subject: Consider A Lease Option Agreement When Deciding To Sell A Home [print this page] With so many homes on the market in most parts of the country it's a big decision whether to put your home up for sale or not. Some sellers simply have no choice because they are propelled by the need to move away for a new job or other reasons. And of course there are many sellers who simply must get out from under their mortgage obligation or risk losing their home in foreclosure. These are just a couple of the many, many reasons that different sellers have for deciding to sell a home.
What are some alternatives to selling a home when you don't need to live in it and you certainly don't want it to sit empty? Although there are people who are in the business of buying and selling homes as real estate investors, and many of those people have vacant homes in their inventory from time to time, nobody relishes the thought of a home without buyers or tenants caring for it, paying utilities on it and mowing the lawn, if any. With the exception of bad tenants, it's better for a home to have people living in it than for it to remain vacant.
For one thing, property insurance companies don't like to insure vacant homes. That should tell you something right there. Insurance companies know very well that homes are far more vulnerable to theft and comprehensive damage than occupied homes, and why they frequently refuse to insure vacant homes. This behavior on the part of insurance companies is good to keep in mind when you are deciding to sell a home because you may very well be considering your alternatives. One of those alternatives is letting the home sit empty until you make your decision. Take a cue from all the thousands of mortgage lenders and their insurance companies who have taken possession of foreclosed homes and don't leave a home vacant if you can avoid it.
An obvious solution to the problem of having a vacancy when you are deciding to sell a home is leasing the home to tenants. Being a landlord is one of those things that sounds easier than it is, and many homeowners choose to leave their homes vacant rather than look for responsible tenants. Anyone who has had tenants will confirm that it can be a wonderful and profitable experience, since the tenants are essentially making your house payment for you and picking up the utility payments as well. That is one scenario. But another, alternate scenario is that your home may be damaged and your legal costs may soar in the process of evicting bad tenants. That last sentence describes a general situation that leaves a very bad taste in the mouth of unsuspecting homeowners who choose to rent out their home for a while. It can, quite literally, be a disaster.
So, what is the best choice? What is the best thing to do when you're deciding to sell a home? Naturally, the answer depends on the individual and the individual situation. There is no one right answer for everyone. Most people are familiar with leaving a home vacant and also with renting out a home to tenants, but not as many are familiar with other arrangements that may prove to be better for them in the long run. One alternative arrangement is called a Lease Option Agreement. It gives both the landlord and the tenant an opportunity to have time to see what's going to happen. It is an agreement that has both the features of a lease and also a sales contract. Sometimes that can work for everybody.
The portion of a Lease Option Agreement that works just like a lease normally specifies the name of the parties to the agreement as the Landlord and the Tenant, and of course it identifies the address of the property. There will be numerous clauses enumerating the rights and responsibilities of each of the parties, and there will also be an understanding of the time period involved. Normally, lease agreements are written for a period of a year, followed by a month-to-month renewal of the lease at the same or different, specified terms. This part of a Lease Option Agreement is relatively familiar to most people who have ever rented property.
But the Option portion of the agreement may not be as familiar. The option is, essentially, an opportunity to purchase the home later at a specified price. It's like a stock option or a commodity option on those financial markets. You are buying an opportunity and you pay a price for that opportunity, yet you also have the right to walk away from the opportunity until a certain date. In the case of an option on a piece of real property, meaning a house and land, you have until a certain, specified date to arrange financing and purchase the property, in which case your option fee will apply to the purchase price, or to walk away from the deal, in which case you lose your option fee.
Now, you can probably start to see how this arrangement can work to the advantage of both a buyer and a seller. But it means that you have to acquire a legal form, and that means you will be paying a lawyer to help you get a Lease Option Agreement set up for your own purposes. That's really the best way to do it, and anyone who has used this method while deciding to sell a home will tell you that a good legal agreement is worth the cost involved. It protects both the buyer's interests and the seller's interests, making sure that everyone is clear and comfortable with the terms of the transaction.
