Seller Objections (When Buying Real Estate with Lease Options)

Seller Objections Are a Good Thing!

You should be highly encouraged when a seller takes exception to part of the deal that you are offering. Almost every time, an objection means the seller has a strong interest in making a deal if you can come to an agreement acceptable to you both. Buying real estate with lease options has many ways of dealing with seller objections!

Listen to Sellers Very Carefully When Buying Real Estate 

When you hear a seller make an objection, write it down. Ask the seller to clarify exactly what he or she is concerned about. Take notes and refer back to them. Objections are your opportunity to answer the specific questions that the seller has.

Always Listen Carefully for Seller Objections!

Anticipating, discussing, and overcoming objections is often the bulk of the action that you take to bring a seller onboard. There may be several objections or questions but that only means the seller is highly interested in learning more about what you can do for them. Of course, sellers are skeptical. You’re talking about taking control of one of their most valuable assets. You must overcome objections when buying real estate with lease options.

Another very good reason objections are a good thing is that it gives you the information needed to improve the script you use when beginning a conversation with future sellers. A friendly script briefly covers anticipated objections but further clarification is usually needed because what you are offering is typically a new concept to the seller. You demonstrate transparency and integrity when you can say, “the reason I mentioned I can cover your payments and maintenance is because…..”

Let’s get to the #1 objection that concerns most sellers.

#1 Objection – What if Someone Tears Up My House?

You’ll find this objection comes more from owner-occupied homes or homes recently vacated by the owner rather than from experienced landlords. But concerns about strangers damaging the home is the number 1 concern you’ll hear. It’s a reasonable objection but also one that is very easy for you to overcome.

This is all about the big difference between traditional renters and the tenant/buyers you’ll bring in. Tenant/buyers want to own the home. Renters are borrowing a roof and walls.

Traditional renters put down a security deposit of a few hundred dollars that often won’t cover the possible damage they might do. That is what the seller is thinking about when they first understand you will bring tenants into their house. What the seller hasn’t yet thought about is that buying real estate with lease options involves a substantial non-refundable lease option fee that is typically between $5,000 and $10,000. That’s a lot of insurance against possible damage.

Tenant/buyers have a lot of skin in the game.

Your offer also brings a lot more to the table than a significant move-in fee. Your tenant/buyers are also highly qualified. You do a much more thorough background check than is done with traditional tenants. Tenant/buyers are within 18 or 24 months of being able to purchase the house. They tend to be older and more mature. They have a history that you’ll be checking out.

Everything adds up to make tenant/buyers trustworthy. Not only is the tenant/buyer agreeing to do routine maintenance, but they are also agreeing to make most of the repairs. It’s a mindset showing that the tenant/buyer has moved away from being a renter to becoming a homeowner. Finally, even if something weird happens, the seller has a very good fallback plan with you as the investor in the sandwich lease option. After all, you’re the investor that the seller will have a contract with. You are guaranteeing to the seller that the payments will be made on time and that the property will be kept in great shape. Because of that, you’re going to be very careful about screening your tenant/buyers. But …if something does happen, you’re the person the seller turns to.

And you have answers to the other part of the #1 seller concern….

Maintenance and Repairs are Part of the #1 Concern

Before you panic that you’ll be on the hook for a ton of maintenance and repairs, you need to understand that when buying real estate with lease options, the investor (you) isn’t the one on the hook for these expenses. These costs go to either the seller or the tenant/buyer.

It’s all in the contracts. As the investor, you’re going to negotiate limits and thresholds for the repair amounts that the seller and buyer are responsible for. It could be that the tenant/buyer is responsible for repairs less than $499.99 and the seller is responsible for anything above $500. Or it could be $999.99 for the tenant/buyer and above $1,000 for the seller. The exact amount depends on the specific circumstances.

This is part of the creative and flexible arrangements you make with the seller and tenant. If the seller wants a higher sales price, they might need to assume more repair liability. A lower sales price for the tenant/buyer might mean more repair liability. Or the opposite could be more appropriate for the situation.

You overcome the seller’s objection by saying, “I’m not going to nickel and dime you with the small stuff. Anything under $500, I’m going to cover.” You say to the tenant/buyer, “I’m not going to hit you with the big stuff. Anything over $500, I’ll cover.”

With knowledge, you will answer their objections before they even come up.

There’s a caveat if repairs aren’t made in a reasonable amount of time. You may have to temporarily pay for a repair for a broken furnace during a winter cold spell in Michigan. However, you deduct this from the sales price or add it to the sales price depending on if the seller or buyer is responsible for the repair cost. You also collect interest on your costs and possibly a penalty from the person not making a timely repair. Ultimately, the seller and buyer are responsible for all of the maintenance and repairs when you buy real estate with lease options.

Other Common Seller Objections to Listen For

Another common concern from sellers is, “when will get I cashed out?” You have two powerful responses to this concern. First, you explain that with most lease options, the average cash out happens between 18 and 24 months. But just as important is that until the payout happens, you’ll guarantee that the seller’s payments and maintenance costs are fully covered. And then you ask, “will that work for you?”

“I want my money and I want it now.” ~J.G. Wentworth

Another objection you might hear from the seller is why they shouldn’t just list the property with a real estate agent. This can be a slightly difficult one to have a good response to if the current market is a seller’s market. But you do have several things working in your favor. First of all, the seller can save 6% or 7% in commissions that will go directly into their pocket. And they accomplish this without the frustrating ‘for sale by owner’ experience. They will also save on maintenance costs and mortgage payments while waiting for an agent sale to happen. You (as the investor) cover these costs that an agent won’t. Secondly, if the real estate market is really hot, you can offer a price escalation clause in the contract to assure the seller they will get fair value for the house.