Lake Arrowhead Real Estate Lease Option Contract
Lake Arrowhead Real Estate Lease Option Contract
What is a Lease Option Contract?
A contractual instrument which was used a lot in Lake Arrowhead Real Estate in the eighties and ninties, the Option contract and its cousin the Lease Option fell out of favor in the time of rapidly rising Lake Arrowhead real estate prices in the early part of this decade. However, it is starting to make a comeback in the current tight lending market.
With an Option contract, Lake Arrowhead Buyers and Sellers agree on a price for a home for a certain period of time, usually less than or equal to a year. The potential Lake Arrowhead Real Estate buyer has that time period in order to decide whether or not to buy the property at the agreed to price. In order to compensate the seller for the fact that the home is off the market and cannot be sold to anyone else in the option period, option consideration monies are given to the Lake Arrowhead homes seller, often in a lump sum up front. Usually, if the buyer goes through with the purchase, the option consideration monies are credited to the buyer’s down payment, but sometimes the seller gets to keep some or all of the option money regardless.
Lake Arrowhead Real Estate flat or fluctuating market
As you can see, if real estate prices in Lake Arrowhead are rising rapidly, the benefit is to the buyer, as they lock in this year’s price but pay for it next year. If prices are dropping rapidly, then the seller would have some advantage by locking in at today’s higher prices; of course the buyer could choose not to exercise the option although they would lose their consideration money. In an uncertain or flat Lake Arrowhead real estate market like we are experiencing now, the option can be a way for a seller to get a home sold that otherwise did not have a large pool of other buyers and to get the consideration money to help with immediate bills or repairs.
The Lease Option  real estate contract we use in Lake Arrowhead combines the option contract with an ordinary lease of the home so that the potential buyer can move in right away. In this case, there is sometimes no lump sum consideration, but simply a higher than market rent. Some portion of the rent may be designated as consideration money that goes to the lessee’s credit when they become buyers, or stays with the landlord if the lessee fails to buy the home. Sometimes a combination of lump sum and monthly consideration is paid. The Lease Option is a good approach when the Lake Arrowhead real estate Seller has already moved to a new home and does not need the cash from the old one in order to move, and when the mortgage on their old home is small enough that lease monies can adequately cover their monthly payments.
You should never do a lease option as a buyer unless you really intend to buy the home. Likewise, you should never do one as a seller unless you are sure that the buyer can eventually qualify for the home and has put enough consideration money into the deal to indicate their seriousness. However, if both parties are operating in good faith, this can be an excellent way to arrange a Lake Arrowhead Real Estate purchase contract, as it can allow for timing of funds issues to be assuaged — for example, when the buyer needs to sell their old home but found the perfect new home first.