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  • Writer's pictureColleen

7 Ways to Acquire a Home




When there is a real estate transaction there may different contracts that you may see depending on what you are trying to do with the property. Lets go over them together to find which one is going to work best for you.



1. The first one is the Agreement of Sale (AOS) aka the Purchase Contract, or the Purchase and Sales Agreement. This is the most commonly used contract in the sale of real estate and for many the only contract used. This is a bilateral contract meaning the seller is bound to conveying the property title, and the buyer is bound to providing the listed consideration (price) for the property. With this contract the buyer will pay the entire list price at settlement- this could be done with a check or cash or a mortgage. Things that must be included for this contract to be valid are: the date of settlement, names of all the buyers and sellers, a description of the property, the amount of the buyers deposit, the sale price, the date of payment and conveyance, the property zone, a highway occupancy and permit statement.



2. Next is the Contract for Deed aka Installment contract, Land Contract, or Conditional Sales Contract. This contract is very similar to the AOS we just talked about, except that it is conditional. The entire list price is not paid at settlement and the title is delivered at a future date so both buyer and seller retain interest in the property. The seller retains legal title while the buyer gets equitable title and possession. This contract is used for private sales where the purchaser cannot get the financing they want so instead the buyer and seller agree that the buyer will provide monthly payments or payment installments and the seller will provide title when the payments have been made in full. Things that must be included for this contract to be valid are: the date of settlement, names of all the buyers and sellers, a description of the property, the amount of the buyers deposit, the sale price, the date of payment and conveyance, the property zone, a highway occupancy and permit statement.



3. Next is an Option. This is a unilateral contract because it only binds the seller to keep the option open for the buyer, the buyer is not however obligated to do anything. This contract does not include conveyance of title, only the right to exercise option. This is seen when someone is selling 2 adjacent lots and the buyer can only afford one lot at first but has expressed interest in the second lot. The buyer and seller can enter an Option saying that in the next 5 years Mr. Buyer can buy the adjacent lot for the same list price. The Option will also transfer to new owners; say the seller passes away or sells the second lot before the 5 years are up, the new owners would also have to honor the Option if Mr. Buyer says he would like the option to purchase the property within the timeframe established by the Option.



4. Right of First Refusal is very similar to an Option. It is also a unilateral contract which only binds the seller to allow the other party to review and match any offer the seller finds acceptable. I saw this when I was helping to manage a commercial building in NYC. The tenant in our building had expressed an interest in buying the building if and when we were ready to sell, so he negotiated a Right of First Refusal. When we were finally ready almost a decade later, he was the first to know we were ready to sell and when we received offered we were willing to entertain he had the chance to review the offers and in the end he did end up matching an offer and was able to purchase the building. This contract differs from the Option because the price has more flexibility which helps protect the seller some. In an Option the buyer has the option to purchase the property during a period of time for the price it was originally listed at vs a ROFR which give the buyer the option to match or beat new offers coming in. In both cases however, the buyer with the contract has first Right to the property in question.



5. A Lease is a rental contract which does convey ownership because the lessee purchases the right to posses the property while the lessor retains the legal title. In this contract the owner also has a right of revision meaning they have the right to take back possession of the property at the end of the lease. This is also a bilateral contract because the lessor is obligated to convey possession and the lessee is obligated to provide the listed consideration.



6. A Lease with Option to Buy is a 2 part contract. The lease portion of this contract is bilateral where the lessor is obligated to convey possession of the property and the lease is obligated to provide the listed consideration just like in a regular lease. The Option to Buy portion of this contract is unilateral where only the seller is obligated to keep the option of purchase open to the lessee. This contract works just like a Lease and an Option smashed together. This would be seen when a buyer has expressed interest in a property but isn't ready to purchase it yet and might not ever be. The buyer and seller can enter into this Lease with Option to Buy contract where the buyer will first lease the property and if they decide to buy the property within the agreed time frame, they can purchase the property for the originally listed price. Often times a portion of the rent paid each month is saved and goes towards the possible future purchase of the property and may be refunded if not. All of the terms of the sale are negotiated by the seller and possible buyer ahead of time in the Lease with Option to Buy contract which makes the settlement simple.



7. The Lease Purchase Agreement is somewhat like the Lease with Option to buy agreement except that it is bilateral and so binding to both parties. This is a 2-part contract in which lessor is obligated to convey possession the property during the lease and then is also obligated to convey title at the agreed upon settlement date, and the lessee is obligated to pay the rent due until the settlement date at which point they are required to purchase the property. This contract will spell out the terms of the lease and sale so at the time of the sale everything has already been negotiated and agreed upon making for a smooth transaction. This is seen when a buyer would like to purchase a property but does not have the financing available, yet the buyer and seller enter into a Lease Purchase Agreement where the buyer will lease the property for a set time and a portion of the rent will be saved and put towards the sale of the property when the lease is up. All of the terms of the lease and sale are negotiated and agreed upon by the buyer and seller in this contract.



So, there you have it. There are many ways to lease or purchase a home, but it's up to you how to go about it for your situation.

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