Home Selling in Aliso Viejo>Question Details

financeguy, Home Owner in Orange County, CA

How does a lease option work with regards to real estate commissions and appraisals?

Asked by financeguy, Orange County, CA Tue Mar 15, 2011

Hi Everyone,

I'm thinking about doing a lease option. I would be perfectly happy renting my property for a year and selling at a specified price at the end of the contract. The two things that would concern me is the appraisal and agent commissions.

In a lease option to buy, does the seller pay the typically agent commissions or are the total commission rates lower? Also, at the time of sales, if the appraisal comes in lower, can I say too bad and keep the option premium.

Ideally I would like a situation where I would keep the option premium if the property does not sell for whatever reason (appraisal comes in low, buyer can't secure loan, property gets damaged, etc.) and I would pay less than the typical agent commissions on a sale. Is this possible?


Thanks for your help.

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Answers

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Financeguy? A buyer would be ill advised to enter into a lease option, at this time. If I were advising such a prospective buyer, I would recommend that they enter into a one or two year lease, and make a first right to purchase, a part of that transaction. There would be NO option deposit - only a typical security deposit, which is usually a similar amount to a month's rent.

The commissions would be spelled out in the lease agreement, as would the representation for each party, whether an agent for both, or each, individually. Anything less than spelling this all out in advance leaves far too many potential areas of disagreement. ( Appraisal, commission, price, etc.)

Expecting a buyer to "give" you an option deposit, wondering what the value could be in a year or two, ( Or taking a gamble as to what the value might be.) wondering who might be guiding them through the transaction, is probably - in MY humble opinion, anyway - a fairly selfish expectation, on your part. At least that's how your scenario is coming across. ( Almost as if you want to have your cake, and eat it too.)

Most successful transactions, whether for a regular sale, or a lease option, all SHOULD have a foundation of being a win-win situation.
Web Reference: http://BobPhillips.net
2 votes Thank Flag Link Tue Mar 15, 2011
It occurred to me to offer a little more information, in case there are other sellers - or buyers - considering a sale of this type - a lease option.

As I mentioned earlier, it is probably best to just do a one or two year lease, with a provision that the tenant has the first opportunity to purchase, should the landlord decide to sell.

Typically, there was an agent or two involved in setting up the lease, and there should also be a provision/addendum making them part of a subsequent purchase, if and when that happens. The commissions should be set at the beginning of the lease, not at the end.

If the transaction does occur, then the agent(s) help the parties come to agreeable price ( possibly with each party hiring an appraisal, and splitting the difference.) and terms, and they open an escrow.

The agent(s) would get paid at the close of the escrow, just like in a normal transaction.

That is how I see such a transaction being a triple win - for the buyer, the seller, and the agent(s).
Web Reference: http://BobPhillips.net
0 votes Thank Flag Link Thu Mar 17, 2011
On a Lease option to buy, the buyer gives you a non-refundable amount, say $10,000. 00. When the time comes in the 1-2 years as per what you agreed to on the contract , then thats when you would open escrow and the buyer does the inspection, gets their loan just as in a regular transaction. They are no different but just set up in advanced for a later date to be sold. You would need an agent for the sale as in any other transaction. The agent that brought the tenant/buyer and would still do all the work involved and they would be acting on behalf for the buyer. You the landlord would have an agent that would act on your behalf that helped market the property to get the tenant/buyer as in any other transaction. Yes, the commission you would have set up in the beginning per the contract you signed and all parts of the contract are negotiable.
Now, If the appraisal comes in higher thats great for the buyer, but if it comes in lower not so good for the buyer.. You don't see many of the lease option to buy because the buyer could lose their large deposit. This is the risky part for the buyer and can be good for you. If you would like a copy of the contract just let me know.
Ingrid Ski Realtor 949-874-0432 OCAreaHomes@gmail.com
0 votes Thank Flag Link Tue Mar 15, 2011
If you have a choice leave the agent out of the deal and look for an FSBO lease option. You can come in for as little amount as you can negotiate and its a voidable contract which means you can cancel the deal anytime but the owner can't. Personally, I like LO's. They can work for the buyer if he's smart about how he enters into the agreement.
0 votes Thank Flag Link Tue Mar 15, 2011
Pay less commission for a harder transaction?? Commissions are negotiable so you just have to work out a deal with an agent that is willing to help you with this type of transaction. Interview a few agents in your area and see what they say.

Glen
Real Estate Broker
0 votes Thank Flag Link Tue Mar 15, 2011
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