Q: Our house is listed with a local real estate office and the realtor who has our listing produced a buyer with bad credit.
We suggested that the buyer do a lease with option to buy the property.
The prospect buyers are willing to put $100,000 for the option. The property value is $465,000. How do we protect ourselves from an equitable interest claim, in the event they are late on monthly lease payments or fail to exercise the option?
A: It all comes down to what’;s written in the agreement. With a lease with an option to buy, the cash that is put down for the option is often forfeit if the buyers decide not to close on the property within the option period.
Since you’re getting more than 20 percent of the cost of the property in what would normally be a non-refundable option fee, I think you’re pretty safe. If they miss a rent payment, you have a lot of their cash. They probably are not thinking that their $100,000 is going to be non-refundable, however, so this is something to consider when writing up your agreement.
I do think some portion of the cash they put down should be non-refundable. Since they are leasing the property from you, not purchasing it, they shouldn’t have any claim on the cash that’s the non-refundable option fee. If they want to put down the rest of the cash, perhaps it should go into an escrow account until the option is picked up.
I think what you need now is an excellent real estate attorney who can draw up the papers, look at the deal and make sure you’re not going to get hurt.
Then, you can close the deal and move them into your home. But make sure you understand the terms of the deal so you’re not surprised down the line.