Rent Versus Lease Option

Dated: 07/28/2014

Views: 501

Over the past five to seven years, we have all seen the listing with "lease option" posted on it.  Most buyers look right over that because it may not pertain to them.  But there are many buyers out there that this would mean a new start to establishing some credit and getting into home ownership. However there are some advantages and disadvantages to a lease option.

Let's clarify that we are speaking about a lease option, not lease purchase. The difference can be quite simple, but significant. A lease purchase is usually a normal purchase contract with a longer time frame to close. The extended period to close is outlined with a lease agreement.  A lease option is NOT a purchase contract. It is a lease with an addendum that gives the renter a "right" or "option" to purchase the home with an agreed upon set of terms, usually a predetermined price and time frame to purchase.  For this right to purchase, the renter will pay an option fee to the seller at the onset of the agreement.
The advantages to a lease option for the seller are that they get an option fee from the renter and hopefully sell their property at the end of the term.  Please keep in mind that these agreements differ for each deal.  Usually the option fee just that. A fee.  If the renter does or does not exercise their right to purchase, the seller keeps the fee.
The advantages to a renter to do a lease option really get good when the housing market is appreciating. They lock in a price now and in a year or two the market hopefully appreciates some so they get to purchase a home for a below market price.
Sometimes just renting instead of doing a lease option is a better choice. Many times the renter does not purchase the home they are renting or doing the lease option. The reasons vary, ranging from the renter not doing their part to get financing in place, to the renter just not liking the home after living in it for a year or two.  More than likely the renter will be looking at all the homes on the market for sale if they are approved and ready to purchase. This would be more painful to do if they forked over a hefty option fee on the front end only to have it not go towards the purchase of the home.
If you are thinking about purchasing or selling a home in Louisville KY, or even if it is in a surrounding county, please call.  I would be happy to sit down and discuss your situation and how we an help you.

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