There are two methods a lease/option contract can be written:
Appraised Value |
| At the end of the lease, a licensed appraiser chosen by both parties will determine the value of the property. The value determined by the appraiser will be the purchase price. A variant to this method would be an average of two appraisals: one selected by the buyer/tenant and one by the seller. |
| Advantage: This is a fair method to determine the price of a property at the end of the lease. |
| Disadvantage: The purchase price is unknown until the purchase. If you are the seller and the price goes down, you could lose money on your investment. If you the buyer/tenant and the price goes up, the house could become unaffordable. |
|
Set Price |
| A price agreed by all parties will be the purchase price at the end of the lease. Regardless of the appraised value, this will be the purchase price. |
| Advantage: There is no mystery to the purchase price. Everyone has agreed to the price. |
| Disadvantage: If you are the buyer/tenant and the price goes down, you could end up paying too much for the house. |
|
Others... |
There are a variety of other methods that include "split equity" and "boundaries to the price." As long as everyone agrees in advance and contracts are in writing, there should be no problems. |
|
