[Daniel Matthews]

Daniel Matthews

I am selling my home on a lease option and I have a few questions. I bought this home at the height of the market in 2005 (Sacramento), and now I’m trying to get the most I can out of it to minimize my loss. I want to sell it for $380K, which may still be higher than it will appraiser for right now. I have someone who is interested in it, and is willing to make a substantial down/option payment, but they are concerned about the price. I can’t come down much on the price without losing more than I’d like to at this point. Even with full payments of $1800/mo, I’m eating $400 negative cash flow, so I’d like to turn this around.

Here’s the specifics:
Purchase price 2 years ago: $380K
fix-up expenses: $35K
Holding costs and other expenses: $20K
Total: $435K

Sell for: $380K (loss of $55K
lease payment: $1800/mo with $200 credit towards purchase
option payment: $5K minimum, one buyer may go as high as $15-20K, another may have $10K

Any suggestions on price/terms to make the best of this situation? Another question is what happens when the option is exercised if the house won’t appraise for the option price, and therefore won’t qualify for a bank loan? Thanks.
– dan

[Daniel Matthews]

Daniel Matthews

Another issue I forgot to mention on this buyer is that he is currently going through a divorce, foreclosure, and a bankruptcy. I don’t want my property to get tied up somehow in his bankruptcy. Is there any danger that he could somehow get an interest in my property tied up with his bankruptcy settlement? He hasn’t filed yet but will be probably in the next month.
– dan

[Anonymous]

Anonymous

Daniel,

There are several solutions to your problem but I also see some potential problems.

1. Instead giving an option for a specific price, put that the option will be for whatever the house will appraise for & the lender will approve when the buyer is ready to exercise their option. This will ease the buyer’s fears and make it easier for them to make a decision go move forward. The chances are 50/50 that your buyer will stay in the house and get a loan later.

An alternative to having no set price for the option is to start with a low price, like $380,000 then have built in annual increases like 5% per year.

2. To increase the down payment, I like to do a highest bidder sale for the down payment. You run an ad that the house will be sold to the person with the most down payment next weekend. Each prospect will fill out a credit application and state what they have for a down. This spirit of competition will help get the option consideration price up.

PLan B on the whole thing is to ask the lender to take a short sale and find someone who will get a new loan so you don’t get stuck with a $400 per mnth negative or worse.

I would not sell to someone who is going through a divorce, a foreclosure and a bankruptcy. You’re just asking for a nightmare in trying to get them out of your house when they stop paying you.

YOu need to check the laws in your state… in CA, they could have an equitable interest with a lease option. And that would mean that you have to foreclosre to get them out. If that’s the case you definitely do NOT want to give them an option.

Use a CONTRACT FOR OPTION instead!!!!