Saturday, April 12, 2008

Lease-Options Are Back for the San Fernando Valley

Lease-Options Are Back for the San Fernando Valley

A lease-option is utilized when a potential buyer wants to lease or rent the property with an option to buy it at a later date. The potential buyer pays separate consideration for the option to purchase at a later date to remain open for a specified period of time. If the potential buyer does not exercise the option, or does not purchase the property within the option time period, then the potential seller keeps the option consideration and retains the property.

Generally, lease-options are done in a slower real estate market as we have now, where the seller cannot simply sell the property outright. In this situation, a buyer, who may not have enough money for a down payment, can lease the property while they accumulate the money for a down payment. Often, a portion of the monthly payment by the potential buyer will go toward the down payment.

The option agreement must designate a price or state the price that will be determined by some objective standard when the option is exercised. Because the parties have enterted into a binding agreement, the potential buyer may sue for specific performance on the option, requiring the seller the potential seller to sell the property to the potential buyer under the terms of the agreement.

Richard's Notes: With the price of homes declining, if you're thinking of purchasing a home through an option-lease, I suggest your contract state the home's future value be priced with the market value which will be appraised at the time of the end of the option lease.

If you own a home in the San Fernando Valley and are thinking of selling via option-lease, please call me.

Richard Johnston, RE/MAX OTB

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