What Do You Do If The Seller Wants The Lease Option Fee?

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“What do you do if the seller wants some or all of the lease option fee? How do you keep the seller from competing with you by marketing to rent or sell the property?” – Kevin

Joe: Let’s start with the second one first – ‘How do you keep the seller from competing with you?’ – You just write it into the contract. We actually set it up in the lease option memo to where it says that they can go ahead and sell it themselves since most of them won’t do that.
 
Joe: If you find that you’re getting beaten up by people who are getting their properties rented before you can find a lease option buyer, which is possible, because sometimes it’s easier to find a renter than it is to find a lease option buyer because they don’t need as much money to buy the property, and so if you’re getting beaten out on deals like that, then you just write in, ‘The first 30 days I ask that you not do any marketing and let me handle it’. If you learn how to get that compliance, then it won’t be a problem for you ever again.
 
Joe: I have a student who just recently went through that same situation. He lost two or three deals right in a row because they went out and rented it out from under him. From then on, I said, ‘Look, just tell them they can’t rent it until you get your 30 days.’ He does his 30 days now and he gets his properties sold and doesn’t have that problem anymore.
 
Joe: The other question here is, ‘What do you do if the seller wants some or all of the lease option fee?’ That is a question you will get all the time. They always want a deposit, they want some of the lease option fee, and they say, ‘Oh, we’ll do it, but we want $10,000 down.’ People want more – there’s no question about it – no matter who you buy from, they want more money.
 
Joe: The question then becomes: what are their options? Do they have options? If they want $10,000 for the down payment, do they have that option? Can they get $10,000? – Probably not. And they’re not going to be able to get it without you, which is what they’d have to do.
 
Joe: If you give them $10,000, you’re not going to have any left for yourself. You’re probably are not going to make $10,000 on a $150,000 property when you sell it on a lease option. You may make $5,000. So if you make $5,000, obviously you can’t give them $10,000 because the buyer won’t have enough money to make that happen.
 
Joe: So what is possible? What is possible for you and what is possible for them? It’s unlikely that they’re going to get it, and even if they try to sell it, for them to get the $5,000 is also unlikely because they don’t understand how to sell it.
 
Joe: You’re working in this business and it’s your business. It’s what you do for a living – finding buyers for properties like this. So the chances that you’re going to be able to accomplish it with the marketing techniques I’m teaching you and with the abilities that you have that you’re learning through this process, and the fact that you’re building a database of buyers – with all of that taken together, you’re going to be able to sell it much quicker than they will.
 
Joe: You just have to show them what their options are. They could go to a realtor, they could sell it for under market value, they could go into foreclosure; they have just a few options that they can take. What you need to do is present them with their options AFTER you understand what they need and what their situation is. Everybody’s going to be in a little bit different situation, so you need to analyze their situation and say, ‘Based on what you’ve told me, here are the options.’
 
Joe: By the way, in the Automarketer, in the lead sheet on each of these leads that come in, there’s a little button that says ‘seller options’. If you click on that button, it’ll open up a list of all the seller options that are the most common ones. Then, you can read through them, and you can read through them with them right there on the phone and say, ‘You could sell it with an agent. Here’s what happens if you sell with an agent,’ and help them understand how it works with an agent, or how it works when you sell it under market value, or how it works if you sell it on a lease option, etc., so that they can understand that it makes more sense to do it the way you’re suggesting.
 
Joe: Or, maybe they like the idea of doing it “Subject To” or a land contract or doing a lease option. You could do all three of those things with them if you choose to do that and you can give them those options in addition to the normal ones that they have.
 
Joe: So it’s about looking at their options, figuring out what they can do, and not about what they want. We all want something more than what we can have. It’s just a matter of what the reality is. Your job is to help them understand what that reality is and then give that to them.
 
Joe: Let’s take one more step and look at deposits. Deposits are a different animal. A lot of people say, ‘I want a deposit for this property.’ They’re not asking for the lease option, they’re just asking for a deposit because ‘Somebody might trash my property.’
 
Joe: First of all, lease option tenants are less likely to trash a property than a tenant is. You don’t wash a rental car – you take care of things that you consider to be your own better than otherwise. It is possible they could trash it or that they could do damage to it; I’ve had that happen, too. But, it’s less likely. So that’s probably not an issue. If they damage it too much, you have insurance, and that falls under vandalism and your insurance will cover it (although it won’t cover normal wear and tear).
 
Joe: Also, the other argument for not giving them a deposit is that if you were to have a property manager fill this property for you, you’d pay them one month’s rent, so you’d lose your deposit anyway; you’d get the deposit but you’d lose the first month’s rent, so its six in one and half a dozen in the other.
 
Joe: The other thing that works in your favor is that you’re likely you’re going to get it sold faster than them. So, if you get it sold just 30 days faster than they do, or if takes them two months to sell it and it only takes you one, then they’ve already lost a month of payments anyway, which is usually what a deposit is.
 
Joe: Or, if they really want money from you to buy this property, and it takes them two to four months to sell that property, they lose all the income that comes from that property. Maybe they don’t have a payment to make, so they lose the income from that property.
 
Joe: Either way, a vacant house is a loss for anybody that owns it. They’ll say, ‘I don’t have to worry about it because I don’t have any mortgages on this property.’ They do – they still have pain because they have taxes, insurance, the vacancy and the insurance company is saying, ‘We’re going to pull our insurance on this if its vacant for more than 30 days,’ They have the potential for losing that and if the house burns down, then they lose everything. So there’s a lot of risk for them to have a vacant house.
 
Joe: They are in pain; they are motivated. I hear this from my students all the time: ‘What makes a motivated seller?’ A motivated seller is somebody who wants to sell their property. It doesn’t matter if they own it free and clear or not; they want to sell that property,. There are different levels of pain. But everybody that’s advertising their property for sale, or at least 90% of them, all want to sell their property. There may be a few people on there that are just trying to see if anybody’s interested, but most of the people that are going through that headache of putting an ad on Craigslist and taking phone calls because they really need to sell their property.
 
Joe: If you understand that, and if you understand what they need, then you can do much, much better. Alright, good luck with it.