Posted by Wendy on January 23, 2000 at 11:39:45:
Thank you both so much for the advice, it was good of you to give such thorough replies and I appreciate your time!
Basic Lease Option Questions - Posted by Wendy
Posted by Wendy on January 23, 2000 at 03:28:04:
Please forgive all these silly questions, I know absolutely nothing about buying propery - if this works, it will be my first home and a residence for me and my family. Figured you guys are the experts and would tell me the truth.
I am in no position to buy a house at the moment; we have a bad credit rating and planned on renting for the next couple of years. But I fell in love with a house I saw for sale, and the realtor said the owner might be willing to do some type of deal. (the house has been empty for 2 months). I called the realtor a few days later and he said the owner was thinking about it (about what I don’t know, since I hadn’t made any type of offer), and that it wouldn’t be an option, but a delayed closing for a year, and they’d want 3000 up front.
I haven’t heard back. So what’s my next move? The house is 89,000. How do I make an offer, is a written lease option agreement the actual offer, and would $1000 be reasonable to offer for option consideration? And what about rent and credit? 30% of 750/month? The realtor wouldn’t tell me about the existing mortgage.
I know there’s a way to work this out, but I wish I could just deal with the seller. Should I offer 91,000 instead of the 89,000 he’s asking? Sorry this is so long. I’d REALLY appreciate any advice.
Wendy
Re: Basic Lease Option Questions - Posted by JPiper
Posted by JPiper on January 23, 2000 at 09:45:59:
Wendy:
The first thing I would do if I were in your shoes is take a good look at myself. What I would want to know is more about my ?bad credit? because this would drive how I would approach a lease/option of my home. What I would want to know would be how ?bad? is it? How long is it going to take me to straighten this credit out, so that I can get a mortgage? To do this, go talk with a good mortgage broker.
The reason this is important is that you want to structure your lease/option with what is realistic to perform given your credit. Example: Entering into a 1 year lease/option if it?s going to take you 3 years to straighten your credit out would be a bad idea.
Now, having just said this, if you credit is such that it?s going to be a while to straighten it out?that?s still OK. Just understand that this will influence your negotiations on a house. You?re either going to need more time, the ability to extend, OR you?re going to have the negotiate a price that?s UNDER the market. That way even if you can?t get financing soon enough, you can still exercise your option and resell the house for a profit somewhere down the road.
Understand that a ?delayed closing? is NOT a lease/option. It has some similarities?.but it sounds like you will have entered into a contingent contract, the conclusion of which is intended to be the purchase. This is really a rather poor idea on the Realtor?s part?.but since you?re the buyer?what the hey? If you put your money up on this deal, just make sure your contract is contingent on financing (that?s generally a standard clause in realtor contracts). The situation you?re in at that point is that you in effect have an option?.but if the remainder of the contract reads correctly your money may be refundable if you can?t qualify for a loan. Make sure your money if referred to as earnest money, and that it is held by a title company. The combination of this and your equitable title position will strengthen your posture in any subsequent negotiation concerning this “earnest money”.
The realtor is going to have to tell you about the mortgage and about the title. Otherwise, how do you know 1) whether the seller is capable to transferring good title and 2) whether the payment is actually being paid to the lender. You need to check title, make sure the mortgage is current, and set up a method to collect your payment, disburse the payment to the lender, and then the balance to the seller if there is one. You also need to make certain that a warranty deed is held by a title company so that it may be recorded if you complete the transaction.
Since you have little experience you are going to need someone in your camp. I?d recommend a lawyer over a realtor?.since most realtors have little to no knowledge or experience regarding this type of transaction and it?s ramifications. Either way though, get someone knowledgeable involved on your behalf until you have studied these concepts enough to be able to represent yourself adequately.
JPiper
Re: Basic Lease Option Questions - Posted by chris
Posted by chris on January 23, 2000 at 03:57:27:
Wendy-
Remember that the house has been empty for two months and that the broker works for the seller. Sooner or later the seller is going to become tired of the payments. It does not help if the broker knows that you are in love with the place. Keep your options open-do not get stuck with only being open to that one property.
I am not a fan of realtors but you may want to get a good buyer’s broker or mention to the seller’s broker that you are considering obtaining one. The seller’s broker would then end up having to split the commission
with your broker. In other words, as the sole broker with a low offer from you the seller’s broker could make more commission $$$ than having to split the commission on a somewhat higher offer. This would be a negotiation tool in your favor.
You need to know the market value of this property from an independent source. What the seller’s broker tells you about the value should be taken lightly.
Step away from this property until you can think clearly. You are ready to give the seller more than he is asking for-that is not good.
There are always other houses.
-Chris