Lease to Purchase vs. Contract for Deed

Asked by zoomiebrokers, Scottsdale, AZ Sun Nov 3, 2013

I was hoping to get various insights on the pros and cons of each and if one vehicle is superior to the other? Thanks in advance.

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Adam Johnson’s answer
Adam Johnson, Agent, Scottsdale, AZ
Fri Nov 8, 2013
In Arizona, you will not see many contract for deed purchases. A lease purchase option is another way to go but there is no guarantee that the buyer will perform. Also, with the Dodd Frank legislation goes into effect Jan. 1st 2014 you will also not see many seller financed deals for the seller will have to follow the lending rules per Todd Frank.
0 votes
Adam, We do sell financing all the time. You are confused my friend. I am embarrassed for you.
Flag Mon Oct 6, 2014
It's Dodd Frank not Todd Frank. This person has no idea what they are talking about.
Flag Mon Oct 6, 2014
dodd frank act I think you mean. and it isn't the way your portraying it! It is so people stop screwing honest people over with bs balloon payments that are intended to legally steal the property back!
or a spoon fed form
spread truth not fear my dear :)
Flag Sat Feb 22, 2014
what is that?
Flag Sat Feb 22, 2014
Scott Real E…, Agent, Carefree, AZ
Sun Nov 3, 2013
A Contract for Deed enables a buyer to pay the purchase price in installments, with the balance being due on maturity, at which time the seller must turn over legal title to the property. The buyer is given possession of the property and equitable title. The seller holds legal title until payments are completed.

To quote The Language of Real Estate, "The contract for deed is used quite extensively in many areas, where it may be called a land contract, agreement of sale, installment contract, articles of agreement, conditional sales contract, bond for deed or real estate contract. In a dynamic and rapidly appreciating real estate market, the contract for deed enable buyers to purchase property on reasonable financial terms and thereby benefit from the appreciation of the property values. Many buyers then sell the property at a profit before their final payment becomes due. In a tight money market where it is difficult ot qualify prospective buyers for conventional financing, the contract for deed is frequently the best method to sell or purchase a property. Especially benefited by the contract for deed are young couples, who would have difficulty qualifying for a bank loan at the time of entering into the contract for deed, but whose incomes will increase before maturity of the agreement, enabling them to refinance and pay off the contract for deed.

A Lease to Purchase to basically a Lease Option to purchase. Lessor/optionor must be careful to structure the transaction so that the IRS does not characterize the deal as a sale, rather than a lease.

The two basically accomplish the same thing - purchase of the property - but with each, there are some important items that must be addressed in the contract or lease agreement. You would be wise to consult with an attorney, particularly if the transaction is a more complicated one.
1 vote
Great post!
Flag Mon Jun 22, 2015
Bianca Benne…, Agent, Glendale, AZ
Tue Nov 26, 2013
I would buy a property instead of going in a lease with option to buy, however if your credit is poor your best option would be to move forward with a lease with option to buy, and lock a good purchase price at the end of the lease. Please contact me directly and I will explain further.

Best Regards,

Real Estate Professional / Prestige Realty
Bianca Bennett / 602-570-7898
0 votes
Jeff and Jane…, Agent, Scottsdale, AZ
Sun Nov 3, 2013
Dodd-Frank new regulation become effective on January 14, 2014, and these new regulations provide a high-risk situation for any home seller wishing to provide this in a real estate transaction. The risk is so high that the chance of a seller providing this as an option is very low.

The new regulations were built for the 2,300 page Dodd-Frank law and as of July 13, 2013 there is 155 new regulations comprised of 11,000 plus pages. The large banks have had to hire additional personnel to handle the additional administrative processes and requirements of a loan. Small commercial banks and credit union are going to be hard pressed to follow suit because of the expense. A person selling their residential real estate will assume the same processes and the same risk. Few if any will be able to assume that risk. The cost of a loan will most likely be higher and most likely take longer to process. You could probably expect a minimum of 45 days to close a bank loan.

If you're going to attempt a seller financed transaction you need to try and get that closed before the 1st of the year.

Jeff Daley, PhD
Luxury Valley Homes
Licensed REALTOR(R) State of AZ
0 votes
Joseph Domino, Agent, Scottsdale, AZ
Sun Nov 3, 2013
A 3rd and better option is an owner financed home. If you can find a Seller that is willing to carry the mortgage (called a Seller Carryback) this would be your best option. With Seller Carryback, the deed is transferred to you at the time of sale and you pay a mortgage to the prior owner instead of a bank. The terms of this type of sale may be a little more difficult to negotiate, but far less risky than the other two ideas.
0 votes
Paula Serven, Agent, Scottsdale, AZ
Sun Nov 3, 2013
Contract for deed is is sometimes referred to as a Land Contract or an Installement Sale Agreement or Commonly known as a WRAP AROUND... BE CAREFUL... and investigate all the angles with the Contract for Deed. There are consequences for both the Buyer and the Seller should either party default... As a Real Estate attorney and Title Company for the negative outcomes that can occur should a default occur. YOUR MONEY COULD BE AT RISK FOR SURE...
Lease Purchase

The Tenant/buyer pays to the landlord/Seller a NONREFUNDALBE option deposit that is applied to the purchase price of the home. The Tenant/Buyer then pays to the Landlord/Seller rent to compenstate the Landlord/Seller for the Tenant/Buyer's use of the property. Rent paymens are USUALLY made on a monthly basis. Some time portions of that monthly payment is applied to the purchase price and or the down payment of the home. DURING THE TERM OF THE LEASE, But BEFORE the option expires, the Tenant/Buyer has exclusive right to buy the home under the terms to which the parties agreed to previously.
0 votes
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