Part one: the ins and outs of lease options

Lease options can be dangerous since by the time that they’re exercised, one party sometimes grows unhappy with it. In the seller’s case, the market may have gone up, or in the buyer’s case, it might have gone down or they might have found that they didn’t like the property as much as they did initially and now don’t want to lose their often-substantial option cash. For that reason, and because of how complicated they are in the first place, legal counsel should be involved.

Buyer’s agents must understand that options differ from unusual transaction in that they are an agreement on a given day to sell a property at some defined future date. The price and terms are fixed. These agreements do not involve nonrefundable deposits given that there will be up-front payments to sellers for the contact. These can be given directly to the seller or paid to the seller through escrow – but either way the seller can hang onto that cash except in the case of fraud or property destruction.

It’s incumbent upon sellers to evaluate risks and rewards of option agreements before entering into them. Remember that during this period, the property may not be sold to any other interested buyer and, in addition, increasing property values will not be counted as the buyer will be able to buy at the lower option price. Buyers have risks as well; if by the end of the option period they find themselves unable to exercise it, that option consideration is no longer on the table.

Stay tuned tomorrow for steps toward creating an option agreement.

Dreaming of San Francisco? Cece Blase offers local advice to San Francisco buyers, sellers and owners– and feeds the dreams of those who wish they could live in Tony Bennett’s ‘City by the Bay.’ Call 415-577-0809 or email cblase@paragon-re.com. www.ceceblase.com