Here is one scenario, for illustrative purposes only (an actual rent to own deal may have completely different terms depending on the unique situation for the buyer and seller):
a. Purchase Price: $170,000. This is part of the Sales Contract. In a difficult selling market, it is possible to negotiate attractive purchase prices from motivated sellers. However, this is the first and most important piece of the deal from the seller's point of view. It is important to not push the purchase price too low or the buyer could jeopardize the deal from the beginning. By properly negotiating Option Credits, the purchase price may ultimately be much less.
b. Rent per Month: $1,450. This is in the Rental Agreement. Let's assume this is the asking rental price and the buyer agrees to meet this price as is.
c. Option Fee: 1%. This equates to $1,700 in our example and is in the Option Agreement.
d. Option Credits: $1,000 per month. Assuming the seller is not in a major cash flow crunch, asking for a significant monthly credit allows the buyer to nearly offset the monthly rent, while building a considerable credit to apply to the purchase price. Over 36 months in this example, the credits would equate to a $36,000 down payment. It is recommended to ask for a high level of monthly credits and negotiate from there. It is more difficult to start at a low credit amount and ask the seller to move it up in the Agreement.
e. Option Period: 36 months. The Option Agreement would spell this out and a specific day, date and year would be entered. The Option Period will be shorter or longer depending on the needs of the buyer to arrange the purchase financing (including potentially repairing credit ratings), and on the patience of the seller (how long the seller is willing to rent the property versus gaining the proceeds of the sale).
f. Property Tax: Seller pays. This is in the Sales Contract with a note to prorate taxes to the date of sale.
g. Repairs and Maintenance: Seller pays. This is included in the Rental Agreement. Unless the renter has skills and some additional budget to front the payment of conducting repairs, then the buyer could include these costs as a credit that carries over into the Sales Contract.
h. Closing Costs Contribution: Seller to pay up to 2% of the Purchase Price towards the buyer's closing costs. This is part of the Sales Contract. It is customary for the seller to cover closing costs up to a percent of the purchase price. Check with local lenders about the usual approach for this in the area where the sale is conducted.
i. Closing Costs: Seller pays all. This is a standard practice that would be called out in the Sales Contract.
j. Security Deposit: $1,450. Buyer pays this and it is based on one month's rent. This would be in the Rental Agreement.
k. HOA Fees: Seller pays. If applicable, the seller would be responsible to pay all HOA fees during the time of the Rental Agreement and is prorated in the Sales Contract.
l. Additional Items: Seller provides all existing appliances currently installed in the home as part of the Purchase Price. These details are included in the Sales Contract.
The offer terms allow the buyer and seller to reach an agreement in principle on how their lease option purchase will work. Next, all these terms, and other important legal points, will be incorporated in to the Rental Agreement, Option Agreement and Sales Contract. Once all paperwork has been properly reviewed by a qualified lawyer, the documents will be signed by both parties, initial payments or deposits are made, and the buyer takes the keys and starts the move in!