What are the pros and cons to leasing with the option to buy?

Tom And Sue Whi...
Both Buyer and Seller
53128

My house has been on the market in Genoa City, Wi since January. We have a house that is being built that we are suppose to close on in June. If we don't sell our house, or rent it, we will lose the house we are building. Any advice on the lease with option to buy?

Answers (1)
Pete Rondello Sr
Agent
Minocqua, WI
FIRST ANSWER

Tom and Sue: A Lease/Option may be a good bet in some cases, but it doesn't sound like the best fit for you. Generally, you lease out your home to a tenant who also signs an agreement to purchase your house at some future date at a price you have negotiated. For this privilege, they pay you an "option fee" which effectively takes the home off the market while they decide whether they want to buy it or not. In other words, you might agree with your tenant to sell them the house within 6 months for $200,000.00. They give you $2000.00 option fee (which is their way of saying "we have the OPTION to buy your house if we want any time in those 6 months") and they rent from you until the option is exercised, expires, (they lose the $2K to you) or gets extended.
In practice in our area, few of these options work out in a residential setting. The banks have cheap money to loan for folks with good credit; those who ask for an option either have little or no down payment, a credit history that is not favorable, or need time to rebuild credit or cash to make it all happen.
If they end up NOT liking your house after renting it, they can walk away with little recourse.
I hope you can just sell it - looks like that would be the best alternative. You might check with your broker, banker, accountant, or attorney who know you situation better than I do. These are just guidelines based on about 20 years in the trenches.

Tue May 6 2008, 12:02

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