An option contract in real estate gives the willing buyer the right to purchase a property for an agreed upon price and time frame.
Option Contracts in Real Estate
Klauster Properties Limited (KPL)
Option Contracts for whom and for what?
Option Contracts in real estate are used to give control over a property without transferring ownership. An option to purchase a property with an attached lease agreement is commonly used by traders, developers to sell but also by first home buyers as path into home ownership when finance is a problem (sometimes wrongly called RENT to BUY).
Real estate investors use option contracts for instance to control a property for future plans or appreciation (Late or delayed settlement). Developers and builders take option contracts to obtain council approvals e.g. for changes to land, zoning and subdivision or feasibility tests.
Path into home ownership
First-time home buyers can use a “lease-option contract” to occupy a property (lease) with the option to purchase during or at the end of the lease. In this case the buyer postpones the financial transaction until the time and conditions are right. This can be used as risk management strategy, while during the hold-on time frame the buyer might improve his financial position e.g. interest rates may drop, career move, insurance pay-out, etc.
The option contract binds or obligates the seller but not the buyer to execute the transaction. For the “right” to purchase or walk away, the buyer pays a non-refundable consideration, which is a part of the purchase agreement — NOT an extra cost!
Lease Option Contract
why would you enter such agreement?
For the lease holder (buyer) the lease option contract includes the “option” to control the property and the “lease” to move in on day one, but settle the property only if everything goes to plan during or at the end of the lease. This type of agreement is adaptable to unpredicted changes in life.
In comparison with a tenancy agreement, the lease holder is protected by the option agreement and more likely to take care of the property. As both parties secure their interests, a lease-option agreement can be seen as win-win situation.
What does a lease option contract cost?
No extra costs. You will agree to an option consideration fee that will be held for you as part of the deposit. You would use it like a bond when signing the agreement.
Why would you sign an option agreement?
You can lease something much nicer today as you couldn’t afford to buy today but be able to own tomorrow.
Are lease option worth money?
Consider you live in your home before having paid for it. You might have signed a “home improvement” clause for investing in your lifestyle by creating equity. That would increase the ratable value (RV) and your borrowing capacity when applying for finance.
One Reason More
Taking home ownership as an enforced saving plan is a proven strategy for accumulating wealth and financial security.