The Top 3 Terms to Negotiate that Sellers MUST know for Lease Option

1. Price

Typically buyers won’t try to negotiate price. They often accept your asking price (which includes a rent-to-own premium) because of the flexibility they receive by doing rent-to-own. However, should a buyer try to negotiate on price (and they will if they read my book, Rent-to-Buy) there are a couple of ways to counter them.

1. You want to emphasize the flexibility they are receiving by being able to rent the home before they buy it. This type of flexibility justifiably commands a greater price than a comparable home being sold conventionally.

2. You want to emphasize the rarity of what you are offering. Simply put, a buyer who is buying a rent-to-own home has very few choices in homes. There aren’t that many out there. This rarity also makes the home more valuable.

2. Option Fee

More than any other term buyers will likely try to negotiate a smaller option fee. In some cases they’ll do this because they don’t have enough money saved, in other cases they’ll do it simply because they don’t want to part with the money.

Obviously the more option fee you receive the better because it means the buyer is less likely to walk away from their money. When a tenant-buyer tries to negotiate a lower option fee you can counter it by:

1. Pointing out that the option fee counts as a down payment when they are trying to qualify for a mortgage and the larger the option fee the better it will look to the lender.

2. (If the tenant-buyer has poor credit) Explain that you are taking a risk by letting someone who can’t currently qualify for a mortgage move into your home and that the option fee is your security against that risk. Tell them that the option fee conveys their seriousness about the home.

3. Closing cost contributions

Typically at the beginning of the option period tenant-buyers won’t ask for or won’t know they need to ask for help with closing costs. This usually comes up at the point when they are applying for a mortgage and discover that they need to pay them.

This is when either their real estate agent or their mortgage broker will tell them that they can ask the seller (you) to help pay closing costs. The way this is usually handled is that the purchase price is increased to offset all of or part of the closing costs. Assuming that the home will appraise for enough to cover this.

You may have done this when you bought the home yourself, it’s a very common practice. By increasing the purchase price to cover closing costs, it’s mostly a wash for you as the seller. It does end up costing you a little bit with increased taxes, commissions, title fees and so forth based on the slightly higher selling price (maybe a couple hundred dollars depending on the cost of your home).

I recommend granting this concession if you can because it gets your buyers to buy your home. The cost to you is pretty small so it’s worth it to get your home sold. If you suspect that your home won’t appraise for enough to cover the closing costs because property values are going down in your market, you may want to encourage the tenant-buyer early during the rental period to start saving some money to cover their closing costs when they get a mortgage, this way you are less likely to have to add them into the purchase price.

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