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Old 07-02-2012, 02:42 PM
 
384 posts, read 651,895 times
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Hi Group,

We have an Ohio home we have been trying to sell. We have an offer from a party who is interested in doing a lease option. We are agreeable. Both parties are represented by realtors.

The lease option fee will be $5000 and non refundable if the property is not purchased for any reason.

Now, if the buyer cannot get financing at the end of the term, I know we would not make it to closing to have to worry about what I am going to say below.

Let's just suppose that the house appraises and the sellers are approved for the loan.

How is the $5000 applied at closing? Can the $5000 come from sellers proceeds? If not, does the seller write a check, and if so, to who? The escrow company?

Further question. Let's say that the deal falls apart in closing for some reason, since this is a lease option agreement, how does the escrow folks know to refund the seller the $5000 and not the buyer? Generally, earnest money/down payment money is refundable to the buyer.

My biggest fear is the deal falls apart and the escrow folks refund the $5000 to the buyer instead of the seller. What keeps track of this?

Is it possible to apply this $5000 fee from sellers proceeds instead of bringing a check? My thinking is if there is no sale, there is no sellers proceeds.

Don't know if it matters, but the loan would be FHA.

Thanks.
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Old 07-02-2012, 02:56 PM
 
Location: El Dorado Hills, CA
3,670 posts, read 7,976,512 times
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The escrow company follows the escrow instructions that come from the contract. Make sure your contract specifies exactly what you want to happen if the deal falls apart. The buyers of course will have to agree and sign.
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Old 07-02-2012, 03:01 PM
 
384 posts, read 651,895 times
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I just called the title company, it seems the $5000 option fee can simply be generated from sellers proceeds instead of the sellers writing a check to escrow at closing.

This is the best way. If there is no deal, there is no sellers proceeds to lose the money.
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Old 07-04-2012, 12:25 AM
 
936 posts, read 1,748,818 times
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There are a lot of lease option agreements where the option money is never credited back to the buyer. You are taking all the risk upfront by not knowing if they will excercise the option. That's worth money and that's why they pay an option fee.

Typically, the option fee is never refundable and a porton of the monthly lease payments gets credited to the buyer towards their eventual purchase price.
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Old 07-04-2012, 08:15 AM
 
Location: The Triad (NC)
26,851 posts, read 57,874,473 times
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Quote:
Originally Posted by tom11011 View Post
We have an Ohio home we have been trying to sell. We have an offer from a party who is interested in doing a lease option. We are agreeable. Both parties are represented by realtors.
If they qualify as renters (income credit etc)...
make a one year renewable lease to rent the house to them at FMV.
No credit or allowances whatsoever.

If the "buyers" don't have the creditworthiness and/or income to buy now...
there is no reason to expect that will be different in X years (or to qualify as tenants).

But if they have a wad of cash burning a hole in their pocket and insist they're the exception and you really have no other option bu to hope they are... Separately... make an option contract.
A non-refundable fee of $X dollars to lock in an agreed to price fox Y years.
If they do close in that time frame a declining % per year of the fee can be applied as deposit.
If they can't close in that time they lose the option FEE in total.

I've got a case of decent beer here that says it never closes...
and you'll end up with a house beat up far more than what the option fee is worth.
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Old 07-04-2012, 09:26 AM
 
Location: Lakewood Ranch, FL
5,116 posts, read 7,644,459 times
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I'm inclined to agree with Mr. R above. I've never done a lease option but my understanding of it is that the buyer is paying an amount upfront (non-refundable paid at signing of the option) for the right to possibly purchase the property at a certain price on a certain future date. I don't see why you'd have the money in escrow unless you are doing a lease-purchase agreement rather than a a lease option to buy agreement.
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Old 07-04-2012, 08:36 PM
 
Location: MID ATLANTIC
7,598 posts, read 17,623,584 times
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I have a lease option right now.

The seller deposited the security deposit aka earnest money of $2500. We have the canceled check and will be reflected on the HUD I. We also had $150 over the monthly rent applied to an additional deposit. We had to document the fair market rent ($1100) and document each and every one of her $1250 checks clearing. We have an additional $2500, for an EMD of $5000.

Make sure the buyers are working with a lender that understands rent w/ option. If you need your money in one year or need that mortgage off your back, that $5000 will do squat.
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Old 07-13-2012, 05:14 PM
 
1 posts, read 3,150 times
Reputation: 10
Sorry but didn't seem like anyone answered your questions directly and completely.
Let me know if I missed anything.

We have an Ohio home we have been trying to sell. We have an offer from a party who is interested in doing a lease option.
We are agreeable. Both parties are represented by realtors.
Fine

The lease option fee will be $5000 and non refundable if the property is not purchased for any reason.
fine

Now, if the buyer cannot get financing at the end of the term, I know we would not make it to closing to have to worry about what I am going to say below.
ok

Let's just suppose that the house appraises and the sellers are approved for the loan.
ok

How is the $5000 applied at closing?
Can the $5000 come from sellers proceeds? If not, does the seller write a check, and if so, to who? The escrow company?

This is going to be a subtraction from the purchase price. ( a credit)
This is NEVER going to be a check cut to anyone or any cash going from you to them


Further question. Let's say that the deal falls apart in closing for some reason, since this is a lease option agreement,
how does the escrow folks know to refund the seller the $5000 and not the buyer? Generally, earnest money/down payment money is refundable to the buyer.

Not sure how the escrow company is involved here.
They (escrow company) will do as directed though.
You don't need an escrow company for this -- but it can provide a bit of protection -- by making sure the payments are applied to the mortgage.
But that is Tenant buyers protection -- you being the seller wouldn't need it/them.


Also -- this is ""BIG"" not trying to be an *******, just trying to make sure you get this clearly!!
Stop using & do not use -- the terms earnest money or deposit money. Earnest & deposit money is refundable. But this would be refundable if you didn't perform

(if you didn't show up and sell the property, or if you changed your mind)

Seriously don't use those terms and make sure they are not on the paperwork or contracts.
What you will be using is down payment money or option money -- both being non-refundable!!!

In this type of deal down payment/option money is non-refundable.
(again unless you don't perform)

My biggest fear is the deal falls apart and the escrow folks refund the $5000 to the buyer
instead of the seller. What keeps track of this?

Escrow company is supposed to follow the instructions -- so if spelled out correctly,
shouldn't be an issue. I would have the down payment money come to me (if I was the seller)
They're supposed to be paying you for the option to buy,

so why wouldn't you have the money? (just a question)

Is it possible to apply this $5000 fee from sellers proceeds instead of bringing a check?
My thinking is if there is no sale, there is no sellers proceeds.

dont pay them money -- take it off the purchase price.

Don't know if it matters, but the loan would be FHA.
Shouldn't -- as long as the loan officer know what's going on & is prepared.
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Old 11-10-2012, 02:49 AM
 
2 posts, read 5,954 times
Reputation: 10
how and where do i start? our lease to own home that we love,put all our money into.Turned an ugly duckling into a beautiful princess.where do i begin now do i have to get an appraisal ? does someone do it free? HELP!?
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Old 11-10-2012, 02:56 AM
 
2 posts, read 5,954 times
Reputation: 10
Lightbulb Help help

Quote:
Originally Posted by puffer View Post
how and where do i start? Our lease to own home that we love,put all our money into.turned an ugly duckling into a beautiful princess.where do i begin now do i have to get an appraisal ? Does someone do it free? Help!?
we r the potential buyers
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