Lease Purchase Option…is it worth considering?

I’ve been working with some individuals that have to sell property before they are in a position to buy another property. Despite this, they’re in need of housing due to personal circumstances. While renting a home is the typical way to go, a Lease Purchase Option is another avenue worth considering.

Due to the large amount of unsold inventory in this market, many sellers are willing to get creative and entertain a lease with an Option to Purchase.

From the seller’s perspective, they are going to look for some kind of benefit for entering into a Lease Purchase Option arrangement vs. a traditional rental. The seller benefits from selling their house at a certain price, but there is no guarantee that the buyer will exercise that option - so a payment over and above the typical rent payment needs to be offered for the opportunity to hold that option. Additionally, the amount needs to be substantial enough to be worth taking the property off the market, with the possibility of the seller having to put the home back on the market if the option is not exercised.

From the renter/buyer perspective, if you want to purchase the property, but circumstances prevent you from making a purchase at the present time, you benefit from locking in a price in a down market. Let’s say you’re paying the seller an extra $1,500 per month for a 12 month lease with an option to purchase, the worst case scenario is that you may have to pay $18,000 over and above what you would have paid if you rented the property. But, if you are getting a discount on the purchase price it might be worth it.

I would also suggest structuring the deal so that if the option is exercised, some or all of the rent payments are credited to the buyer against the agreed on sales price. Effectively, you are paying yourself prior to exercising your option to purchase. While the seller may not credit all the payments towards the purchase price, crediting some of the payments towards the purchase price provides a greater incentive to the buyer to go forward with the purchase.

Exercising an option to purchase depends on where the market goes after you make the deal. If the market remains constant and the option to purchase is exercised, it works best for both buyer and seller. If the market goes back up, the buyer has locked in a lower price. If the market goes down, the buyer typically would not exercise the option and would try to work with the seller after the option to purchase expires (yet, they risk losing the property to another potential buyer).

While these are not the only issues to consider when entering into this type of deal, depending on your circumstances, this might be the best way to get into the home of your dreams.

- Tom Kilby, Associate Broker

Not all that bad...

We hear horror stories galore about the condition of the economy. The last few weeks have capped off a really crazy year of bad news. Oddly enough, Aspen is still proving to buck the trends and provide some good news. The real estate market has certainly been relatively soft, compared with record high sales tax revenues last summer. But even in real estate the news isn’t all bad.

One of the methods of comparing real estate appreciation is to analyze a key ratio that provides the closest thing to a constant over time – sales price per square foot of living space. The fact that there have been a number of newly constructed homes sold recently does skew this comparison somewhat, but not entirely. During the 12 months from October through September for the past 3 years, the price/sq ft of single family homes sold in Aspen has increased from $1093 in 05-06, to $1292 in 06-07, to $1318 this last year. This represents a percentage increase of 18.1%, 18.2% and 2% respectively. The 2% is clearly well off the earlier trend, but is still an increase. Even the past 6 month period, with an average of $1370, slightly improves the view over the full 12 months and represents a 5.9% increase over the prior year.

Condominiums show an even greater appreciation with 12%, 31% and 14.5% for the full years and 18.1% for the past 6 months over the year prior. This puts the average price/sq ft of an Aspen condominium at $1563.

The bad news is that there have been significantly fewer deals, only 61 homes and 64 condos against 116 and 155 last year and 138 and 209 the year before. So, half as many deals, but the prices are continuing to hold more solidly than has been the perception.

- Tom Leddy, Associate Broker

In Aspen Glen- unrealistic pricing might be contributing to the slowdown

In looking at what has sold in Aspen Glen in the past two years vs. homes presently listed, there is a “tale of two different cities”. While I certainly concede that the value of anything is in the eye of the beholder, at some point reality in pricing has to set in. If you are truly a seller and not just fishing for that one special buyer, you have to be priced right vs. your competition AND vs. what real buyers have established as present market values. After studying a sample of homes roughly the same size in a particular sector of the Aspen Glen marketplace, you have to wonder whether or not some of these sellers are “real” sellers.

Sold in Aspen Glen 07-08
In looking at single-family homes in Aspen Glen between 4,300 sq ft and 5,020 sq ft sold in 2007 (3 transactions) & 2008 (2 transactions)- a total of 5 homes sold between $1,850,000 and $1,325,000. The median sale price (midpoint between the highest and lowest price) was $1,586,000. The median price per square foot for these homes was $314.

Listed in Aspen Glen as of 10/08/08
In looking at the comparable group of single family homes currently listed in Aspen Glen between 4,000 sq ft and 5,020 sq ft -11 are on the market for asking prices between $2,395,000 and $1,175,000. Of those homes, 4 are priced over 2 million. The median list price in this group $1,895,500. The median price per square foot is $418

There is quite a spread between these two groups, which is likely a factor (among others) contributing to the market slowdown.

Of course many factors come into play when valuing a home, including location, square footage, age of the home, floor plan, outdoor space, etc. Since the buyers now have the advantage in this market, “real” sellers should use some basic market data to at least put their properties in a position get an offer.

- Tom Kilby, Associate Broker

Great Deal in Real Estate = ?

We are all looking for a “great deal” in real estate so I wanted to give some thought to what that constitutes. Is it near bankruptcy with the mortgage company at the door or a quality property at a price that reflects true market conditions? A “great deal,” that is a secondary or third tier property, in my opinion, might fit the first description. Any quality property that is a combination of both will move quickly, but I always place quality first.


- Dale Potvin, Owner/Broker


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