined when a buyer pays the seller a sum of money referred to as option money for the right to lease the property. The option money may be substantial, or it may be as little as one dollar. It is, of course, all negotiable. A buyer and seller lock in the future purchase price upon execution of the option to purchase. The timeframe of the option agreement is usually from one to three years. The option money is typically not refundable, however as with most everything, it is always negotiable. During the option period, no one else can buy the property. The buyer is not obligated to buy the property at the end of the option term. However, the seller is obligated to sell at the agreed-upon terms and price if the buyer decides to follow through with the lease option purchase. During the time of the lease option, the buyer will be paying a monthly agreed-upon rent along with an additional amount of money. Please note that in working with lease options, typically the agreed-upon purchase price is higher than the current market value, which is always an advantage to the seller. The buyer cannot offer the lease option to anyone else without the seller's approval. The buyers are customarily given the responsibility of maintaining the property along with paying for all the expenses related with the upkeep. The buyer would be wise to keep a record of all accumulated receipts. Here are some possible benefits for the buyer to keep in mind: * Potential faster equity accumulation. * Time to repair credit, if applicable. * More time to decide if the neighborhood is acceptable. * Can walk away from the lease option. Here are some possible benefits for the seller to keep in mind: * Higher-quality tenants. * Residual income. * Tax shelter held, seller still on deed. * Top sales price, higher rent, non-refundable option deposit. The buyer would be wise to obtain a termite inspection report along with a home inspection report before committing to a lease option. This way, the condition of the property will be transparent up front, allowing negotiations. In addition, a necessary title search to confirm possibilities of loans, liens or clouds on title that may affect the property and the lease option. The owner of the property is required to fill out all the seller's mandatory property disclosures. I would also advise paying for a formal appraisal up front. Be certain to contact a Realtor or real estate attorney to draw up the documents to confirm everyone's rights and consequences. The possibilities can be worthwhile for both parties as long as all legal aspects are made apparent and both parties agree. This information is believed to be accurate and is intended to provide a general answer. For legal advice, contact your local real estate attorney.