Purchase price for lease-option debated

DEAR BOB: I like your idea of using a lease-option to sellhouses and condos in a tough buyer’s market. As a real estate agent, myquestion is do you set the option purchase price when the lease-option issigned or when the option is exercised? If the option price is set up-front, itseems to me that hurts the seller if home prices go up –Sylvia R.

DEAR SYLVIA: As a buyer and seller of rental houses and formy personal use, I’ve been using lease-options at least 25 years. I have alwaysset the option purchase price at the time of entering into the lease-optioncontract.

Purchase Bob Bruss reports online.

However, as a seller I sign only one-year lease-options. Atthe end of each year, if my tenant isn’t ready to exercise his/her purchaseoption, I then have the right to “adjust” the rent and the optionpurchase price.

If market values and rents haven’t increased substantially,I leave the terms unchanged. However, when rents and market values escalate,then I raise the rent and the option purchase price annually.

But as a lease-option buyer, I try to negotiate the longestpossible term. The best I’ve ever done was a 15-year lease-option with nochange of rent or option purchase price. I exercised my purchase option in the13th year at the option price negotiated with the seller 13 years earlier.

NO STANDARD FORMS FOR CO-PURCHASE OWNERSHIP CONTRACTS

DEAR BOB: My daughter wants to buy a house with a co-worker.Do you know of a contract form agreement to cover the possible contingencies,such as what if one is unable to pay her half of the mortgage payment andexpenses? What do you advise regarding the best way to hold title? –Vincent C.

DEAR VINCENT: Your daughter should consult a local realestate attorney to discuss her concerns. There is no standard form to cover allthe possible contingencies for the situation you describe.

Unless it is a long-term relationship with a”significant other” or extremely good friend, I do not recommend homeco-ownership with a friend. The possible problems are endless. It’s easy to buya property together, but it can be extremely difficult to split ownershipfairly if that later becomes necessary.

WHAT IS A NEGATIVE-EQUITY HOME LOAN?

DEAR BOB: What is your opinion of a “negative-equityhome loan?” I am 68 and am looking for a retirement home. But I amconcerned about keeping my monthly payments as low as possible. I won’t havemuch cash left after the sale of my current home –Helene P.

DEAR HELENE: I am not familiar with a “negative-equityhome loan.” If you meant a “negative-amortization home loan,” mybest advice is to stay away.

A negative-amortization home loan can result in your monthlypayment being lower than the interest earned by the lender. Any unpaid interestis added to your mortgage balance with the unpleasant result of you owing morethan you borrowed.

After selling your current home, if you can pay at least a50 percent cash down payment on your retirement home, you may be eligible for aFannie Mae reverse mortgage for home purchase. No monthly payments arerequired. To find a reputable local reverse mortgage representative, go to www.ReverseMortgage.org.

The new Robert Bruss special report, “How to Sell YourHouse or Condo for Top Dollar in a Buyer’s Market,” is now available for$5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this columnare welcome at either address.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).

Copyright 2006 Inman News

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