Lease Option homes in San Francisco - is it an option?

Lease Option homes in San Francisco - is it an option?

With a slower real estate market in San Francisco, especially for Condos and Lofts in the SOMA, South Beach and Mission Bay neighborhoods, a lot of Buyers are wondering if they can Lease Option a home.

If you don't know, a Lease option means you rent the Condo, with an option to buy at a later date. The question is why would a Buyer enter into a lease option, and why would a Seller enter into one?

A Seller can't get their wish price, so they would consider it if a Buyer offered them that price - but at a later date. The Buyer would only exercise the option to buy if the market improves. If the Buyer isn't going to offer the Seller their price, why would the Seller bother? Well, they might bother if the Buyer offers to pay a rent that is above market-rate rents. A Seller who might choose to not sell and rent probably isn't going to cover their mortgage with a normal rent unless they've got very high equity and low mortgage on their property. A Buyer in a lease option might pay extra high rent IF a large portion of that rent would go towards the eventual purchase price when/if they exercise their option to purchase.

I write all this because time and again I hear from Buyers who want both a low purchase price, and a low rent, and I have to ask "what's in it for the Seller?" Why would the Seller accept that offer? The answer is they won't. There's nothing in it for them. If they were willing to accept a low offer, they'd accept it from someone who wanted to Buy right now. And if they were willing to accept a low rent, then they'd rent it at market-rate right now.

The one caveat that could make a lease-option work is when a Buyer will come into money later on, or can't qualify for a loan now, but should have no problem in a year or two (think new job or too short of a credit history right now). But again, the Seller would still need some consideration for going with a Lease Option vs. a normal sale, or a normal rent. Think about it - and please share your comments if you disagree, or know of other alternatives to making Lease Options in San Francisco work.