A lease option works like renting with tenants who have real skin in the game, they’re essentially test-driving ownership while working on credit or saving for a down payment. I covered the general benefits of this approach in a separate post on selling with tenants in place; here I want to walk through how the mechanics actually work if you’re considering structuring one on your Seattle property.
Setting the Asking Price
You lock in the future sale price now, in the lease option agreement, typically set above today’s market value to account for expected appreciation over the contract term. You’re taking the risk that values jump faster than expected; the tenant-buyer is taking the risk that values drop and they end up paying more than market rate when the option comes due.
The Option Fee
You collect an upfront, typically non-refundable option fee, commonly 1 to 5 percent of the agreed sale price, though fees as high as 20 percent aren’t unheard of for the right buyer and terms. On a $600,000 Seattle-area home, a 5 percent option fee would run $30,000, money you keep regardless of whether the tenant-buyer ultimately exercises the option.
Tenants Tend to Maintain the Property Better
Because they’re working toward ownership, lease-option tenants generally take better care of the property than a standard renter would, handling minor issues themselves rather than treating it as someone else’s problem to fix.
Above-Market Rent
You’ll typically charge above-average rent, with the extra portion (the “rent premium”) credited toward the purchase price if the tenant exercises their option. If they don’t exercise it, you keep the option fee and every dollar of rent premium collected, since none of it was ever a guaranteed credit.
Lease Option vs. Rent-to-Own: Same Idea, Different Paperwork
In practice, most people use “lease option” and “rent-to-own” interchangeably, and the core mechanics are the same either way. The real variation is in how the agreement is drafted, some give the tenant an obligation to buy (lease-purchase), while a true lease option gives them the right but not the obligation. That distinction matters enormously for your legal exposure if the tenant-buyer walks away, so make sure whichever agreement you sign matches the arrangement you actually intended.
What Happens to Your Mortgage During the Option Period
If you still owe money on the property when you set up a lease option, you’re still responsible for making those mortgage payments throughout the option period, regardless of what the tenant-buyer is paying in rent. Most mortgages also include a due-on-sale clause, which technically gives the lender the right to call the loan due if ownership transfers, but a lease option alone typically doesn’t trigger this since title hasn’t transferred yet, only a right to purchase later has been granted. Where it gets riskier is if the agreement is structured in a way that courts could interpret as an installment sale rather than a true lease with an option, which is one more reason to have a real estate attorney review the agreement rather than using a generic template.
It’s also worth understanding that the option only binds the seller, not the tenant-buyer. Once the option is granted, you generally can’t sell to someone else or back out during the option period even if a better offer comes along, but the tenant-buyer can walk away at the end of the term with no obligation to purchase, aside from forfeiting the fees discussed elsewhere in this article. That asymmetry is the tradeoff for locking in a tenant-buyer and taking the home off the traditional market, and it’s worth being fully comfortable with before signing.
Structuring this correctly takes a carefully drafted agreement, and it’s worth having a real estate attorney review the terms before you sign anything. If setting up a lease option feels like more complexity than you want to take on, I buy properties in Seattle and King County directly for cash instead, no option period, no waiting to see if a tenant-buyer follows through. Call (206) 900-8173 or send us a message to compare the two paths.