Buyers want to back out of lease-option deal

Question: I read your article on lease-options a couple months ago and was wondering if you could answer a question. We are in a lease-option now. We have recently discovered problems with the house that we will want repaired before we buy it but we have already put money down (earnest money) and signed the agreement. We will not want to buy the house if the seller does not rectify the problems. I do not know if the seller was aware of the problems or not. The main problems are defective siding and contaminated insulation. The house was on the market for over a year prior to us leasing, I am almost certain that there were potential buyers and inspections done in that timeframe, so I think the seller probably knew about the problems. He did not disclose these defects to us but I guess it works that way in lease-options. If I opt out because of the needed repairs will I still lose my $5,000 earnest money?

Answer: First, let me explain how a lease-option contract works.

It is basically a home sale in slow motion. The tenant-buyer signs a contract giving them the option to purchase the home at a set price during the lease term — typically one year. The tenant-buyer usually makes a non-refundable option payment that is applied as part of the down payment if the tenant decides to exercise their option to purchase the house. A portion of the monthly rent is usually (but not always) credited toward the down payment as well.

As I have said before in this column, a lease-option is a good way to sell a property if the seller is not in a hurry to close because they can usually get a top dollar price due to the easy financing terms. The seller can also get above-market rent because a portion of the rent is typically applied to the tenant’s down payment. If the tenant decides not to exercise their purchase option, the seller keeps the non-refundable option payment plus all the excess rent.

Normally, the lease-option is also a good deal for the tenant-buyers because they get a chance to move into the house while they are saving up the money to buy it. But as your letter points out, you have to be very careful not to let the easy entry into a lease-option deal distract you from the potential risks.

You should approach a lease-option deal as seriously as if you were paying cash for the house today. Typically, that means hiring a professional home inspector to check it out before you sign the final papers. I understand that most tenant-buyers use a lease-option because they don’t have a lot of extra cash to spend, but in your case you had $5,000 for the option payment. A few hundred dollars for a professional inspection would have been a good insurance policy to protect your investment.

As I said, option consideration is normally non-refundable, so you have very little recourse against the seller unless you can prove that they knew about the home defects and deliberately failed to tell you about them. I suggest that you contact the owner and ask to renegotiate the purchase price based on the information you have discovered about the house. You should point out to the seller that since they are now aware of this defect, they are legally obligated to disclose the information to any other potential buyers. And since they will have to negotiate with the new buyers they might as well negotiate with you.

If that doesn’t work, you could contact an attorney to explore your legal options. But since there is “only” $5,000 at stake, the legal fees may not be worth it.

Steve Tytler is a licensed real estate broker and owner of Best Mortgage. You can email him at business@heraldnet.com.

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Business

Black Press Media operates Sound Publishing, the largest community news organization in Washington State with dailies and community news outlets in Alaska.
Black Press Media concludes transition of ownership

Black Press Media, which operates Sound Publishing, completed its sale Monday (March 25), following the formerly announced corporate restructuring.

Maygen Hetherington, executive director of the Historic Downtown Snohomish Association, laughs during an interview in her office on Thursday, Feb. 15, 2024, in Snohomish, Washington. (Ryan Berry / The Herald)
Maygen Hetherington: tireless advocate for the city of Snohomish

Historic Downtown Snohomish Association receives the Opportunity Lives Here award from Economic Alliance.

FILE - Washington Secretary of State Steve Hobbs poses in front of photos of the 15 people who previously held the office on Nov. 22, 2021, after he was sworn in at the Capitol in Olympia, Wash. Hobbs faces several challengers as he runs for election to the office he was appointed to last fall. (AP Photo/Ted S. Warren, File)
Secretary of State Steve Hobbs: ‘I wanted to serve my country’

Hobbs, a former Lake Stevens senator, is the recipient of the Henry M. Jackson Award from Economic Alliance Snohomish County.

Mark Duffy poses for a photo in his office at the Mountain Pacific Bank headquarters on Wednesday, Feb. 14, 2024 in Everett, Washington. (Annie Barker / The Herald)
Mark Duffy: Building a hometown bank; giving kids an opportunity

Mountain Pacific Bank’s founder is the recipient of the Fluke Award from Economic Alliance Snohomish County.

Barb Tolbert poses for a photo at Silver Scoop Ice Cream on Thursday, Feb. 29, 2024 in Arlington, Washington. (Annie Barker / The Herald)
Barb Tolbert: Former mayor piloted Arlington out of economic brink

Tolbert won the Elson S. Floyd Award, honoring a leader who has “created lasting opportunities” for the underserved.

Photo provided by 
Economic Alliance
Economic Alliance presented one of the Washington Rising Stem Awards to Katie Larios, a senior at Mountlake Terrace High School.
Mountlake Terrace High School senior wins state STEM award

Katie Larios was honored at an Economic Alliance gathering: “A champion for other young women of color in STEM.”

The Westwood Rainier is one of the seven ships in the Westwood line. The ships serve ports in the Pacific Northwest and Northeast Asia. (Photo provided by Swire Shipping)
Westwood Shipping Lines, an Everett mainstay, has new name

The four green-hulled Westwood vessels will keep their names, but the ships will display the Swire Shipping flag.

A Keyport ship docked at Lake Union in Seattle in June 2018. The ship spends most of the year in Alaska harvesting Golden King crab in the Bering Sea. During the summer it ties up for maintenance and repairs at Lake Union. (Keyport LLC)
In crabbers’ turbulent moment, Edmonds seafood processor ‘saved our season’

When a processing plant in Alaska closed, Edmonds-based business Keyport stepped up to solve a “no-win situation.”

Angela Harris, Executive Director of the Port of Edmonds, stands at the port’s marina on Wednesday, Jan. 24, 2024, in Edmonds, Washington. (Ryan Berry / The Herald)
Leadership, love for the Port of Edmonds got exec the job

Shoring up an aging seawall is the first order of business for Angela Harris, the first woman to lead the Edmonds port.

The Cascade Warbirds fly over Naval Station Everett. (Sue Misao / The Herald file)
Bothell High School senior awarded $2,500 to keep on flying

Cascade Warbirds scholarship helps students 16-21 continue flight training and earn a private pilot’s certificate.

Rachel Gardner, the owner of Musicology Co., a new music boutique record store on Thursday, Jan. 18, 2024 in Edmonds, Washington. Musicology Co. will open in February, selling used and new vinyl, CDs and other music-related merchandise. (Olivia Vanni / The Herald)
New Edmonds record shop intends to be a ‘destination for every musician’

Rachel Gardner opened Musicology Co. this month, filling a record store gap in Edmonds.

MyMyToyStore.com owner Tom Harrison at his brick and mortar storefront on Tuesday, Sept. 6, 2022 in Everett, Washington. (Olivia Vanni / The Herald)
Burst pipe permanently closes downtown Everett toy store

After a pipe flooded the store, MyMyToystore in downtown Everett closed. Owner Tom Harrison is already on to his next venture.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.