We are independent & ad-supported. We may earn a commission for purchases made through our links.

Advertiser Disclosure

Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.

How We Make Money

We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently from our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

In Real Estate, what is an Option to Buy?

Mary McMahon
By
Updated Jan 28, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

An option to buy is a real estate contract in which someone is given the right to exercise a buy option within a certain period of time. Options to buy are often bundled with rental contracts, and people may refer to a “lease with option to buy” or “rent to own” agreement. These contracts can be useful for both buyers and sellers, depending on the market, but they can also be an unwise financial decision. It is important to evaluate the terms carefully before signing.

In the classic scenario of a lease with option to buy, at the start of the lease, renter and landlord agree on the terms. It might be a two year lease-option, which means that the renter/buyer has two years to decide whether or not to buy the property. Typically a lump sum known as option money is paid up front by the buyer to secure the option. The buyer pays rent, and at the end of the term, has an option to buy the property or not.

If the renter opts to become the buyer, the home is sold as it would be normally, with a series of inspections to confirm that the property is in good condition, a down payment, and financing, assuming that the buyer cannot pay cash. If the buyer forfeits the option, the option money will be lost. It's important to be aware that it can take 45 days or more to close on a house, so buyers shouldn't wait until the last minute to exercise the option.

Renters often find the lease with option to buy appealing because they think that they will be able to save money for a down payment within the terms of the lease. However, many find that when the option comes due, they don't have the funds, or cannot qualify for a loan. This is something to consider before entering into a lease with option to buy, especially when option money is involved.

On the flip side, renters may find that real estate values have risen while they rented, and they can exercise the option and then resell the house for a profit. This, of course, is the danger for property owners who enter into a lease with option to buy agreement. In a slow market it may be tempting to lock in a potential purchase price, but if the real estate market heats up, the property owner is locked into the original price and may take a loss.

Both sides of the agreement should have lawyers review the terms carefully and make sure that they fully understand their risks and obligations.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a WiseGeek researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments

By anon265724 — On May 02, 2012

I want to know about land contracts.

Mary McMahon

Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

Learn more
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.