As markets change so does the nature of real estate transactions. One type of transaction that comes and goes with market changes is the lease/option, a lease tied to an option to purchase. The lease/option tool can be a good one for Buyers and Sellers if their circumstances warrant it.
Optionor (Seller) and Optionee (Buyer) can both benefit if the agreement is structured correctly for their respective objectives. A Seller with a vacant property that wants to generate cash or a cash flow with the rent monies and option consideration might consider a lease/option. A Buyer that hasn’t sold his property but wants to move once and in to a home he is buying so he can establish it as his own until his property closes escrow might consider a lease/option. These, and many other scenarios, are bona fide lease/option situations that could result in a mutually beneficial lease/option arrangement.
Beware, however, that we are seeing more lease/option agreements being written for speculation these days. We caution you to have your agent clearly help you with perspective in evaluating such a proposed contract and its effect on you. If someone proposes to give you $5,000 and tie your property up for three years, the warning bells should go off as their respective flags raise. No matter how frustrated you might be in today’s market facing your continuing payments, in this situation you must project forward three years and consider what the market might be. Also be advised, these offers are coming in way below today’s market value.
The option agreement gives the Buyer the option of buying tomorrow at a price agreed on today. Let’s say your property is worth $300,000 today. It has probably gone down 30% in the past year. If it comes back 20% in three years, the appreciation would be $60,000. In this case, the Buyer/Optionee would make $60,000 on an investment of $5,000 over three years. That is the speculator’s motivation. The speculator’s motivation is further enhanced if he can contract to buy your home for $250,000 in 3 years.
To minimize your risk exposure to such a speculative investor’s offer, in addition to adjusting the price, consider shortening the time, i.e.- one year instead of three. Try increasing the option consideration. If you go beyond a one year time frame consider annual option consideration payments for extending the option incrementally. Higher monthly payments can give you a cash flow and bind the Optionee tighter. If the person has a bona fide reason to stay in the transaction you will likely put it together with some massaging of the transaction components as discussed above. If not, you will flush out the unscrupulous predator investor that is trying to capitalize on your situation and thereby save yourself extreme future frustration.
Our Advice: Be sure to understand the objectives of the other party if you are considering a lease/option agreement. If you are a Seller and you sense a lease/option offer is speculation driven, make sure you have sufficient cash induced into the transaction to make it worth your while. If a speculating Buyer, make sure you find the right Seller or you are wasting your time. The right agreement between reasonable Optionors and Optionees can be a win/win transaction for both parties, and it will be readily apparent that it is a logical way to put them together.
The keys to a healthy lease/option agreement are the right circumstances of the principals, Optionee and Optionor, and savvy real estate agents that can properly construct the transaction and successfully negotiate it for the benefit of all. This is a powerful tool – use it right and righteously and you will be rewarded and happy.
Experience is Priceless! Lisa Wetzel & Jim Valentine, RE/MAX Realty Affiliates, www.carsonvalleyland.com , 775-781-5472.
Showing posts with label lease option. Show all posts
Showing posts with label lease option. Show all posts
Wednesday, July 2, 2008
Wednesday, December 26, 2007
We Can’t Reduce Our Price Any More … What Can We Do?
Whether you can’t, or won’t, reduce your price, we understand that it is frustrating to sit in this market without action. The best way to generate action is to reduce your price to be the best priced property on the market for what you are offering. Having said that, here are a few options available to you other than a price reduction.
For some Sellers a lease/option can help you achieve your goal. A lease option is in actuality a lease agreement, and an option to purchase agreement, that are tied together by language in the agreements. A lease/option provides you with cash flow from the option consideration and monthly lease payments while you wait to see if the option will be exercised. Since the price paid at the time the option is exercised is agreed to at the time the option agreement is signed, it is usually a higher than market price. This is because of the extended term of the option period, typically 12-24 months, and the anticipated increase in market value at the end of the term.
Lease/options can be a risk for both parties since nobody really knows what prices will do, but it gives the Seller cash and cash flow, and buys time for the market to change. The Buyer can get in to the home knowing that they have the opportunity to buy it in the future. This works well if they, too, are waiting to sell, repair credit, or any number of reasons that are holding them back from a normal purchase in today’s wonderful Buyer’s market. The fact that Sellers today are considering lease/options is another sign that it is, indeed, a Buyer’s market.
If you know where you want to go after you sell, look in that market for somebody that is looking to move to our community. A simple ad in their local paper might produce a Buyer that can’t sell their home. So what do the two of you do? Trade your homes! You might advertise your willingness to do so in your local Carson Valley advertising. We’ve found that people looking to move to the Carson Valley look here in preparation for their move. A needle in the haystack? Yes, but with the right intention you just might beat the odds.
Our Advice: There are a number of other options, each with its own inherent risk factors, and one should be careful when considering such an option. These include selling with a Contract of Sale, All Inclusive Trust Deed, or simply renting your home until the market recovers sufficiently to allow you to accomplish your next real estate objectives. Auctions have a certain intriguing appeal, but have not proven very successful from our observation unless it is involves a distressed property, or a very unique and expensive property. Be flexible and maintain a bigger perspective when weighing your options.
Remember, it is only money. Don’t let yourself get so affected by this market that you lose your health or family … money can be replaced. Experience is Priceless! Lisa Wetzel & Jim Valentine, RE/MAX Realty Affiliates, www.carsonvalleyland.com , 775-781-5472.
Easily search the entire Northern Nevada MLS or email Lisa and Jim with questions or for additional information.
For some Sellers a lease/option can help you achieve your goal. A lease option is in actuality a lease agreement, and an option to purchase agreement, that are tied together by language in the agreements. A lease/option provides you with cash flow from the option consideration and monthly lease payments while you wait to see if the option will be exercised. Since the price paid at the time the option is exercised is agreed to at the time the option agreement is signed, it is usually a higher than market price. This is because of the extended term of the option period, typically 12-24 months, and the anticipated increase in market value at the end of the term.
Lease/options can be a risk for both parties since nobody really knows what prices will do, but it gives the Seller cash and cash flow, and buys time for the market to change. The Buyer can get in to the home knowing that they have the opportunity to buy it in the future. This works well if they, too, are waiting to sell, repair credit, or any number of reasons that are holding them back from a normal purchase in today’s wonderful Buyer’s market. The fact that Sellers today are considering lease/options is another sign that it is, indeed, a Buyer’s market.
If you know where you want to go after you sell, look in that market for somebody that is looking to move to our community. A simple ad in their local paper might produce a Buyer that can’t sell their home. So what do the two of you do? Trade your homes! You might advertise your willingness to do so in your local Carson Valley advertising. We’ve found that people looking to move to the Carson Valley look here in preparation for their move. A needle in the haystack? Yes, but with the right intention you just might beat the odds.
Our Advice: There are a number of other options, each with its own inherent risk factors, and one should be careful when considering such an option. These include selling with a Contract of Sale, All Inclusive Trust Deed, or simply renting your home until the market recovers sufficiently to allow you to accomplish your next real estate objectives. Auctions have a certain intriguing appeal, but have not proven very successful from our observation unless it is involves a distressed property, or a very unique and expensive property. Be flexible and maintain a bigger perspective when weighing your options.
Remember, it is only money. Don’t let yourself get so affected by this market that you lose your health or family … money can be replaced. Experience is Priceless! Lisa Wetzel & Jim Valentine, RE/MAX Realty Affiliates, www.carsonvalleyland.com , 775-781-5472.
Easily search the entire Northern Nevada MLS or email Lisa and Jim with questions or for additional information.
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