BOULDER – What is a lease option? Otherwise known as a “lease option to buy,” it is an agreement between a buyer and a property owner in which a buyer pays the owner money to purchase the property at a later date. c.
However, there are many details that need to be worked out to come to a satisfactory agreement. In Colorado, there is no Real Estate Commission-approved lease option form. Therefore, licensees would be practicing law to create such an agreement for clients. With that in mind, it is always a good idea to involve a real estate attorney to prepare the documents for the transaction.
The lease options I see are usually comprised of a lease that makes reference to the sales contract, and a sales contract that makes reference to the lease.
Items to negotiate within a lease option agreement:
– The rental amount per month.
– Any amount of the rent that would be applied to purchase. This could be $0, or it could be the full amount of the rent. Often it is a portion, such as 20%.
– Length of option. A year is fairly common.
– The cost of the option. The lower the amount, the less likely there will be a closing. Generally, a buyer wants to move forward with a lease option due to lack of money. Often the buyer can’t come up with an amount that will work for the seller.
– Is any part of the option refundable? Usually not. Otherwise why bother?
– Who holds the option money? The seller, title company, or real estate company.
– Is the property purchase price determined today? If today, will price be based on a current appraisal?
– Is the property purchase price determined in the future? Sometimes based on the average of two appraisals at a future date.
– Does the price go up as the time in the option moves forward?
– Who pays for utilities during the lease?
– Who pays for repairs that come up during the lease? For example, a broken water heater.
– Buyer loan qualifications. Many buyers want a lease option because they currently do not qualify for a loan. What is the likelihood they will be able to qualify by the time the option expires?
In a slow real estate market, sellers might have a stronger interest in lease options because they do not have another offer. In a hot market, sellers might have an interest in a lease option because they want to delay a closing until a later date. The bottom line is that there are circumstances where using a lease option can beneficial to both a seller and a buyer.
By Duane Duggan, Realtor and Author, RE/MAX of Boulder. Duane Duggan is an award-winner Realtor and author of the book, “Realtor for Life.” He has been a Realtor for RE/MAX of Boulder since 1982 and has facilitated over 2,500 transactions over his career. Living the life of a Realtor and being immersed in real estate led to the inception of his book. For questions, e-mail Duane at firstname.lastname@example.org, call 303.441.5611 or visit boulderco.com.