Danger of Lease-Purchase in a Declining Market

Just completed a VA appraisal report for a veteran who had entered into a lease-purchase two years ago. Unfortunately, the value is nowhere near the price set at that time - 24% lower! This would not have happened 10 years ago when market values were steadily increasing. But during the past several years, such transactions have become questionable.

The first error was failure to attain an appraisal at the time of the original agreement. The overall market has not declined 24% which leads to the conclusion that the original purchase price was beyond the actual value. An appraisal was not done because it was not required and the borrower was trying to save money - which may have cost considerably more 2 years later.

At this point, the seller will need to reconsider the selling price, the borrowers come up with additional down payment, or the deal's done. Both parties have exposure since the seller would have to go through an eviction process to relist the home which would not sell because it would be over-priced. Secondly, the borrower, in the lease agreement, had $250 per month being attributed to down payment for 2 years which totals $6,000 and could stand to lose it.

Just another pitfall in today's real estate market.