Leasing with the Option to Buy

Leasing with the Option to Buy

Leasing with an option to buy: a renting tenant signs an agreement with a landlord stating that the tenant can buy the property at the end of a prearranged time period. The owner is obligated to sell at the option price, but the tenant is not obligated to buy. However, the tenant can buy the property only if the landlord exercises the option to sell.

The option to buy is terminated if the tenant in any way violates the lease before closing the agreement to purchase. An option to buy only gives the tenant legal title upon exercise of the option which becomes an absolute and binding contract of sale.

The tenant often pays above-market rent for the property, but a (nonrefundable) portion, called the rent credit, is credited toward the purchase price.

This is usually a bad option for a renter (potential buyer).  If something goes wrong, the owner won't give you a good reference.  

Let's look at it from a seller's point of view:  Seller can get $100,000 next month or $800/month for 2-5 years depending on the terms of the lease.  Why would a seller choose to get the bulk of his money later?  There are a few reasons that I know of:  

1. Seller wants more than he knows the home will appraise for

2. Seller knows home won't pass an inspection

3  Seller just want to help you out

4. Seller can't collect anymore money this year toward income taxes

Most of the time when you sign this kind of option, you (the renter/buyer) assumes the responsibility for all repairs, taxes, and insurance.  Unfortunately, sometimes it's just a money pit.  Contact a real estate agent that you trust to advise you on the process AND definitely discuss it with an attorney before you sign anything.