Lease/Option
 

An option is an agreement to keep open for a predetermined period of time, an offer to purchase or sell property. The prospective purchaser is referred  to as the optionee, the property owner is the optionor. The option contract is deigned to assure  the optionee the right to purchase the property  at an agreed upon price and within a specified period of time. Usually, the optionee is keenly interested in the property, but will not exercise the right to complete the purchase unless certain problems are resolved or questions answered beforehand.

-Speculation. The prospective purchaser believes that the property will increase in value.

- Investment. The prospective purchase thinks the property will be a good investment but wants to wait until he or she can find other investors willing to contribute capital and share the risk before actually purchasing the property.

- Comparison. The prospective purchaser thinks the property is a good buy but wants to investigate other properties before coming to a final decision.

- Profit. The purchaser plans on selling the option for a profit.

- Time to acquire cash to close. The prospective purchaser needs additional time to save for the down payment, to sell other  property to obtain the down payment to sell other property,  to obtain the down , or otherwise obtain the cash needed to close transaction.

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- Qualifying. The buyer is unable to qualify for a loan at present, but has reason to believe that circumstances will change shortly and that he or she will be qualify fir a loan within the next year.

- Rent Credit. The buyer and seller mat agree to credit part or all of the lease payments to the down payment, loan amount, or sales price (which would reduce both the down payment and the necessary loan amount)m making it easier for the buyer to make the purchase in another six months or year.

Consideration for an Option. To be enforceable, an option must be supported by consideration. The consideration is something of value given by the optionee to the optionor in return for a commitment to sell the property to the optionee at some time in the future. The consideration is usually a sum, of money, but it can be anything of value. It is sometimes called the option money.

For example: If an renter puts down $5,000 for deposit that will guarantee the he or she will qualify for a mortgage in an upcoming year, and eventually cannot qualify the option is voided and money of $5,000 are non-refundable.

However, any arrangement with an owner should be spelled out in the option contract.

Advantages/Disadvantages. The  main advantage of the lease/option is keeping a sale alive until the parties are in position to close. The lease/option allows buyer to reduce the selling price over a period of time, making an easier to come up with a down payment or to qualify for a loan when the option is exercised.

Also the seller is receiving some money income from the rent of the property, which can be used to make payment a new house until the old house is sold., or to cover financing chares to cover the payments.

The primary disadvantage of the lease/option is that the seller cannot sell the property to anyone other then the tenants during the term of the option. In addition, the seller cannot occupy the property during the term of the lease, so this plan normally involves sellers who have already purchased a new home or who have been holding the subject property for income production rather than as a personal residence.