When to Negotiate Your Lease Option

June 5, 2018 by Marty Orefice | Contracts, Real Estate, Rent to Own

Negotiating at the right times can save you a lot of money on your lease-option.
Confrontation is not for everyone, and it’s probably best to avoid it whenever possible; but, when it comes to negotiating your lease-option, it could save you a ton of money.

Nonetheless, there are right times to negotiate your lease-option and wrong times. We’ll elaborate on both.

The key difference is that you should negotiate in a buyer’s market, but you should not negotiate in a seller’s market.

The Wrong Time to Negotiate Your Lease Option

You shouldn’t aim to negotiate your lease-option when homes are selling quickly for the asking prices. This is considered a seller’s market, which means there’s a high demand for homes in the area, but a limited supply. Therefore, homes in this area sell quickly and sellers don’t need to accommodate inconvenient requests from buyers because a new buyer will come along soon.

You can verify how fast homes are selling by looking at websites like Zillow and Realtor.com. You can check to see how long homes have been listed online. The median amount of time it takes a home to sell is 65 days, according to Realtor.com. You can use that as your baseline.

Look into homes in the area of the property you’re looking to lease-option. Are they staying on the market more or less than 65 days? You want to pay specific attention to overall trends, don’t make your decision about the market based on a limited amount of homes, look at somewhere between 10 and 15.

You can disregard homes that are priced way above the others in your group – unless you find a good reason why they’re priced that way. Those homes will take longer to sell because the owner isn’t pricing the home at market value. You can also disregard homes that are sold for far less than the other homes in your group – unless you find a good reason why they’re priced that way. Those homes will draw more demand than others because of the strong value that buyers receive.

If the median length of time that these homes are posted is below 30 days, it’s definitely the wrong time to negotiate because the sellers will have all of the leverage. Remember, in a seller’s market the seller could sell the home immediately if the rent to own deal isn’t favorable to the seller, he or she can easily back out and sell the home quickly.

The Right Time to Negotiate Your Lease-Option

Once the median length of time that these homes have been posted is well above 65 days, it’s not a seller’s market. Instead, the market becomes a buyer’s market, which is an excellent time to negotiate your lease-option deal.

The longer properties are on the market, the more eager seller’s become to find someone to purchase their properties. You, the buyer, have all of the leverage.

If you back out of the lease-option the seller will likely wait a long time before having the opportunity to sell the property to someone else. For that reason, the seller is primed to make concessions in the lease-option that will give you the advantage in the lease-option.

You should negotiate things like matching premium payments, a longer lease term (if needed), a lower option fee and/or lower rent.

While buyer’s markets are the best times to negotiate a lease-option deal, they’re not the only opportunity you have.

There’s a period of time between the buyer’s and the seller’s market where the real estate market is just that: a marketplace. In a traditional marketplace, deals are beneficial to both parties because no party has more leverage than the others.

In this situation, you can look at the contract and make sure that it’s completely fair to both parties. If you definitely disagree with something, these market conditions lend the opportunity for you to make tradeoffs with the seller. Maybe you offer a shorter lease term in exchange for a lower option fee or rent payment. Deals like this make sense in this type of market condition.

The main difference between a normal marketplace and a buyer’s market is that in a marketplace most parties make compromises to reach a mutually beneficial agreement. In a buyer’s market, the seller is the primary party making compromises.

Marty Orefice

About The Author

Marty Orefice

Martin Orefice is a real estate investor who has been in the industry for over a decade. He has experience with rent to own deals from all sides—as a buyer, seller and investor. He created RentToOwnLabs.com to provide the #1 resource where people can find information about all things rent to own.

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