Consider A Lease With An Option To Buy When You Can’t Sell Your Home
By Ilyce R. Glink

These days, I’m hearing from plenty of homeowners who want to be home sellers, but simply can’t sell.

Either there are so many foreclosures in the neighborhood that their homes are worth only a fraction of what they once were (putting the home in a severe negative equity position) or there simply aren’t many buyers making offers. It’s hugely frustrating, especially if you want to move to take a new job, start school or for some other personal reason.

If you’re seeing more people in your local real estate market looking to rent rather than buy, and you need to move, you might consider leasing your home and giving the tenant an option to buy your property at a later date. Using a lease/option could be particularly helpful if you’ve already bought another home or have moved out of the home.

While a lease with an option to buy does not technically sell your home, it does allow you to market the home as either a rental or sale, hopefully reaching a larger market. If a renter comes to you and needs time before he or she can get money together to buy the home, your lease arrangement could allow the tenant to live in the home and later purchase it.

While leasing your home may take away some of the stress of trying to find a buyer for your home, you still need to do your due diligence as a landlord.

The lease agreement should state the usual terms of the rental agreement, such as the amount you’re charging in rent each month, the term of the lease agreement and a security deposit requirement.

In addition to the usual rental terms, you and your renter/buyer should agree on the sales price for the home before the lease term ends. You can give your tenant an incentive to buy by crediting a certain amount paid on the rent toward the purchase price of the home. This is a common provision in lease/option agreements. Also commonly seen is a provision for a non-refundable (though sometimes credited to the buyer’s future down payment) option fee, which allows the tenant to “pick-up” the option and buy the property. Often, property owners will charge an additional option fee each time the lease is renewed.

Before you consider a tenant who wants to lease your home with (or without) the option to buy it, you should obtain a copy of your prospective tenant’s financials, credit history and credit score and copies of bank statements.

Why? If you find a buyer who has terrible credit and no money saved, it’s unlikely that person will be able to buy the home from you during the term of the lease. If the person has great credit but has not saved up enough money to buy a home, your future tenant may have a greater chance of saving money for a down payment and closing on the purchase of your home.

A lease with an option to buy does not replace the usual marketing you’ll need to sell your home; it’s an additional tool to bring in more traffic to your home. If you find the right tenant for the home, your home will be occupied and that tenant will be paying you monthly rent payments, with perhaps a non-refundable lease/option fee.

If you decide to rent the home with an option to buy, make sure you hire a real estate attorney to guide you through the process and assist you with the documentation.

There are benefits and pitfalls in leasing the property and you should talk to your attorney further about them. If you have found a tenant who is inclined to rent with an option to buy, the lease will give that tenant time to consider the rental as his or her home and make the decision to buy the home.

Obviously, it would be better to be able to sell your home outright and move on. But if selling isn’t a viable option in your neck of the woods, the savvy seller will consider a lease/option as a next step.


Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate atThinkGlink.com and at the Home Equity blog for CBS MoneyWatch.

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