The Benefits and Risks of a Lease Option Contract

It's important to balance the risks versus the rewards in a lease-option contract both as a home buyer and home seller

Previously we looked at a lease-option in Selling a Mesa Home Using a Lease-Option, now let’s take a look at the benefits and risks to each the home buyer and seller in a Mesa lease-option agreement.

Benefits to the lease option home buyer

There are two distinct benefits to the prospect who wants to buy a Mesa home in this manner.

• Try it before you buy it to see if the home meets your needs
• The home buyer can budget for the future with the contract price already defined

Benefits to the lease option home seller

Anyone who wants to sell their home in Mesa will find several advantages to this method as well.

• A home that may have been vacant and accruing debt will now have an occupant who is servicing the debt of the property, reducing the seller’s financial obligation.
• The seller receives additional financial incentive through the option fee, which can be a few thousand dollars over the term of the option.
• At the end of the transaction, it is possible they buyer may exercise the option and purchase the home. It’s not always guaranteed, but financially you’re ahead of the game.

Risks in selling or buying a home with a lease-option

There are risks to either party. The home buyer risks putting up option funds for a certain price, but as markets change, the home’s value may not reach up to the option price. I see this as a potential benefit, however, since the mindset going in was that the higher price was acceptable at the beginning of the agreement, then a lower price, which would have to be negotiated separately from the option agreement, would be even better.

The home seller has a risk of the market climbing past the target, or option, price, but they are obligated to sell to the buyer at the option price if the buyer chooses to do so.

A lease-option agreement is not for everyone, but it is a good way for someone who wants to sell a home in Mesa but is having difficulty doing so to service the debt on the property as the real estate market stabilizes. And for one who wants to buy a home in Mesa, but cannot right now, it’s a great path back to home ownership.