Lease Options (as a seller) in todays (softening?) CA market?

5 Replies

I'm thinking of selling my San Jose SFR and looking at options. A Lease with Option to Buy is another method I am considering. It seems here in the Bay Area, it is starting to soften, DOM increasing, some sellers having to accept lower than listing price. But comps in my area show prices overall remain $1.1+

My question is in the current market, would it be advantageous to sell using this method?

I've done it and it can be a win-win for both parties.

Make sure whoever is buying it is serious and ask why they need an option vs buying now. DO you really think they will qualify in the time period? Are you requiring a non-refundable deposit- that goes towards purchase when they buy.  Discuss who makes repairs during option period- typically buyer.

It works if the buyer can legitimately qualify- dont take someones deposit if they think they can qualify in a year... but you know they wont be able to. 

Agree on the price up front, or agree to get 1-2 appraisals for the price at the time of sale. 

You cannot sell to anyone else if buyers are in the option period- so your hands will be tied on that front. 

Originally posted by @Christine Kankowski :

I've done it and it can be a win-win for both parties.

Make sure whoever is buying it is serious and ask why they need an option vs buying now. DO you really think they will qualify in the time period? Are you requiring a non-refundable deposit- that goes towards purchase when they buy.  Discuss who makes repairs during option period- typically buyer.

It works if the buyer can legitimately qualify- dont take someones deposit if they think they can qualify in a year... but you know they wont be able to. 

Agree on the price up front, or agree to get 1-2 appraisals for the price at the time of sale. 

You cannot sell to anyone else if buyers are in the option period- so your hands will be tied on that front. 

 Hi, Christine

Thank you for replying. This is very helpful.

Isn't it standard to have a non-refundable deposit, which goes towards the Option sale?  Did you have this in your Lease Options transactions?

If  we get appraisals and the price drops or increases, do they get they pay that new price?  I thought having a final price was the advantage of these ? Because obviously if the price drops, then the seller loses out and buyer favored. But also if the price increased, the buyer still gets the set price.  Or am I misunderstanding something?

Isnt it also standard to have the buyer maintain the property and pay all cost while in the lease? 

Hi Gary,

If your true goal is to sell the property.  I suggest you just sell the property the traditional way.  You will have a larger pool of buyers and get the best market price for your home.  Trying to do a lease option to buy will require you to find a buyer very specific to your terms.  You may not get the price you want.  You may also get into a lease option and the buyer cancels down the road.   The big thing is tying up your house to an unknown when you want to sell.

Imagine if you signed a lease option in 2007 for 3yrs.  Would you keep it and continue to purchase the house?  I am not saying that this market is like the other.  They are actually very different.  The market is currently softening and no one knows where prices will be.  Everyone is just guessing.

Comps may show $1.1m but those are just comps.  Markets change and if there are no buyers for that specific price range then you have to lower the price.   At each price point there are buyers and through this run-up, some buyers aggressively bid on the house thinking they have to get it.  Some buyers drop off because it's not worth it to them anymore.  Now the market is finding a base of new buyers for a specific price range.    

Originally posted by @Frank Wong :

Hi Gary,

If your true goal is to sell the property.  I suggest you just sell the property the traditional way.  You will have a larger pool of buyers and get the best market price for your home.  Trying to do a lease option to buy will require you to find a buyer very specific to your terms.  You may not get the price you want.  You may also get into a lease option and the buyer cancels down the road.   The big thing is tying up your house to an unknown when you want to sell.

Imagine if you signed a lease option in 2007 for 3yrs.  Would you keep it and continue to purchase the house?  I am not saying that this market is like the other.  They are actually very different.  The market is currently softening and no one knows where prices will be.  Everyone is just guessing.

Comps may show $1.1m but those are just comps.  Markets change and if there are no buyers for that specific price range then you have to lower the price.   At each price point there are buyers and through this run-up, some buyers aggressively bid on the house thinking they have to get it.  Some buyers drop off because it's not worth it to them anymore.  Now the market is finding a base of new buyers for a specific price range.    

 Good points to consider, Frank. Im doing this because I'm not ready to sell and would like to have the cash flow and investment tax benefits while it's leased.  Then after two years, my lease period, I'll be more ready to sell. And if they dont buy the home, I get it back and can offer it to the next Leasee/Optionee, or extend the lease period. 

I think you are over complicating it.  Options only obligate you to sell at a certian price.  They can always offer lower.  Best to rent it out and sell it when you are ready.