Residential Real Estate Renters

Rent With An Option To Buy

Know your Rights!

One of my clients asked,  “How does the process work for a rental with an option to buy lease agreement?” I thought I would share the answer  in case anyone else has the same question.

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To begin the conversation I will share with you, there are not too many owners of property who will consider a rent with an option to buy.  You will not have many properties to choose from and your selection will be very limited.

The official contract is called a rent-to-own agreement, a lease option or a lease-to-own agreement. When the buyers sign this kind of contract, they are agreeing to rent the home for a set amount of time before exercising their option to purchase the property when or before the lease expires.

Here are some features of rent to own:

1.  Your required down payment is often substantially higher (10% or 20%) and is non-refundable if the potential buyer doesn’t purchase.

2.  The monthly rental is above fair market rent, so there will be money to pay the rent and excess amount going to purchase is the amount above the fair market rent.  This is also not refundable.

3.  If you’re not qualified for financing at the agreed upon time and price, then you lose everything.

4.  The purchase price is agreed upon at the beginning of your contract, and at the end of the contract who knows what the value of the house will be, it could be higher or lower usually you cannot change the terms you agreed on at the beginning of your contract.

5.  You are completely depending upon the owner to pay their mortgage.   If they don’t pay and end up in foreclosure, you lose.

My recommendation is If you get involved in this process, please involve your real estate attorney in the contract and ask questions before you sign on the dotted line.

Questions to ask:

How will the contract be structured? You know you will be paying more than the market rate, find out how the money will be used. Ask your lender how much if any of the funds you have already paid to the landlord will be credited toward your purchase. Don’t assume.

Who is responsible for what tasks?

For example, ask about repairs, maintenance, upkeep, renters insurance and landlord’s insurance.  Your contract should disclosure who is paying for association fees, utilities and any other fees involved.

How will the title be transferred to the buyer in order to complete the purchase and what additional fees are involved?

The buyer should know about closing costs, deposits and any other lump sum of cash needed.  The buyer should know what is non-refundable and what is refundable. Buyer should insist on clause stating sale is contingent upon appraisal. It is important to ask if the price can be adjusted before you buy.

What happens if the buyer is not ready to buy at the end of the contract?

Ask for a clause to be written into the contract that describes in full what your options are and how you can execute them. Determine if there will be any penalties and how significant are the penalties. If you are working on your credit then keep up to date records of what you have done and discuss this progress with your landlord.

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We are Leroy & Theresa Miller with The M & M Team Realty. We are Residential Realtors working with clients to purchase, sell or lease. We specialize in clients who need to sell their residence due to life changing events (for example divorce). We understand the urgency and sensitivity.

Theresa Miller, Broker, Realtor, CEO
(310) 713-8459

We are Leroy & Theresa Miller with The M & M Team Realty. We are Residential Realtors working with clients to purchase, sell or lease. We specialize in clients who need to sell or purchase property due to life changing events (i.e. a divorce). We understand the urgency and sensitivity of the clients needs.

We are The M & M Team Realty, “The Answer to Your Life Changing Events”