DEAR BOB: I like your idea of using a lease-option to sell houses and condos in a tough buyer’s market. As a real estate agent, my question is do you set the option purchase price when the lease-option is signed or when the option is exercised? If the option price is set up-front, it seems to me that hurts the seller if home prices go up –Sylvia R.

DEAR SYLVIA: As a buyer and seller of rental houses and for my personal use, I’ve been using lease-options at least 25 years. I have always set the option purchase price at the time of entering into the lease-option contract.

Purchase Bob Bruss reports online.

However, as a seller I sign only one-year lease-options. At the end of each year, if my tenant isn’t ready to exercise his/her purchase option, I then have the right to “adjust” the rent and the option purchase price.

If market values and rents haven’t increased substantially, I leave the terms unchanged. However, when rents and market values escalate, then I raise the rent and the option purchase price annually.

But as a lease-option buyer, I try to negotiate the longest possible term. The best I’ve ever done was a 15-year lease-option with no change of rent or option purchase price. I exercised my purchase option in the 13th year at the option price negotiated with the seller 13 years earlier.

NO STANDARD FORMS FOR CO-PURCHASE OWNERSHIP CONTRACTS

DEAR BOB: My daughter wants to buy a house with a co-worker. Do you know of a contract form agreement to cover the possible contingencies, such as what if one is unable to pay her half of the mortgage payment and expenses? What do you advise regarding the best way to hold title? –Vincent C.

DEAR VINCENT: Your daughter should consult a local real estate attorney to discuss her concerns. There is no standard form to cover all the possible contingencies for the situation you describe.

Unless it is a long-term relationship with a “significant other” or extremely good friend, I do not recommend home co-ownership with a friend. The possible problems are endless. It’s easy to buy a property together, but it can be extremely difficult to split ownership fairly if that later becomes necessary.

WHAT IS A NEGATIVE-EQUITY HOME LOAN?

DEAR BOB: What is your opinion of a “negative-equity home loan?” I am 68 and am looking for a retirement home. But I am concerned about keeping my monthly payments as low as possible. I won’t have much cash left after the sale of my current home –Helene P.

DEAR HELENE: I am not familiar with a “negative-equity home loan.” If you meant a “negative-amortization home loan,” my best advice is to stay away.

A negative-amortization home loan can result in your monthly payment being lower than the interest earned by the lender. Any unpaid interest is added to your mortgage balance with the unpleasant result of you owing more than you borrowed.

After selling your current home, if you can pay at least a 50 percent cash down payment on your retirement home, you may be eligible for a Fannie Mae reverse mortgage for home purchase. No monthly payments are required. To find a reputable local reverse mortgage representative, go to www.ReverseMortgage.org.

The new Robert Bruss special report, “How to Sell Your House or Condo for Top Dollar in a Buyer’s Market,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this column are welcome at either address.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).

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