Our house has been on the market for over a year. We have a physician renting the home who has a credit issue and may not qualify for a loan. A friend recommended we consider doing a Lease w/option to buy. Does anyone know how this works and what are the risks involved as the seller?

Lease with option to buy/Lease purchase/rent to buy are all same financing options.
The renter has a period in which to purchase the house by building equity and obtaining traditional finance unless you are going to own finance. If owner financing then the main point is that you will be acting as the Bank/Leading Institution. This can be a valid option depending on your finances. The loan should be secured on the property. The terms of the agreement can be what ever you want or whatever is mutually acceptable. The purchase option is usually 1-3 years but can be any number you agree.
Benefits to you;
1) Recieves full asking/agreed price (at time of rent to buy contract)
2) Relieved of all maintenance responsilities
3) Rent should cover outgoings on property (mortgage, taxes etc.)
4) You recieve the non refundable option to buy payment (3-5% of asking price).
5)The rent usually looks after property better as intending to purchase.
6) Possibly no Realtor fees if you do it all yourself.
Benefits to buyer;
1) Option to purchase property in "x" years time, gives them time to sort credit issues out and possibly aquire equity in the house for traditional refinancing.
2) Pride of ownership.
3) No closing costs

Things to watchout for:
Sub leases.
Second home tax issues.

Risks:
Damage to property
Eviction costs
Insurance issues.

Try and find a Realtor(if you need one) and Attorney who have dealt with this before, it should be relatively easy to find.

See article:
http://www.charleston.net/news/2007/nov/12/contracts21769/

Possibly re-word the questions you have and post in the Agents section of this forum. They might be able to point you in the general directions of a sample contract that you can look at and alter.

Also do some internet research, you need to feel happy with what you are doing. When you understand it you will be confident and happy to proceed.

Hope this helps slightly, but the above is only my opinion and not meant to be used as advise.

Regards
Alan

Thanks Alan. You answered many of my questions including whether you should have a realtor involved. Much appreciated.

The use of a Realtor in my opinion is not necessary (but may smooth the way) for this (depending on State laws)if you are confident in what you are doing. Also the fees that would be due, would only be paid if the option to buy was taken up, therefore a Realtor may not see this as worth while contract to be involved with.

I believe that the usually inspections should take place at Lease with option contract dates.

As always, this is not legal advice.

Alan

Mostly sound advice.

I would take it a step further and say there is a great difference between a lease purchase and a lease option.

In addition to the above a lease purchase is an agreement where the seller has to sell and a buyer has to buy by a certain date in the contract,a lease purchase also creates a beneficial interest in the property.

With a lease option the buyer has the option to buy but is not required to and the non-refundable option fee is generally not held to be earnest money.With option money the seller can spend that money right away.

With a lease purchase usually you have earnest money which may have to be held in a trust account depending on your landlord tenant laws.

It's true that this type of format offers very little incentive for a broker-agent to do.

Personally your best bet would be to get a local real estate contract attorney to draw up the contract for you for a couple hundred bucks.The money is well worth it and will protect your interests plus the attorney will answer specific questions about the lease-purchase and lease-option scenarious to see which one you want to do.

Do not go cheap and buy generic forms as it will costs you huge later on.I have seen holes in those contracts I could drive a Hummer through.

good luck and no legal advice

my two cents about lease option and lease purchase. Unless they have credit issues and you want to take a risk there is no reason to do a lease option or lease purchase. If they have enough cash to put a deposit on the lease then they probably have enough cash to get a loan. Credit is the big thing. If they don't have good credit now you really have to judge if they will be able to repair their credit in time to actually go get a loan and purchase the property. Who knows what the mortgage situation will look like in two years or so. I'm not entirely sure why the above said there will be no closing costs. At the end of the lease time you still will have to do a traditional closing as the new loan company for the buyers will require that and title insurance. Therefore closing costs. Same as any other sale. Personally if I was selling a property I wouldn't entertain a rent to own, lease option or any of those. Sell it and get it over with. I've had two home owners recently have lease to own that the leasees backed out of the deal. So here they have to deal with their properties again.

There is another point to add, if the agreement is written with the term deposit that infers refundable. ex... They pay $3500 for rent and $1000 goes towards the deposit on the home. While this seems straight forward and sometimes you see it as even non0refundable but the only sure way to make it non-refundable is to write it as a lease option money of $1000. which would be forfitted if the purchase is not executed.

If they have credit issues I wouold suggest getting them in credit repair it costs $500 but may be the difference of a 1 year lease and 5 years. As a seller the terms can go for what ever period you like. normally the shorter the better. I just wrote a lease puchase for a client here in Orlando. It provides the seller a better chance at getting full price, but also locks in that price over the terms of the leasse which may mean values rise but they will still sell at the price agreed upon.