7 June 2008 - Throughout my real estate career, I've nearly always advised clients that "now" is the best time to buy real estate if they're financially ready and plan to stay in the house several years. That's because more often than not, those who try and time the market wait too long for prices to drop and miss out on potential appreciation gains.

Nevertheless, I continue to see uncertainty amongst today's buyers because they have heard so many dire headlines on the news. Even buyers who are eager to enter the market may face some difficulties because of today's tighter lending standards.

Enter the lease-option, a possible solution for consumers who would like to settle down but for some reason want or need to wait before they buy a home outright.

Through a lease-option agreement, a buyer signs a lease to rent a home for a specified time period, usually one to three years. When that period has ended, the tenant has the option to purchase the house, in many cases for a predetermined price.

The arrangement is particularly beneficial for buyers who may not currently qualify for a mortgage but want to lease the property for several years while they save money for a down payment and improve their credit score. In fact, in some agreements, part of the rent payment actually goes toward the buyer's down payment.

Not only does the arrangement help buyers who otherwise wouldn't qualify for a loan (or qualify for a loan with a reasonable interest rate), but it helps buyers who may want to get a better feel for the home and neighborhood before making a purchase. Because the potential buyer is not obligated to purchase the property, a lease-option can also give peace of mind to buyers who may be concerned about prices dropping in the future.

These agreements are beneficial to sellers as well because they can generate rental income rather than having the property sit vacant pending a sale. Sellers also hope that a renter with an option to purchase will take better care of the property than someone who is looking to move when the lease period ends.

In order to gain the right to purchase the property after the lease period ends, a buyer must purchase the "option" to buy the property. In some cases, this amount, which is paid up front, goes towards the buyer's down payment when the real estate is actually purchased. If the tenant decides not to buy the property at the end of the lease period, the seller keeps the option money.

The lease-option does involve some risk for the seller because buyers are not required to purchase the home when the lease expires. That's why many agreements will require the tenant to notify the seller of his intention to purchase within 30 to 60 days before the lease expires. Then, the seller can begin marketing the property should the tenant decide not to buy. However, payment of the non-refundable option funds, plus the rent credit, does give the tenant a strong incentive to purchase the property.

There are risks for the buyer as well, such as the seller failing to honor the option to purchase.

Sean Monson, a partner at Bennett Tueller Johnson & Deere in Salt Lake City, told the Salt Lake Tribune that one of the most important things buyers can do to protect themselves is to file the lease-option agreement with the county. This can help protect buyers if a seller tries to back out of the agreement when the buyers are ready to purchase the house.

If you decide you are interested in this type of transaction, it's a good idea to work with a Realtor who is experienced with lease-options who can help you negotiate and put the details of the transaction together.

It's also advisable to contact a real estate attorney if you have any questions or concerns with the lease-option paperwork. A lease-option agreement generally lists the purchase price, amount of option funds (the nonrefundable payment the buyer often makes toward the down payment), length of the lease term, amount of the monthly rent payment, and the amount of the rent payment to be credited toward the purchase.

Lease-options offer a variety of benefits for both buyers and sellers in today's real estate market. Just make sure to work with experienced real estate and legal professionals if you decide this transaction is right for you.