Probably Dumb Lease Option Question - Posted by JW

Posted by Kevin on March 12, 2006 at 22:59:13:

Avoid using a realtor on a lease/option. You should be able to do a FSBO since you already have a signed agreement. I have several l/o’s in the pipeline currently. However, I have not closed on any yet and also wonder how easy the selling goes with no realtor. Good luck!


Probably Dumb Lease Option Question - Posted by JW

Posted by JW on March 12, 2006 at 22:44:18:

There is no such thing as a dumb question, but this one is probably coming close…

If you sell your home on a lease option, and that tenant buyer at the end of the lease term exercises the option to buy, is there a sales/realtor commision in the deal? Most lease option deals I read about go something like this:

Buy home: $150,000
Lease option: 1 year
Option Price: $165,000
Down Pmt: $5,000
My Payment: $1000/month
Monthly Lease Pmt: $1300

Option is exercised:
Profit on Sale: $10,000
Monthly Cashflow: $3,600
Total Profit: $13,600

Where are all the cost associated with selling? The 6% realtor comish, etc.

Help me figure this out! Thanks All!!!

Re: Probably Dumb Lease Option Question - Posted by Chris in FL

Posted by Chris in FL on March 15, 2006 at 14:01:00:

If the example you gave approximates your deal, let me say first, your margin is very, very thin. You would want to make sure seller pays all closing costs when you buy (which, sounds like, might already be bought, but for future reference on a deal that thin), and buyer pays all closing costs when you sell. Closing a lease option deal is simple, and if you didn’t use a realtor to find the buyer there is no realtor commission. You can get a simple buy-sell contract anywhere (my first few properties where done on contracts from Office Depot, though I later upgraded). All you do is spell out property, price, terms, who pays what, etc., and most of that should already be spelled out in your l/o contract. Take contract to a title company or attourney. They handle the details, plus should help you out if need be (usually without charging extra). Lease/option needs professional paperwork, though, as improper lease/option paperwork can expose you more than a poor buy-sell contract (which can usually be easily revised).

Re: Probably Dumb Lease Option Question - Posted by John Corey

Posted by John Corey on March 13, 2006 at 05:00:39:

Take a deep breath and think about this for a minute. I am going to assume you have either purchased or sold a property before so know what a HUD1 settlement statement looks like. If this is not true post an update.

  1. If you sign a contract with an agent promising to pay them if they find you a L/O buyer, then honor the contract.

  2. If you directly find a person who is willing to do a L/O deal and you have no contract with an agent, then why would you pay an agent? There was no agent there finding you the tenant. You have no contract with an agent to do so.

Agents get paid for providing a service and the details are spelled out before the deal starts. As the property owner you would sign an agreement that clarifies the details and is binding. If you want an agent to find you a L/O tenant, great. If you want to run an ad in the local paper to find a L/O tenant, great. You decide and do so before you start so you know what is going on.

Simple version: What you might or might not owe to an agent will depend on if you hired anyone to act as your agent in the specific transaction.

There are costs to selling and buying that have nothing to do with an agent. Closing costs, inspections, loan costs and taxes are the more common ones. The cost of an agent is one line item on a closing statement. There can be many other costs. Most or all should be lower than an agents fee for the typical transaction.

When doing a L/O transaction some of the closing costs are non-existent or are reduced compared to a traditional purchase of a property listed on the local MLS. Hence you should expect the costs to be lower. Just learn which ones are reduced, which ones go away and which ones stay the same. Check a HUD1 for a list of most of the common costs that might apply.

John Corey