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Thursday, May 5, 2011

Lease Purchase -To do or not to do

Every agent gets a variety of phone calls on a listing. Lately, a lot of those phone calls have asked if the seller would be willing to lease purchase a property.
What is a lease purchase? It is where a buyer signs a lease agreement, with a contract to buy at the end of the lease. These lease agreements can run as short as six months, or as long as 30 years. The monthly payment is applied to paying down the purchase price, either the full payment or a percentage of the payment. The down payment generally covers half of the commission and puts a little padding in the sellers pocket in case the buyer defaults. None of this is refundable if the buyer decides to leave the property before the purchase is completed.
Now, this is an example of a lease purchase (and the way I think is best), however if you ask a number of other agents you will get just as many different answers.

The benefits: The seller gets out from under the mortgage payment each month. It also opens up the property they are trying to sell to a much wider group of purchasers. When the seller offers a property for lease purchase, generally the price is firm, the buyer not usually negotiating the price because they are asking the seller to lease it to them first. The buyers benefit by being able to buy a house even if they could not get a mortgage at the time.

The negative: It is more work. The seller,  if he still has  a mortgage, is still responsible for that mortgage and making sure he collects the money each month. The seller usually will not negotiate the price with the buyer since they are asking him to lease  it.

With the positives and draw backs, this is becoming a widely used way to sell a house.  Today's market , as with many other types of markets, people are becoming more and more creative to get what they ultimately want. As long as you have cooperative parties on each side (and always get everything in writing) a lease purchase is a viable option in today's market!

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