Updated: Apr 4, 2020
Is there anyone out there who doesn't want to get the full asking price or more after you've listed your house? Probably not! Everyone wants to get the full asking price for their house, however, depending on market conditions in your local area, you may not be able to get full price. That is unless you’re willing to get a little creative.
Two Types of Real Estate Markets
Buyers markets are created when housing supply outpaces demand and inventory is plentiful. Buyers markets give home buyers more negotiating power since they have options, which can lead to you accepting a lower offer than what you expected to sell your home for.
Seller's markets are the exact opposite of buyers markets. Seller's markets occur when housing demand far outpaces the supply. Would-be home buyers have fewer options to choose from as inventory shrinks, thus prompting them to pay a premium for a house they like.
A Quick Trick to Determine if You’re In a Buyers or Sellers Market
A straightforward metric you can use to determine whether or not your in a buyer's or seller's market or the strength of a buyer's or seller's market is the list price to sales ratio.
If homes are consistently selling 110% over listing price, you’re in a seller's market. Conversely, if homes in your area are always selling at 90% of their listing prices, you are in a buyers market.
Sellers Market Example
Homes are listed at $100,000 but are selling for $110,000
Buyers Market Example
Homes are listed at $100,000 but are selling for $90,000
It’s much easier to get full price for your home in a seller's market when buyers are bidding up homes in bidding wars, but is there a way to get full price in a buyers market? Yes, there is! Keep reading to find out how.
What Is A Lease Purchase?
A lease purchase is a method of buying a home that allows the seller to rent/lease their home to a prospective buyer for a certain amount of years and gives the potential buyer the exclusive option to purchase the house after the lease terms are up.
Sometimes a lease-purchase is also called rent-to-own. So if you see rent-to-own, know the two terms are synonymous.
A lease purchase requires the buyer to put up a sizable down payment, also known as an option deposit, that is non-refundable. Putting up a large, non-refundable option deposit shows the seller that the buying party is serious and is going to do everything in their power to buy out the house at the end of the terms.
Making sure the buyer has substantial skin in the game is critically important when engaging in a lease-purchase. Buyers willing to put up a sizable, non-refundable option deposit demonstrate they are serious and are not likely to walk away.
Who Needs A Lease Purchase?
Buyers benefit from lease-purchases when they cannot qualify for a traditional bank loan, but have a significant deposit and cash flow to cover the monthly rent.
Some examples of individuals who may have a substantial amount of cash reserves and income are:
New, successful business owners
Recent hires of high salaried jobs
People with a current credit hiccup, but a high likelihood of recovery and otherwise are relatively financially stable.
Banks have gotten stricter on their lending. Mortgage lenders like to see two years of stable W-2 income and good credit. However, could a newly successful entrepreneur with a six-figure salary afford your house with the right terms? I’d imagine they could.
Buyers enter into a lease-purchase agreement with the intention of being able to qualify for a loan at the end of the lease terms. Qualifying for a loan allows them to finance the house and take ownership traditionally.
Qualifying for a loan and exercising their option to buy is in a buyer's best interest too. If the buyer fails to purchase the home, they lose their upfront deposit and all monthly payments. That will likely be a lot of money to walk away from.
The best part about a lease-purchase for a seller is it allows them to get full price for their home when they’d otherwise have to sell for less. A lease-purchase also opens up a sellers pool of potential buyers, as they can now sell to the large group of people who may not be able to qualify for financing now, but will more than likely be able to in a few years.
Offering a lease-option to buyers may enable you to sell your home much faster depending on the type of market you're in.
How Does A Lease Purchase Work?
The best way to show how a lease purchase works is to give you an example. Let’s dive into a mock lease-purchase below!
Let’s imagine a home buyer, John, and a home seller, Maria, find themselves in a buyers market. Maria wants to sell her home at full price. Her home is relatively new, was recently remodeled, and is ready to move in.
John, on the other hand, is having a small issue qualifying for a bank loan. His credit recently took a dive, but he still has a nice chunk of change in the bank and stable income. Besides his recent credit hiccup preventing him from qualifying for a loan, John is in pretty good shape to buy a home.
John loves Maria’s home and is desperate to buy it. Maria has one of the most beautiful homes on the block and refuses to sell for anything less than full price. She’s also moving out of state in a month, so she doesn’t have much time to wait for a full price offer.
John and Maria find that a lease-purchase could be an excellent way for them to both get what they want. John agrees to put down a sizeable down payment and make monthly payments to Maria for three years.
At the end of the three years, John will have the exclusive right to purchase Maria’s house. To Maria’s benefit, she can charge John a slightly higher price for the home since he’s buying it on terms. Terms purchases typically come at a premium.
Breaking Down The Numbers
Maria’s Asking Price: $200,000 - She never received an offer higher than $175,000.
John’s Down Payment: $20,000 - John is putting up a large, non-refundable option deposit he’ll lose if he walks away.
John’s Monthly Payments: $1,250 - John is leasing the house, and none of these payments go towards the purchase price.
John’s loan Terms: Three years - John has the exclusive right to exercise his option to buy the house during the three-year lease-purchase terms.
After the three years are up, John can exercise his option to buy the home at $180,000 (Asking price minus his deposit.)
In the above example, Maria is able to get full price for her home instead of accepting a lower offer, and John is able to get into a house he loves while he repairs his financial situation so he can qualify for a loan.
Who Maintains the House?
In a typical rental situation, the landlord is responsible for maintaining the property. Anything from standard maintenance to more serious repairs like replacing the roof or replacing the HVAC system, all falls on the landlord.
In a lease-purchase, the prospective buyer of the property is typically on the hook for any repairs and maintenance. For that reason, it’s essential potential buyers entering into a lease-purchase thoroughly inspect the house, so they know what they’re getting into.
Pros And Cons of a Lease Purchase
Can get full price for their house
Opens them up to a much larger buyers pool
Opportunity to sell the home faster
Collect monthly payments from the buyer
The renter feels more like an owner and less of a tenant, and therefore is likely to take better care of the house
Has to wait to get fully cashed out
The buyer could walk away from the house
The buyer may still not qualify for a loan within the time frame allotted.
The seller has to make sure the house is move-in-ready.
Can get into a house they love even if they can’t qualify for a loan right now.
Gives them time to fix their financial situation
Pride of homeownership (Sort of)
Buyer will lose their option deposit if they walk away
Monthly payments do not give you any equity
The buyer will pay more for the house than if they were able to qualify for traditional financing.
Working With Contenza Properties to Do a Lease Purchase
Navigating a lease purchase can be a challenge. There are quite a few moving parts you have to deal with, and they are undoubtedly untraditional.
Contenza Properties is happy to help you cash out of your home using a lease purchase. In fact, we’ll even lease-purchase your house from you! By doing so, you don’t have to worry about finding and negotiating with potential buyers.
Please note, if Contenza Properties lease purchases your house, we will do a sublease purchase to a buyer we locate. Contenza will handle everything for you so you can rest assured your home is in good hands.
What to Expect
If you’re interested in having Contenza lease-purchase your home, here’s a road map of what to expect.
Step 1: Initial phone conversation to gather information on your current situation and your home.
Step 2: If you want to work with Contenza, we’ll go out to view your home and speak with you directly. During our meeting, we’ll review your home to make sure it’s suitable for a lease-purchase.
Step 3: Once we determine a lease-purchase is the right course of action, we can move forward to discuss terms. If a lease-purchase is not the right course of action, we can discuss other options.
Step 4: We will agree on the lease-purchase terms.
Monthly payment amount
Date payments begin
Step 5: Contenza will begin searching for a sub-letter.
Step 6: Once we’ve found our highly qualified sub-letter, we will close the deal.
This is the typical process we aim for while working with lease-purchases. However, every situation can be a little different. We are happy to help you navigate a lease-purchase as smoothly as possible and are here to assist you every step of the way.
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About the Author
Jordan Reid founded Contenza Properties in April of 2018 to help homeowners solve their real estate problems quickly.
Since then, Jordan has helped multiple homeowners facing difficult situations such as divorce, property liens, and unwanted property inheritance.
Jordan believes in putting people first, and numbers second, which helps him reach the best possible solutions for the homeowners he works with.