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What Should a Lease to Buy Agreement Say?

written by: Mike White•edited by: Jason C. Chavis•updated: 6/27/2011

What should be included in rent to buy home agreements? Beyond simply issues such as the purchase price of the home and monthly rent should be spelled out. Typical rental perks can also be added such as the deposit and what furniture and utilities are included.

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    Rent to Buy Home Option Agreements

    What should be included in a real estate agreement for someone wanting to lease or rent with the intention of purchasing a new home? There are a variety of things typically included in such documents. Among these are the purchase price of the home, how long the renter can rent with the option to buy, the amount of monthly rent required, how much of the rent will go toward the purchase price, how much money should be given for the option and other details.

    Some experts on such agreements say it is best if someone seeking to rent with the option of buying a home should have the papers necessary for such an agreement prepared by a real estate lawyer, even if he or she has discussed the matter with a real estate agent. This is because real estate agents cannot give legal advice, nor explain a person’s legal rights to him.

    The Bright Hub article, Real Estate Contracts: Seller is Late Closing What Happens Next? by Doreen Martel discusses real estate contracts in general and is helpful in understanding the process of buying a home. A potential home buyer could discuss with a real estate attorney any issue in the article he or she feels might apply to his particular situation before a lease to buy option agreement is prepared.

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    The Purchase Price of the Home

    Money If you are considering signing a rent to own agreement, also known as a lease to own agreement, the purchase price of the home must be listed.

    Real estate prices could drop in the area you are living in during the term of your agreement but you won't be able to renegotiate a lower price unless the seller agrees to. This situation can arise at any time. If, for example, he is afraid you will not exercise your option to buy at the agreed to price when the term of your agreement is over, he might agree to a lower price. He will not be required to, however.

    On the other hand, if real estate prices go up, he will not be able to charge you more than originally agreed upon.

    Image Credit: US Currency Federal Reserve Wikimedia Commons, Public Domain

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    Monthly Rent

    The amount of the monthly rent should be included in any lease to buy agreement. Most renters want to lock the price in at a set rate to avoid surprises. This also provides security to the seller, preventing the potential buyer from declining to pay the monthly amount as time progresses.

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    The Rent Premium

    How much the monthly rent premium accrued to the final prices must also be included in any rent to own agreement.

    The premium is different than the monthly rent in that it is an supplemental amount paid with the monthly rent. Any premium would go toward the ultimate purchase of the home. In essence, it can possibly be used for a down payment.

    For example, suppose you want to buy a $250,000 home and pay $10,000 up front. Suppose your monthly rent is $900. Suppose you pay a monthly premium of $450. After one year you will have paid the $10,000 plus the amount of your premium, or $450 times 12 months, for a total of $15,400 toward the purchase of the house.

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    The Premium Fee

    Home buyers and sellers typically include the amount of the premium fee in a lease to buy agreement.

    The premium fee is the amount the potential buyer agrees to pay to simply have the option of purchasing the house. It can be as little as one or two months rent. It can be 5% of the purchase price of the home. However, typically it is one percent of the purchase price.

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    The Term of the Agreement

    A typical agreement lasts from one to five years. However long the agreement is effective should be spelled out in all documentation. At the end of the term the renter might decide to buy or he might decide to walk away from the deal. But if he does, he will usually lose the monthly rent premiums and the premium fee he has paid.

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    Contingency Clause

    If you live in a buyer's real estate market, you might get the seller to agree to a contingency clause. If something unexpected happens, such as a job loss or unexpected medical expenses, you might lose all the extra money you have paid, such as rent premiums and a premium fee. On the other hand, if you can't get a loan, a contingency clause could allow you to get all the extra money you have paid back.

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    Issues Covered in Any Rental Agreement

    Matters covered in a rental agreement for any house or apartment can be included in a rent to buy agreement.

    Issues such as the amount of the security deposit, the penalty for bounced checks, the penalty for late payments, and when payments will be deemed late can be included. What utilities the renter will pay can be included as well.

    In addition, such issues as what amenities are included with the house might be mentioned. Such amenities can include air conditioning, a swimming pool, and more. It could also state no amenities are provided. Any furnishings that come with the house might be listed in such an agreement.

    The agreement also m meayntion the potential home buyer's responsibilities as far as landscaping, carpet cleaning, and snow removal.

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    Get a Lawyer to Prepare the Agreement

    If you want to buy, a lawyer should prepare your rent to purchase agreement, even if you have talked to a real estate agent. If you don't do this, a seller might include such items as disallowing your premium payments as going toward the purchase price, if your payment is late, or give himself the right to get out of his deal, if prices go up.

    If properly prepared by legal entities interested in the best for both sides, a rent to own agreement can protect the buyer and seller and be a very beneficial option.

    House 

    Image Credit: Dubois-Phelps House, Daniel Case, Wikimedia Commons

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    References

    Rent-to-own your home: Pro and Cons by Les Christie, money.cnn.com

    Rent-to-Buy Pros and Cons, by Matt Woolsey, forbes.com

    Rent to Own Agreement, no author listed, smartformz.com