Lease Option

Lease Option

Buyers sometimes will consider doing a Lease Option in order to build up funds to be able to make a down payment for the Purchase.

1. Lease Option transactions are legal, but may be wrought with problems if not handled correctly.
2. Always consult with Contract Support Manager or Compliance Manager BEFORE doing a Lease Option.
3. If your Buyer is purchasing a Property using the Lease Option, you will need to execute 3 separate documents and reference all 3 in each form tying all of them together as part of the Agreement.
   1. LR [Lease Agreement] to write up the Lease terms during the “Option” period.
   2. RPA [Residential Purchase Agreement] to write up the terms of the Offer.
   3. OA [Option Agreement] to write up the terms of the “Option.”
4. There is usually an “Option” fee for the privilege of having the Seller hold the Property off the market until the end of the “Option” period. [Usually 1 year.]
5. Seller is accepting a Sales Price as of the time of the execution of the “Option” which might end up being less than Seller could get if they waited for the 1 year.
6. There may be provisions in the Agreement that carry over to the Sale.
   1. A higher rent may be paid and a certain portion of that monthly rent may be applied to the eventual down payment.
   2. The “Option” fee [often $10,000 or more] may also may be applied to the eventual down payment.
7. The Option Agreement will specify a “drop dead” date by which the Buyer must “exercise the “Option” to purchase the Property or Buyer will have to relinquish the “Option” fee to the Seller.