Purchase/lease agreement

[scarah]

What is the name of your state? Virginia

My husband and I are selling our condo (we have already moved). We have a potential buyer that currently owns another home further out of town, but she wants to move closer in. She doesn't want to write an offer contigent on her home's sale, but her current preapproval is lower than our sale price (I am not sure if this is her maximum or if she just got preapproved for some value she came up with) and would be lower than we would accept.

This has led to discussions on doing a lease/purchase. These are some guidelines that I sent to our realtor:

1 year term (closing has to occur prior to end of term), $1000 option down, $1200 per month, $200 of which would be option payments (for $2400 total plus the $1000 down for a grand total of $3400).
At closing, we would throw in an additional $2600.
This $6000 (or less is purchased prior to one year) can be used towards the downpayment or the price of the home.
Lessee/purchaser is responsible for all maintenance repairs that costs $500 or less, we are responsible for maintenance repairs that cost over $500, HOA and property taxes.
If they do not purchase the place by the end of lease term, all option payments and money used towards maintenance is forfeited, even for reasons such as lack of financing.

Are there any other concerns that need to be addressed?? I am pretty sure we will hire a lawyer to handle this kind of contract, just because I have seen that there can be some sticky situations that result when there are 'holes' in the contract. I just want to get an idea of what I need to look out for.

 

[lcannister]

SEE the Atty to draw the contract, up the down payment to 5-10K NON REFUNDABLE and then open your eys to the fact that this person is over their preapproval point and you do not know why. Could be debt to income, bad credit history and many other reasons.

Next go into it with the realization you might have to foreclose and run their behinds off, LEGALLY and that when they do leave the house will be to be redone inside from paint to carpets.

This would be my last option given the preapproval limit and the price of your home, what ill change about her situation that will up that limit in a year?

 

[scarah]

SEE the Atty to draw the contract, up the down payment to 5-10K NON REFUNDABLE and then open your eys to the fact that this person is over their preapproval point and you do not know why. Could be debt to income, bad credit history and many other reasons.

All we and our realtor know at this point is that this person is a teacher and that they are qualified for x amount of dollars. We don't know why this is. It could be because they currently own another home, they asked only for this amount, or debt to income ratio/credit history. If they cannot qualify for more, we won't go through with this. It wouldn't make sense. I asked my realtor to find out what the situation is prior to anything proceeding.

Next go into it with the realization you might have to foreclose and run their behinds off, LEGALLY and that when they do leave the house will be to be redone inside from paint to carpets.

I assume here you mean evict i/o forclose. We wouldn't have to forclose on the property. Because of the market, my husband and I have been thinking about renting the place out for awhile and putting it back on at a later time. I don't think the risks of a lease/purchase will be greater (and it will be probably be less due to their vested interest in the property and the potential loss for more money than a renter).

This would be my last option given the preapproval limit and the price of your home, what ill change about her situation that will up that limit in a year?

This is what the realtor will find out. If the limit is low due to the fact that they own another home that they are going to sell, but the mortgage is not contigent on sale or they only asked for this limit and this is not an actual upper limit, it may not be an issue. If it is low due to other debts, debt history, or low income, this is not worth pursuing.

 

[lcannister]

Seems you are going to take this route anyway so my only advice then is to up the ante and raise the required deposit to 5-10K so it is not so easy to live there then walk away leaving you with the bag to hold and major expenses to bring the home back up to snuff.

 

[scarah]

Can you put a clause in the contract requiring them to pay for any damage that occurs to the residence outside of 'normal wear and tear'. You run into the same potential issue with renters.

 

[lcannister]

Can you put a clause in the contract requiring them to pay for any damage that occurs to the residence outside of 'normal wear and tear'.

Sorry don't know, my Atty takes care of such matters so they are legal and enforceable well worth the fees I pay him.

Better to collect a large down payment up front than to put a phrase like that in the contract and find you can not get blood from a turnip when the deal, and these things do fall through with great regularity, falls through after 10 or 11 months.

You said you had a Realtor so when you sent him or her the list of you requirements what was the feedback?

 

[scarah]

He sounded really positive about it.

It sounds as though you have gone through these types of arrangements before. Why would this be more problematic than renting??

 

[lcannister]

He sounded really positive about it.

It sounds as though you have gone through these types of arrangements before. Why would this be more problematic than renting??

Because you are kind of expecting that at the end of the time period a sell will be finalized and honestly the percentage is high that it does NOT happen that way. Rent is with the idea that no sell is anticipated and you are simply a LL.

I have no rental properties in my portfolio, just isn't my cup of tea. Maybe Linda will come along and respond basted on her experience with rental properties and she seems to have excellent experiences in that respect. However, I bet she has a horror story or two as well.

Comes down to your own comfort zone and certainly you and your real estate agent have more info on the situation than any of us do.

Good Luck.