What Is the Difference Between a Sales Agreement & a Lease Purchase?

Do not sign either a purchase or a lease purchase agreement without understanding every clause.

Basically, there are two ways to purchase a house: standard sale and a lease purchase. Understandably, the contracts for these two methods sport noticeable differences. Before signing either one make sure you agree with and understand the principal components.


Sales Agreement

A standard sales agreement, also called a purchase contract, are the terms by which two parties--a buyer and seller--agree to transfer ownership of property. The key components are identification of the property, the sales price and the timeline. Before the sale is finalized, the contingencies are also of critical importance. A contingency is something that must occur in order for the contract to become final. Common contingencies include those for a loan, appraisal and inspection. Once the buyer has received an appraisal showing a price equal or above the price, has obtained a loan and has found an inspection acceptable, he releases the contingencies.


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Lease Purchase Agreement

A lease purchase agreement, also called a rent-to-own contract, is a legally binding contract combining the features of a residential lease with an option to purchase property. Its key components are the property address, monthly rent, a defined option period and a sales price. The option period is the period during which the tenant must exercise his right to buy the property. Once the option period expires, he loses this right. Some sellers choose to leave the properties prices out of the contracts and instead insert descriptions of processes that will be used during the option periods to set the prices. Many lease purchase agreements also include option fees--the nonrefundable fees paid by the tenants to the sellers for the option.



The three most notable differences between a purchase agreement and a lease purchase agreement are the absence of contingencies in the latter and the absence of a lease and an option fee in the former. It will be up to the tenant to decide whether he buys it or not. If he can't get a loan, the property doesn't appraise, or he just changes his mind, he would not obligated to buy. A purchase contract obligates both parties to act, subject to the listed contingencies. A lease purchase contract obligates the seller to sell but does not obligate the buyer to buy.



When you sign any kind of contract, you take on a set of responsibilities you cannot just walk away from. In a purchase agreement, a buyer risks the loss of his deposit if he changes his mind after the contingencies have been released. The seller in either a purchase agreement or a lease purchase risks court action, or perhaps mediation, that may impel him to sell if he attempts to back out of a signed contract. The buyer in a lease purchase may find he has paid an option fee for a property he cannot obtain loan approval for.