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Rental-property owners may dig lease option

Dear Real Estate Adviser,
I bought a car on a lease-option arrangement and I'm starting to like the idea of a lease-option for a home, but there isn't a great deal of them available.

The housing market in my area has slowed a little bit, so I would think these would be more common. Also, if I do a lease-option and still have a contract with my real estate agent, will she still get the commission?
-- Sue

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Dear Sue,
Lease-option opportunities might seem a little scarce to you right now because they are not exactly a priority with real estate agents. That's because the "option" element -- which means you have an option to buy at the end of a set lease period -- also means you have the opportunity to opt out of buying the house.

In such a scenario, the agent would get only a percentage of the option money you put up and nothing more. If you did exercise the option, she would get her split of the 5 percent to 6 percent commission shared with the seller's agent, assuming there is one.

However, real estate agents are a little more aggressive about finding "lease-purchase" deals -- the key words being "option" and "purchase" -- because the tenant is typically obliged to buy the home at the end of the lease (usually one to three years) in these arrangements. Hence, the agent has at least some assurances a sale will be executed.

But the home-buying process -- or home-leasing process, in this case -- is about you and your wants, not your agent's. If you feel more comfortable with a lease-option arrangement, explain this to your agent in no uncertain terms. If the market is softening and the average time on the market per home is growing, your agent will at least have a deal in the works (albeit one that may not be consummated for one to three years) instead of 3 percent of nothing and a dissatisfied client.

As for the supply of these homes, it's true there are not too many visible on the Multiple Listing Service or in the newspapers and real estate guides. However, many rental-home landlords can be convinced to enter into a lease-option agreement if they understand how they work. They'll realize that lease-option tenants will pay them above-market rental rates in exchange for partial rent credit toward the down payment for the first few years, plus they will get to pocket that extra money if you opt out. They'll also retain the tax benefits until you exercise your option, assuming you do. Suggest this approach to your agent.

Happy hunting - and opting!

Bankrate.com's corrections policy-- Posted: Nov. 12, 2005
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