With the spate of unpredictability and imbalance being experienced in several real estate markets across the world, it is important that both buyers and sellers involved are at their creative best to thrive. Buyers’ access to mortgages is reducing by the day and sellers aren’t finding it easy to sell their properties at the price they demand. Lease options are a popular way of purchasing real estate due to the advantages they bring to both sellers and buyers. While we’ll want to focus on the benefits of selling a house on a lease option, we’ll start off by looking at what a lease option is and how it can be helpful for hard-to-sell properties.
What is a Lease Option?
A lease option is also known as a rent-to-own or a lease with an option to purchase. A lease option is an agreement that gives a renter (tenant-buyer) the choice to purchase the rented property during or at the end of the rental period. It also prevents the homeowner from offering the property for sale to anyone else during that time. When the rental term expires, the tenant-buyer must either exercise the option to buy or forfeit the option. Should they decide for whatever reason the house is not the right fit for them, buyers are not in any way obligated to buy the home before or at the end of the option period.
Lease options give sellers an advantage in a competitive market. Structuring a deal on a lease option provides sellers the opportunity to reach more potential buyers, which then gives the seller the opportunity to sell their property quickly and at a higher price. In some situations, a lease option may be the only way for sellers to sell their homes at the price they demand.
How a Lease Option Works
In a lease option, the tenant-buyer and seller establish a lease agreement for a pre-determined rental amount during the option period. Lease option periods are typically 2-3 years. The buyer and seller usually agree to a purchase price at the inception of the agreement. This is negotiable but most buyers want to lock in a pre-determined purchase price at the beginning of the lease option agreement.
The buyer pays the seller an option fee that secures the buyer’s right to purchase the property at the end or during the rental agreement. The lease option fee paid to the seller can be as little as $100 or as much as 2-3% of the purchase price. The option fee is non-refundable and is immediately given to the seller upon commencement of the rental agreement. Depending on negotiations, the lease option can or can’t be applied to the purchase price if the tenant-buyer exercises their right to purchase the property.
Lease payments can exceed market rent, although it can be negotiated that a portion of the monthly payments can be credited towards the purchase price if the tenant-buyer exercises their right to buy the property. If the buyer doesn’t exercise the lease option and purchase the property at the end of the term, the option expires. In no way is the buyer obligated to buy the property.
Advantages of Lease Options For Sellers
Lease options are designed to be a win-win situation for everyone involved. Most importantly, sellers finally get a shot at selling a property that would or is already been proven difficult to sell.
The seller’s list of benefits and advantages would typically look like the following:
- More cash flow: Sellers get paid higher rents while eliminating the risks of vacancies.
- Ability to sell in a competitive market: Lease options allow sellers to beat the competition by offering a way to purchase a property that is beneficial and profitable to the tenant-buyer.
- Eliminate Realtors Fees and Commissions: Sellers are able to avoid paying the typical 6% realtor’s commissions because lease options secure the renter’s position as the buyer.
- Minimum risk: Should the tenant-buyer decide not to buy, the non-refundable option fee will be kept by the seller.
- Larger target audience: sellers are able to market their properties to not only potential buyers, but also renters and even investors.
- Tax benefits: the seller would still retain their ownership of the property during the option period and therefore get to enjoy the tax benefits associated with homeownership.
- Less stress and better tenants: Sellers lease their property to high quality tenant-buyers who genuinely care about the home. Therefore, the process is usually less stressful.
- Eliminate repair and maintenance costs: Repairs are the responsibility of the tenant-buyer throughout the duration of the lease option period.
Whether you’re relocating or selling your home for any reason, 24hr Homebuyers guarantees reasonable offers in order to provide homeowners access to cash so that their burdens of home ownership quickly disappear.
If your finding it hard to sell your property in a highly competitive market or you just can’t afford to wait endlessly for that perfect buyer, give us a call at 888-914-7325 or fill out our form to discover how we can help.