Residential Lease with Purchase Option

[Ranch Hand]

The purchase contract agreement for my subject is based upon a residential lease with a purchase option between the tenant and the owner that was signed in March 2019. The effective date of this appraisal is 02/26/21 and the property went under contract to sell to the tenant per the above lease agreement on 2/10/21. The parties involved are not related but I'm not sure if the sale is arms length. Due to increasing market conditions the contracted sale price is now well below current market value. How do I determine if it is arms length? Does it really matter? Any suggestions on how to write up the contract analysis for this one?

 

[Dublin ohio]

The purchase contract agreement for my subject is based upon a residential lease with a purchase option between the tenant and the owner that was signed in March 2019. The effective date of this appraisal is 02/26/21 and the property went under contract to sell to the tenant per the above lease agreement on 2/10/21. The parties involved are not related but I'm not sure if the sale is arms length. Due to increasing market conditions the contracted sale price is now well below current market value. How do I determine if it is arms length? Does it really matter? Any suggestions on how to write up the contract analysis for this one?

Unless there was some ongoing relationship between owner and buyer when agreement was signed. I do not see why it would not be arms length. You already appear to have you contract analysis above.

 

[Meandering]

The purchase option was part of the rental agreement in 2019.

The purchase option became effective 2/10/2021

This is not an arm's length sale. The buyer and seller have a business relationship as tenant and owner. The sale contract is an exercising of the purchase option of an existing lease with terms negotiated in an earlier time frame, than the current market conditions, which have been changing rapidly over the past several months. Consequently, the market value opinion for the subject under the current market conditions is somewhat different than the earlier agreed upon sale price.


Note if the purchase agreement was drawn up by a Realtor, an attorney, or by the two parties without professional representations.


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[jay trotta]

At the time the Lease was drafted there was a meeting of the minds (RE) and a contract (the Lease/option) were they at the time Not related ? (Arms Length) IMO is time line.
What are the Terms & Conditions of the Lease ? Is there an escalation clause in the lease ? Is the Lease Legal and Binding ?

 

[J Grant]

not AL, there was a relationship between the parties ( related does not mean has to be blood/family related ) and the relationship and non AL terms of a lease option is why the SC price is lower than the MV opinion

 

[glenn walker]

not AL, there was a relationship between the parties ( related does not mean has to be blood/family related ) and the relationship and non AL terms of a lease option is why the SC price is lower than the MV opinion

The Option is less than the current value because it was made in 2019 when values were less. Thats why a person uses an-option so they can lock in a lower price a year or before they exercise it. REVERSE the scenario were a market had turned down over the 1 to 2 year time period ? Would the tenant exercise the option ? NO HE WOULD not. A non-arms length transaction requires special events and relationships to trigger it. There can even be arms length transactions between family- members-Like my fatger who has never given me any special deal and he would never give me or a tenant an-option-unless he thought the market was going down : ) LMAO

 

[Dublin ohio]

not AL, there was a relationship between the parties ( related does not mean has to be blood/family related ) and the relationship and non AL terms of a lease option is why the SC price is lower than the MV opinion

So what relationship was there when the original agreement was signed. If they agreed upon a purchase price for the option at the time the lease/option was signed. What is the problem. Now if the purchase price was negotiated after the fact. That would be different. You could call it non arms length due to previous lease agreement.

 

[J Grant]

The relationship was tenant landlord at the lease option signing, which created the non AL terms of sale for this property, yes values were lower than, but still, the property was offered only to this tenant within the lease option clause, the property was not offered on the open market as it would be in an AL sale.

 

[Dublin ohio]

The relationship was tenant landlord at the lease option signing, which created the non AL terms of sale for this property, yes values were lower than, but still, the property was offered only to this tenant within the lease option clause, the property was not offered on the open market as it would be in an AL sale.

I ask again. What relationship was there prior to signing the agreement. Assuming that the option was part of the original agreement. The tenant/landlord relationship did not exist until the agreement was signed. How do you know that the lease option was only offered to this tenant. I have seen numerous lease/option or rent to own properties offered on the open market.

 

[J Grant]

I ask again. What relationship was there prior to signing the agreement. Assuming that the option was part of the original agreement. The tenant/landlord relationship did not exist until the agreement was signed. How do you know that the lease option was only offered to this tenant. I have seen numerous lease/option or rent to own properties offered on the open market.

so what if the relationship was created at the signing ? It is still is not a regular AL sale , which has as one of its terms open market exposure, and also is understood as not having business or other related interests/relationship between parties .The lease option and price was a package deal to this tenant because they were going to be a tenant.

Go ahead, call it AL, I think that is ridiculous given the terms of sale and history between parties and the fact that unless the seller is insane, the seller would not agree to that price now on the open market from an unknown to them buyer.