Sacramento Real Estate Views

Lease Options in Sacramento

Great Option for Investors and Buyers

As the mortgage markets have gotten tougher and the foreclosure boom is in full stride, bridging the gap between buyers and sellers has become a necessity of moving real estate between parties in the Sacramento market.  Buyers who are completely qualified are having difficulty buying homes due in large part to the majority of the market being bank owned and the financing being provided by government backed lenders.  (Click here to understand why this is an issue)

While there are pros and cons to lease options, the same can be said for mortgaging a home with a bank.  Just ask anyone in the Sacramento region who is $100K, or more, upside down in their homes!

I’ll attempt to touch on what a lease option is and give a few tips for getting one completed.  The basic elements of a lease option are:

1. Option Money -  The seller/landlord will want some “option money” or a deposit up front.  This can be any amount down to $1.  Generally, should the buyer/tenant decide not to or be unable to exercise the option, this money is not refundable nor does it go toward the purchase of the home.

2.  Purchase Price - The buyer and seller come to an agreement on purchase price.  Here’s is where the buyer needs to pay attention.  Locking in the purchase price at the time of sale is an option or agreeing to market value at the time the option is exercised is another.  In a declining market, like we’re currently in, locking in the sale price now would probably not be the best option depending on the length of the agreement.  Agreeing to pay the market value at the time the option is exercised seems to be best in most cases minus monies applied to the down during the term of the agreement.

However, if the market is appreciating, locking in the price upfront could be the best option depending if the seller will agree to do that.  Most of the lease options I’ve seen agree to pay the market value at the time the option is exercised.

3.  Rents/Payment – It is typical for a portion of the rent/monthly payment to go toward the purchase price of the home.  This is why this amount of the rent is typically higher than market.

4.  Term – Generally, a lease option can run from 1 to 3 years although I’ve seen 5 year lease options as well.  However, at the end of the lease term, the buyer is not required to purchase the property.  That said, all money that has gone to the seller toward the purchase will not be refunded to the buyer.

5.  Buyer Control – The buyer has control of the home.  No one else can purchase the home when there is a lease option in force.  The buyer may or may not have the right to assign without seller approval, however, depending on the agreement.

6. Get it in Writing – In all cases, the agreement should be in writing.  Get a lawyer to draw up the agreement and, if you’re the buyer, get the advice of a good Realtor familiar with the area of the home for an assessment of current market value or an appraisal.  It’s worth the little bit of money to make sure that you’re protecting yourself.

Understand that a high percentage of buyers do not exercise the option.  This works to the advantage of the seller because the buyer is responsible for most if not all aspects of the property while the seller gets more than market rent during the option term.

Like what you’re reading?  Why not subscribe?  Click here to find out how.

Looking for an agent to help you with selling or buying a home in the Sacramento region or have questions?  Click here to contact me.

No related posts.

Tags: homes in sacramento, sacramento lease option

This entry was posted on Sunday, December 28th, 2008 at 8:47 am and is filed under Real Estate Market Commentary. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Leave a Reply