The Creative Cure For Selling Your Home

lease-purchase optionWe are helping somebody sell a home in Tallahassee who is considering an offer from a Buyer that includes a lease-purchase provision. A lease-purchase in Tallahassee is an agreement where the Buyer and Seller agree to a sale on the home and then the Buyer rents the home from the Seller, prior to closing. The closing could happen as quickly as 1 day, or could be extended for a long period of time (even years in some cases).

So, why would a Buyer offer to do a Lease-Purchase? Why would a Seller consider accepting a Lease-Purchase?

A Lease-Purchase can be a very beneficial "win-win" opportunity for the right Seller and the right Buyer. Some of the reasons that they might conspire to do a lease-purchase contract include:

Buyer Reasons Seller Reasons
Minimal cash out of pocket Top Sales Price
Credit problems are not an issue Market Conditions less important
Faster equity growth than renting first, then buying Positive cash flow
Greater buying power Increased buyer pool
Ability to act now Reduced maintenance
No Landlording
Non-refundable deposit

Typically, home buyers see the benefit of a lease-purchase right away, as they are in a position to need a creative solution to buy a home in Tallahassee. Often times though, I find that Tallahassee home owners are not so quick to see the benefits of a lease-purchase to help them out of their situation. I hope that some of this blog can help Tallahassee homeowners understand that they too have creative options.

As a Seller, most people would prefer to get cash for their home and then just go along their merry way. Unfortunately, in today's real estate market, less than a third of homes listed for sale in Tallahassee this year will sell! That means 2/3rds of our homeowners will fail to sell their homes. So, in case that you are one of the not-so-fortunate ones, what are your options?

  • Lower Your Price
  • Take Your Home Off the Market
  • Lease Your Home
  • Give the home to the bank
  • Sell Your Home With Creative Financing

Obviously, cash in hand is the favorite option. But when that fails, the other options must be considered. The lease-option will allow you to move from your home and reduce the cost of continued ownership. If you absolutely need to move, the benefits listed above will apply to you. You can lock-into a sales price, get higher than market rent, cash a non-refundable deposit, and eliminate maintenance costs. Additionally, when you let the market know that you will sell your home through a lease-purchase, you increase the size of the market for your home, thus making it more valuable (you will attract all the buyers you would have attracted before, plus buyers who need creative financing as well). And don't forget, you can use the lease-purchase method of buying your next home as you wait for your tenant/buyer to close on the sale of your Tallahassee home!

But what about the additional risk?

There is definitely additional risk selling a home through a lease-purchase. A party could agree to buy your home, move in, and then never close on the property. They could even destroy the property while never paying you rent, forcing you to evict them from the property. While this scenario sounds horrific (and it most likely would be), there are many things that you can do to mitigate the risk of this occurring.

  • Make the Buyer submit a full loan application (Download Free FNMA Uniform Residential Loan Application)
  • Seller review the loan application and make own determination of credit risk
  • Collect a non-refundable deposit large enough to motive the Buyer to close
  • Make the monthly rent payment higher than market rate, with the excess to be credited to Buyer at closing
  • Make sure separate purchase agreement and lease agreement (lease agreement drawn by attorney in accordance with Landlord-Tenant Act)

Ultimately, we are going to see a strong return of the lease-purchase agreement as creditors tighten borrowing standards and inventories remain high. Don't be afraid to consider a creative solution if it partially solves your Tallahassee real estate problem! FNMA Uniform Residential Loan Application Form 1003


Tallahassee home lender

Discussion

#1 By Jay Elliott at 7/11/2017 3:47 AM

Joe:
Good example and description!
We are also seeing more lease options in our market place and the pro's and con's can work out for a win/win for all parties.
Do you collect your professional fee upfront?
Thanks,
Jay

#2 By Joe Manausa at 7/11/2017 3:47 AM

Thanks Jay. Typically yes, but every "creative" deal tends to be unique and we try to work out a win/win for all parties.

#3 By Joseph at 7/11/2017 3:47 AM

do you help people out of state? I am in michigan looking to owner finance my house to sell it and am just starting looking at the details involved.

#4 By Joe Manausa at 7/11/2017 3:47 AM

Joseph, I will do what I can to help. What can I help you with? What part of Michigan are you in? My dad was born and raised in Ann Arbor (we have since converted him to a die-hard Seminole however).

#5 By mike stinson at 7/11/2017 3:47 AM

I am looking into selling my home thru lease purchase for 2 years to the buyer. my house built in 2008 but we decided to sell after moving in feb 2009 until now. can you help me decide an amount i should ask down and how to get top dollar. my house sits on 2 acres in rural area outside of Troy, alabama and appraised at 216,000 and is 2284 sq ft
Thanks

#6 By Alicia Williams at 7/11/2017 3:47 AM

In order to find a realtor or someone to help me find a house with a lease option, what should I do?

Alicia

#7 By L. Conaway at 7/11/2017 3:47 AM

As a seller, if I sell my home through a lease-purchase, what impact will this have on my ability to qualify for a mortgage on a new home during the lease term?

#8 By Joe Manausa, MBA at 7/11/2017 3:47 AM

Thanks for the great question "L", I posted http://www.manausa.com/lease-purchase-agreements-popularity/ as my reply.

#9 By A renter at 7/11/2017 3:47 AM

Lease purchases are a good idea. We would consider it but for the fact (as this blog confirms) that they are often offered at a higher than market rent. Hello?! We can't justify that extra cost. If we had that kind of money we would probably qualify for a better per month payment under a mortgage. And it seems a shame that even though we want to buy and many want to sell, this is a major reason that we have to wait and pay our landlord's mortgage (at market rate) in the meantime.

As for rent-to-own tenants not closing after that. Yes, but for those faced with foreclosure, isn't it better having a rent payment to cover the mortgage (and someone paying the utilities) than losing the property and your credit rating outright? And, of course, your tenants could be the sort to destroy your property---which is why people ask for references and do background checks to help minimize that risk.

I notice that some sellers are naming fairly high purchase prices--which is asking their lease-purchase tenants to assume the risk of being underwater on their agreement. I'm sure no one is certain how low the market will go still.

If all of this weren't the case we would have already made an agreement like this.

#10 By Joe Manausa, MBA at 7/11/2017 3:47 AM

GREAT feedback AR! But you might be missing some opportunity by assuming ALL lease-purchase opportunities require above market rents or high market prices. I wrote this blog 3 months ago and I can tell you some sellers are waking up. You should sit down with an expert and see what is out there. If you find the same situation, keep renting. I would test the market at least once per quarter were I in your situation.

I've seen some great opportunities in the past 6 months, and they were swept up quickly by lease-purchase agreement wielding clients of ours!

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