Red flag 1 — Forfeiture on any default
Watch for language that lets the seller terminate the option for any breach of the lease, including a single late rent payment. A fair contract requires the buyer to have substantially performed before forfeiture kicks in — typically 2–3 missed payments with notice and cure rights.
Red flag 2 — Purchase price 15%+ above market
If today's market value is $250K and the option price is $320K, the seller has priced in 3 years of appreciation that may not happen. Get an independent appraisal before you sign. A reasonable option price is at most 3–5% per year above current market.
Red flag 3 — All maintenance pushed to the tenant
Some contracts make the tenant-buyer responsible for all repairs, including roof, HVAC, and structural. That can be acceptable if reflected in below-market rent or higher rent credits — but most of the time it is just rent dumping. Cap tenant responsibility at $250–$500 per incident and require landlord responsibility for major systems.
Red flag 4 — Vague or missing option terms
Every option contract must spell out: purchase price, option fee, rent credit amount, option period start and end, exercise procedure, and what happens to credits if you do not exercise. Missing any one of these is a deal-killer.
Red flag 5 — Title problems the seller will not disclose
Order a title commitment (about $200–$400) before signing. If the home has an existing mortgage, the seller's failure to make payments could trigger foreclosure — wiping out your option entirely. Tax liens, mechanic's liens, and second mortgages all matter.
Red flag 6 — No written extension path
Life happens. A fair contract gives you a path to extend the option (often paying a small fee) if you are not quite mortgage-ready by the original date. Contracts that auto-terminate with no extension option leave you with nothing if you miss by a month.