What is a "lease option" in real estate?

A lease option in real estate refers to a specific type of agreement where a tenant has the right, but not the obligation, to purchase the property they are renting at a predetermined price within a specific time frame. This arrangement benefits both parties: the tenant can secure a future purchase without immediate financial pressure, while the landlord can attract tenants who may eventually buy the property, reducing the risk of vacancy.

In a lease option, the terms typically stipulate that a portion of the rent may be credited towards the purchase price, further incentivizing the tenant to eventually buy. This arrangement can be especially beneficial for individuals looking to buy a home but who may need time to improve their credit, save for a down payment, or simply assess the property before committing to a purchase.

The other options do not accurately describe a lease option. A rental agreement without financial commitments is not realistic in real estate transactions, since typically there will be some form of financial obligation involved. An option to renew a lease pertains to extending the lease term and does not involve purchasing the property. Lastly, a contract that guarantees property appreciation is not tied to lease options, as appreciation is contingent on market conditions and is not a specified outcome of any lease agreement.