You could lose your option fee paid for the lease option agreement if you do not exercise your option at the end of your lease option period.

Negotiate a satisfactory "lease option fee" up front with the understanding that it could be forfeited in the event you do not purchase the property. The seller must deposit this option fee in a trust type account or an account separate from all others as to not comingle the funds with their own. The option fee will be applied towards the buyer's purchase of the home if and when they elect to complete the sale and must be held in safe keeping by you until that time. The seller may only keep the option fee if the terms of the purchase agreement are not met at the end of the option period.

Be sure to consult an attorney or CPA prior to mutual agreement. Have all of these terms in writing, fully understood and signed by all parties. Be sure that all parties retain a fully executed copy so that there are no questions when the lease option period has ended and escrow is opened. There are many other methods of negotiating a lease/option but I have addressed the bulk of it. Good luck.

Mon May 5 2008, 21:53

Doing lease options via escrow is quite safe, but you still need to be extremely careful because not everyone will agree to escrow and not everyone in the transaction will be knowledgeable about lease options.

What do you need?

1. A licensed real estate agent who is well-versed with these types of contracts and in the investment side of it -- there are at least 4 crucial documents involved and lots of steps necessary to make sure all your terms are specifically spelled out.

2. An attorney (if you don't use a licensed real estate agent). Please, don't leave lease options to a family member or a friend or a friend of a friend who can barely write a good contract (without misspellings, grammar, etc.) to protect you. The headache you'll get later is really not what you want and the risk that you won't end up with the house is a bigger problem after having paid out all that money. Also, keep in mind that not all real estate attorneys know about the state contracts that licensed real estate agents use or understand the intricacies of lease option agreements. They will be helpful in reviewing terms and in helping craft the agreements. But a really good licensed agent and an attorney will be very rare.

Option money is usually not refundable if you don't exercise your option. That is the basis of creating a contract -- consideration = money.

In today's market, I've seen prices for lease options come in cycles. I think prices will be very bad in October. Anyway, that's just my assessment because I have been looking at lease option opportunities.

Foreclosure could happen even if you pay everything and the house is not in your name. What is your recourse? Civil action against the landlord/seller, but that is not to be taken lightly because with that comes more money to get the case started and go through lots of time for litigation, discovery, etc.

This information is not intended as legal advice or to scare you to not do a lease option. There are so many things involved that you really need a professional who can handle and will perform for you. I hope that helps.

Fri May 2 2008, 22:13

Hi Peela,

When you lease with an option to buy, the money will go to the landlord. Most of the time, the monthly rent will be higher the market rent about 2 or $300. Then it depends on how the landlord decides, he will count a part of that rent to be your option money. For example the rent with option is $2000 while the market price is $1700. The landlord might count about $150 or $200 as your option money. After 3 years of agreement if you change your mind then all the money you paid in the past 3 years will be in the landlord possession. There will be no refund due the agreement contract between you and the landlord in the beginning. In addition to that when you sign the lease with option contract, the landlord often ask you for a deposit for certain amount of money. Most often they will ask for the amount from $5000 to $10000 as the deposit. When you buy the property, they will deduct that amount and the amount of extra money option toward your down payment but if you don't want to buy the property all that money will be gone . There is no refundable. There is no cancellation. A contract is signed and you are bound to it. Failure to meet the terms you have to pay for what they ask for. There are risks and advantages in with lease with option, you need to do more research with that option. Feel free to contact me if you want to know more. I hope you find my answer is helpful.

Sun Mar 9 2008, 00:05

Hello Peela,

As mentioned already option money is negotiated as part of the lease option contract. Typically the money does go to the seller, with the money being contributed to the purchase price. Everything is negotiable and you will want to make sure that you fully understand the lease option contract before signing. If the purchase is not made the seller typically will keep the lease option fee.

It would be a good idea to contact a Realtor or lawyer who can help you understand the contract and explain to you what the lease option covers.

Good luck to you!

Lisa Cartolano
www.lisacartolano.com

Sun Mar 2 2008, 18:17

It's all negotiable. All. So you really have to negotiate and read the fine print.

Having said that, generally, typically, the option money is retained by seller and credited toward the purchase price if (and only if) the tenant-buyer decides to purchase. It's generally not kept in escrow, though that's negotiable. Often it goes to the seller, who can do whatever he/she wants with it. But the option agreement should specify what will happen to the money if the option is exercised...and if the option is not exercised.

Almost always, if the option is not exercised, the owner retains the option fee. It is not refundable. But, as I've said before, that's negotiable.

Sun Mar 2 2008, 11:16

Peela:

Where the deposit goes will depend upon the terms of the agreement, so please make sure a competent Realtor or attorney reviews the document prior to adding your signature.

A lease option is typically a unilateral contract, which means that the seller is the only one who MUST perform. The buyer may or may not choose to buy the property and can walk away, losing nothing other than the option money. In exchange for that flexibility, the option money is generally non-refundable.

If you wish the option money to be refundable, that must be negotiated, in writing, in advance. That will also allow you to determine where the funds will be held.

Best wishes in your investment!

Sun Mar 2 2008, 07:20

Peela, Lease options are all set up about as differently as a person's DNA- none of them are exactly the same. That being said, if and when I am involved in a Lease Option, especially now in the day and age of so many foreclosures, etc. I always caution the buyers to make certain they are protected as much as possible. I would definately suggest that the money be put into an escrow account, with the stipulation that the seller only gets the money at the end of the 12 month lease period, etc. In addition, I caution the buyers to have some sort of protection that the mortgage is actually being paid. I recently got a call from someone who found me on this forum, and they had a family member who had been in a lease option for 9 months, had paid a pretty good sized "option" amount up front, plus was paying an amount greatly in excess of the monthly mortgage. Suddenly they were served with notification that the home was being foreclosed upon. What do you think the chances were that they were ever going to see their lease option money again, or the monthly amt. which was supposed to go toward their purchase? Not to mention, they had put money into the home, believing that it was "their home"....... Be certain that you are protected in the lease option. So often the buyers are so grateful for a seller "giving them the chance" to become a homeowner that they throw caution to the winds.

Good luck to you.

Patti Phillips
800-680-9133

Sun Mar 2 2008, 00:16