Lease To Buy: What's in it for the seller?

[flightcrash]

I haven’t been on here in quite some time, but I’m currently selling one of my guys and I’ve been having the issue of “lease to buy” come up quite a bit, so I came back to see if the COTH Gods could educate me a little. So can someone please explain to me why in the world a seller would EVER consider a lease to buy for the same price they’re asking for now?

I get why buyers want to do it, but say on a $25k horse, what is in it for the seller to lease the horse for a year at 10k-12k, take the horse off the market for that year where they could have been sold outright, and take all the long term risk of being financially responsible if horse gets injured; then to only get the sum total of what they were asking for in the first place IF the buyer decides at that point that they’d like to buy? I’m struggling with buyers wanting the seller to commit to sell them the horse at a set price yet there is absolutely no commitment to buy on the buyer’s part and no long term liability on their part either if something were to happen to the horse. It seems very one sided in my opinion? What am I not getting??

Really not trying to be dense, just think my trainer is losing patience with me (:o) because I can’t wrap my head around why in the world I’d want to take that risk without any real incentive or commitment on the part of the buyer to do so. Especially since the horse’s value should increase with more show miles.

Also, how would a seller protect themselves in this kind of situation in the case that something were to happen to the horse? How common is it to require the buyer/lessee to carry insurance on the horse and to what degree? I know at the end of the day everyone is comfortable with different things, but I’d like to hear what the experiences of others are with this kind of thing and what seems to be the business norm at this time. I don’t want to make buyers run the other way, but I also want to do what I can to protect myself. TIA!

[Training_Cupid]

A seller may agree if the horse is for some reason difficult to sell (athletic but quirky ride for example). Yes it’s a risk, but the horse is off the books in the meantime and hipefully the leaser will fall in live and want to buy the horse eventually. Yes I would definitely require the leaser to carry insurance, naming owner as payee.

[retiredhorse]

I’ve seen this when the horse is hard to sell; maybe it’s been shown in the wrong ring (like would be more competitive/easier to sell as a jumper or eq horse than a hunter) or only with a pro, so people don’t know that it’s kid/ammie friendly, or difficult or has had bad show experiences, even if it’s a good/easy horse.

I’ve also seen it with different pricing; ie, horse is $25K outright, but the lease-to-own price is higher by 10K or so, or higher with more shows/training after 3-6 months, a year, etc. I’ve also seen some people want to make payments, and this seems to be one way to do it?

I think one way seller might protect themselves is to get the lease fee before they send the horse to potential buyer, and have it be non-refundable, as well as require insurance. It seems kind of like a prolonged paid trial period. Not sure I personally would do it with my horse, but it depends who the buyer’s trainer is and the horse and pricing. If you’re not comfortable with it, I think you can tell your trainer you want the horse purchased outright, no lease-to-own or trials.

[OneTwoMany]

@flightcrash

I haven’t been on here in quite some time, but I’m currently selling one of my guys and I’ve been having the issue of “lease to buy” come up quite a bit, so I came back to see if the COTH Gods could educate me a little. So can someone please explain to me why in the world a seller would EVER consider a lease to buy for the same price they’re asking for now?

I get why buyers want to do it, but say on a $25k horse, what is in it for the seller to lease the horse for a year at 10k-12k, take the horse off the market for that year where they could have been sold outright, and take all the long term risk of being financially responsible if horse gets injured; then to only get the sum total of what they were asking for in the first place IF the buyer decides at that point that they’d like to buy? I’m struggling with buyers wanting the seller to commit to sell them the horse at a set price yet there is absolutely no commitment to buy on the buyer’s part and no long term liability on their part either if something were to happen to the horse. It seems very one sided in my opinion? What am I not getting??

Really not trying to be dense, just think my trainer is losing patience with me (:o) because I can’t wrap my head around why in the world I’d want to take that risk without any real incentive or commitment on the part of the buyer to do so. Especially since the horse’s value should increase with more show miles.

Also, how would a seller protect themselves in this kind of situation in the case that something were to happen to the horse? How common is it to require the buyer/lessee to carry insurance on the horse and to what degree? I know at the end of the day everyone is comfortable with different things, but I’d like to hear what the experiences of others are with this kind of thing and what seems to be the business norm at this time. I don’t want to make buyers run the other way, but I also want to do what I can to protect myself. TIA!

What is in it for the seller? They will attract a larger pool of potential buyers. Some buyers want a lease option and will tell their trainers that is their preference. Or sometimes it is the trainer’s preference.

Buyers desire leases for many reason. Sometimes it is to spread out the purchase price over a longer period of time. Sometimes it is a way for the trainer to ensure the mount is a suitable match for the client. And you’ll often see a lease with option to buy when a horse doesn’t have a perfectly clean vetting.

Leases to buy are not uncommon. And it seems like more buyers are asking for it and more sellers are offering it. As a seller, it is your call. If you don’t want to consider a lease, that is your decision. But there are some advantages to consider. First, a lease to buy option will draw a larger audience. And most likely get your horse sold sooner. Second, if the initial lessee doesn’t work out and the horse is returned, you can market the horse for the original asking price. In the meantime, someone else has picked up his bills for the duration of the lease and paid you for the privilege to do so. This is a little more anecdotal, but I find there is less haggling over price in a lease to buy arrangement.

Always insist on Major Medical and Mortality. The mortality binder should be in the amount of his sale price. Some sellers insist on loss of use insurance as well. Get a good contract written by an equine lawyer licensed in your state. It might cost a couple hundred bucks but it is worth it. Involve your trainer and make sure they can vouch for the coach of the potential lessee. State in the lease, the horse must remain under the supervision of the coach for the duration of the lease. This part is key. Make sure you and your trainer have confidence in the coach on the other side and make sure the horse will remain in their barn and in their program.

Finally, if the lease option makes you wary, maybe you can get your feet wet with a shorter term arrangement like a six month lease, or maybe even three months. But realistically, if someone is willing to plunk down 40% of the price of a horse on a one year lease, they want the lease to work out as much as you do.

[OneTwoMany]

@retiredhorse

I think one way seller might protect themselves is to get the lease fee before they send the horse to potential buyer, and have it be non-refundable, as well as require insurance. It seems kind of like a prolonged paid trial period. Not sure I personally would do it with my horse, but it depends who the buyer’s trainer is and the horse and pricing. If you’re not comfortable with it, I think you can tell your trainer you want the horse purchased outright, no lease-to-own or trials.

Yes. With a year lease, the entire lease fee is typically due up front and is rarely refundable. Sometime if the vetting reveals something that is of concern, the lease will be written to exclude that issue (i.e. lease fee might refundable pro rata), but not always.

[flightcrash]

I had kind of assumed that the lease to buy price would be more than the outright purchase price, but was told that isn’t really how it’s done with horses and that asking for that would scare buyers off. In a former life I was a very very small small potatoes pro, but definitely enjoyed breeding and starting my own babies a lot more than dealing with clients, so after I had my son, I switched my focus to breeding and showing shelties/collies and have been cutting back on the horses so it can go back to being a hobby. I’m a really serious show breeder with the dogs, and I generally offer two options for the show puppies I sell: purchase outright for a reduced overall price with a couple guarantees, or pay pet price and another extra amount when they turn out which ends up being more than the outright price. That way there’s incentive for the buyer to choose the outright price.

I guess this has just come up from quite a few interested parties, so was wondering if this had become the new norm while I was being a hermit with the dogs?? The last time I was a buyer I felt greedy asking for a one week trial on my mare and even that was really hard to get. I had also done a payment plan with my longtime trainer on another horse, but once I committed to buy and signed the contract there was no backing out, I still owed those payments no matter what happened to the horse in the meantime (who actually did have a freak catastrophic injury that ended his career a year later and he was a pasture ornament for the next thirteen years) - which is probably why this whole idea has me thrown for a loop.

I don’t want to share too much specific information, but let’s say that there’s a hypothetical horse named “Steve” that is currently being ridden/shown by a kid along with a pro, and has been in all three rings so is not necessarily a “difficult” sale horse per se IMO. Steve is just light on show miles for his age because of his owner’s budget limitations. The most seriously interested parties ride with the same trainer so have lessoned on Steve for a couple months now and have taken him to a couple shows yet still wanted a lease to buy at quite a bit less than his asking price.

I’m just a little worried that I have turned into the crazy sale horse client at this point. I feel like I’m going crazy anyway (:lol:). But I really don’t want to make things more difficult or complicated for the trainer though, so feel pretty guilty for turning down the above offer because she really has gone above and beyond for my guy and me.

[flightcrash]

@OneTwoMany

What is in it for the seller? They will attract a larger pool of potential buyers. Some buyers want a lease option and will tell their trainers that is their preference. Or sometimes it is the trainer’s preference.

Buyers desire leases for many reason. Sometimes it is to spread out the purchase price over a longer period of time. Sometimes it is a way for the trainer to ensure the mount is a suitable match for the client. And you’ll often see a lease with option to buy when a horse doesn’t have a perfectly clean vetting.

Leases to buy are not uncommon. And it seems like more buyers are asking for it and more sellers are offering it. As a seller, it is your call. If you don’t want to consider a lease, that is your decision. But there are some advantages to consider. First, a lease to buy option will draw a larger audience. And most likely get your horse sold sooner. Second, if the initial lessee doesn’t work out and the horse is returned, you can market the horse for the original asking price. In the meantime, someone else has picked up his bills for the duration of the lease and paid you for the privilege to do so. This is a little more anecdotal, but I find there is less haggling over price in a lease to buy arrangement.

Always insist on Major Medical and Mortality. The mortality binder should be in the amount of his sale price. Some sellers insist on loss of use insurance as well. Get a good contract written by an equine lawyer licensed in your state. It might cost a couple hundred bucks but it is worth it. Involve your trainer and make sure they can vouch for the coach of the potential lessee. State in the lease, the horse must remain under the supervision of the coach for the duration of the lease. This part is key. Make sure you and your trainer have confidence in the coach on the other side and make sure the horse will remain in their barn and in their program.

Finally, if the lease option makes you wary, maybe you can get your feet wet with a shorter term arrangement like a six month lease, or maybe even three months. But realistically, if someone is willing to plunk down 40% of the price of a horse on a one year lease, they want the lease to work out as much as you do.

Thank you so much for ALL of this!

[OneTwoMany]

@flightcrash

I had kind of assumed that the lease to buy price would be more than the outright purchase price, but was told that isn’t really how it’s done with horses and that asking for that would scare buyers off. I guess this has just come up from quite a few interested parties, so was wondering if this had become the new norm…??

I think it depends. As a seller you can ask for anything you want, but the horse world is notorious for people running for the exits when something seems a little out of the ordinary. We’ve never had a lease with an option to buy price above an outright purchase price. But it certainly is not unheard of, but I think your trainer is right, it isn’t especially common these days.

@flightcrash

The last time I was a buyer I felt greedy asking for a one week trial on my mare and even that was really hard to get.

Depending on the horse, the trainer and the situation, trials aren’t always easy to get. We’ll often do a three day trial if we know the other trainer. A one week trial is tougher to obtain and might require insurance.

@flightcrash

I had also done a payment plan with my longtime trainer on another horse, but once I committed to buy and signed the contract there was no backing out, I still owed those payments no matter what happened to the horse in the meantime - which is probably why this whole idea has me thrown for a loop.

In the payment plan example, you had agreed to buy the horse. Whereas now you are being asked to consider a lease with an “option” to buy. It may sound nuanced, but the two situations are somewhat apples and oranges,

@flightcrash

I don’t want to share too much specific information, but let’s say that there’s a hypothetical horse named “Steve” that is currently being ridden/shown by a kid along with a pro, and has been in all three rings so is not necessarily a “difficult” sale horse per se IMO. Steve is just light on show miles for his age because of his owner’s budget limitations. The most seriously interested parties ride with the same trainer so have lessoned on Steve for a couple months now and have taken him to a couple shows yet still wanted a lease to buy at quite a bit less than his asking price.

A few possibilities to consider. 1) Although they like him, “interested parties” don’t have the budget to buy Steve, but they are tossing out a low number to see if they get a bite. 2) Current arrangement is very economical for “interested parties” as they get to lesson and show horse for a pittance. They are not motivated to buy unless price is a steal. 3) Steve is over-priced for what he is. 4) Ensure Steve is being properly marketed with ads posted and the trainer is proactively networking on your behalf, etc.

@flightcrash

I really don’t want to make things more difficult or complicated for the trainer though, so feel pretty guilty for turning down the above offer because she really has gone above and beyond for my guy and me.

Don’t feel guilty. You made the decision you thought was correct. If you doubt yourself, why not do a bit of homework and arm yourself with more information. Once you have data that supports your decision (or not) you’ll have more conviction and you won’t feel conflicted.

If you haven’t already, you might want to consider doing some research to better understand Steve’s value. Search organized sites like BigEq.com, Warmbloods4sale.com. Look for horses in your age group with similar show experience. If your guy has been to two shows, don’t compare him to horses that have been showing in the children’s hunters for three years. Study the videos. Ask yourself if each horse moves/jumps better than Steve? How about the ride-ability and or/expression? Consider having a frank conversation with your trainer. Does she believe in the price you have on Steve? If she thinks he is over-priced, ask why and maybe even write down her feedback so you can refer to it later. If you are still friends with other pros in the industry, you might consider asking them for their opinions of Steve’s value.

[Redlei44]

How do you feel about leases in general? Plenty of folks are not comfortable with the risks associated with leasing, nothing wrong with that. If you don’t need to get the horse off your books quickly, you’re perfectly justified in saying “no lease, sale only”.

In my experience it’s common to give two options if you’d like to move the horse (assuming the prices are appropriate) - the horse is for lease for a year, or the horse is for sale for not that much more money. Buyer/lessees being more likely to go for the lease for horses over say 15 y.o., sale for younger.

Good point made above regarding making sure that your asking price is appropriate, and/or you are marketing to a wide appropriate market. Lease to own might not be uncommon but for a useful show horse at a reasonable price, it shouldn’t be hard to find a buyer.

[atl_hunter]

@flightcrash

So can someone please explain to me why in the world a seller would EVER consider a lease to buy for the same price they’re asking for now?

1. It shifts the carry costs of the horse from you to the lessee while the horse stays insured, maintained and trained according to the stipulations of your contract. If the horse continues to sit and not sell, you will still have the carry costs.
2. Your horse gets the show record you couldn’t afford to provide it, which is an investment that your lessee made in your horse - they won’t get anything back for that added value with the exception of use for which they have already paid.
3. Your lease fee is likely a good percent of the cost of the horse. So, if the lessee doesn’t buy your horse, you can still get the full ask offer PLUS you will still have in your pocket the lease fee amount paid by lessee. If lessee does buy horse, than you got what you originally wanted.
4. For the lessee, it’s a bit of a risk as the horse lacks a record. They are actually helping you out and I think you could potentially benefit more than them as they are ones who will be paying for the show experience that your horse lacks. Having leased horses that needed work/experience and returning them in better condition with improved records (when owner suddenly doesn’t want to renew lease as horse is all fixed up) it can take some extra effort and expense to get a horse like this where it truly needs to be. If they show the horse (you can require that in the contract), then that experience will help increase the value.
5. Yes, the horse could get injured. Make sure your lease language details what happens in the event of an injury. A friend’s lease horse had a freak fracture, and she was stuck in the lease an extra 6 months to cover the care of the horse until he healed. This protects you and ensure that you don’t get an injured horse. The language of your lease should state how long the lessee would need to keep horse in event of acute injury. 6 months - 1 year is common. Loss of use insurance is great but it’s honestly hard to prove to insurance and actually get a payout.

[vxf111]

What’s in it for the seller is that it may get the horse sold who otherwise wouldn’t get sold (either to that person or to the next person because of the increase in marketability of the horse due to the lease). But of course there is risk, and the seller has to decide whether the benefits outweigh the risk.

[dags]

We’re talking about $25K here for purchase price? And these people have been lessoning on him for a few months already? At no cost?

Sounds like he’s a horse beyond their means, and it’s not your responsibility to bridge that gap.

It is not exactly a buyer’s market out there right now. Leasing got very popular during the recession. All anyone was willing to commit to was a lease and sellers did not have a lot of choice. But now? The economy is hot, the sales market is hot, and I would not consider this unless you are at the end of your rope. There is absolutely risk that you will get back an un-sellable or greatly devalued horse for you to deal with for the next year or 10.

Has anyone marketed this horse outside of his own farm? Be sure your agent isn’t taking the easy way out here, and then getting huffy with you for not getting in line because the easy-way-out doesn’t actually have the money to buy the horse.

Lease-to-buys do happen, often if rider or horse has particularities that all parties agree would be in everyone’s best interest to put to trial first. Usually there is an incentive built in to encourage buyer to move the deal along faster; such as a discount if purchase option is pursued by the 6 month instead of the 12th.

But if you have an appropriately priced horse that’s not riddled with quirks, especially in the more affordable ranges, I’d be dang sure I’ve explored all avenues before choosing this one.

[Blinky]

If you are wanting to sell I’d stick to your guns. My “been there done that” Hunter is leased out with an option to buy. However, that was at the suggestion of my trainer. I just wanted to lease him out year to year for a bit so I could make sure he gets a great retirement when its time. But he still loves to show and its good to keep him in work.

However, the trainer’s thought was -“what if they fall in love with him and want to buy him”?..so that’s the deal…and they do love him but when the time comes…we can discuss it.

[vxf111]

@Blinky

If you are wanting to sell I’d stick to your guns. My “been there done that” Hunter is leased out with an option to buy. However, that was at the suggestion of my trainer. I just wanted to lease him out year to year for a bit so I could make sure he gets a great retirement when its time. But he still loves to show and its good to keep him in work.

However, the trainer’s thought was -“what if they fall in love with him and want to buy him”?..so that’s the deal…and they do love him but when the time comes…we can discuss it.

This doesn’t sound like a lease with purchase option. It sounds like a lease with a person who may or may not be willing to negotiate a separate sale agreement later

[Blinky]

The contract has a lease price with a time frame and an option to buy price within a specified time frame as well. If the contract has passed and no decision then yes I suppose they could try and negotiate a different price.

[vxf111]

@Blinky

The contract has a lease price with a time frame and an option to buy price within a specified time frame as well. If the contract has passed and no decision then yes I suppose they could try and negotiate a different price.

That’s not the way I understood it when you first described it. That seems incompatible with “when the time comes…we can discuss it.” If the contract has an option to buy with a stated priced, there’s really nothing to discuss. They’ll either exercise the option or not.

[Ajierene]

Others have stated a lease to buy option. To add my two cents, the difference between an outright lease and a lease to buy is where the potential money is going. In an outright lease, the leasee is paying $X amount per month to ride/take care of horse (depending on lease agreement). That horse may or may not be for sale for $XXX amount. That amount is fixed. In a lease to buy situation, an individual may have all or part of the lease money go towards the sale price.

So, for instance, outright lease at $100/month. Horse for sale at $1,000 - whether the leasee wants to buy the horse in one month or 20, they still owe $1,000 to buy the horse.

In a lease to own, lease price of $100, a portion goes towards sale price. Let’s say $20 goes towards sale price. Horse is for sale for $1,000, if lease wants to buy in one month, leasee pays $980. In 10 months, leasee would pay $800. Usually the lease price and sale price and offer are set so the leasee would have to pay into leasing the horse for 5+ years before they essentially buy the horse through lease payments. Often the lease price is a bit higher to account for built in payment plan - so a straight lease is $100/month but a lease with the payment plan may be $120 to cover the extra pay or $110 as a kind of incentive split.

If however, the leasee ends the leasee and does not buy the horse, all moneys are forfeited, in other words, leasee does not get that extra $20/month back.

So, in your situation where the horse had a career ending injury, you could have given the horse back to the owner and just been out whatever you had made in payments. This also relieves you of the need to pay for a pasture ornament for the next 13 years.

I think leasing and lease to own are becoming more popular in part because people are money conscience and less likely to have land. So, they are more likely to lease their teenager’s horse so they don’t have to pay board on a horse they aren’t using while the child is in college. They also want to lease to own so they can get a handle on horse owning and back out if something happens (they realize their budget isn’t going to fit into horse owning or the horse has an injury or an illness comes up).

[Prime_Time_Rider]

I sold a horse once with a short term (3 month lease) with an option to buy at the end of the lease term. I applied the lease money towards the purchase price, which was in the lease agreement. Buyer knew that at the end of the lease term, if she wanted to buy the horse the price was $X with the lease payments applied to the purchase price.
I would consider a short term lease (3 months or less) but no more if your goal is to sell the horse. In your situation, the buyer has had the opportunity to take lessons on the horse for some period of time, so I question why the potential buyer would require a lease unless it’s a financial issue.
If it’s a financial issue, how would additional time resolve it, unless the buyer is expecting to receive a year-end bonus or something of that nature? I would ask your trainer why the potential buyer wants to lease with an option given the situation.

[BAC]

My friend did it when she was having a hard time finding a buyer. It was a one year lease with a lower purchase price if they bought within the first six months of the lease. Her benefit was not having to pay the upkeep on the horse as well as the extra stall it created for a new horse. And the woman leasing her horse ended up buying him at the end of the lease, so everyone benefitted.

[thebiggrey]

I recently bought my lease horse, from a lease to buy situation. I paid 2/3 of the sale price up front for the lease, with the stipulation that I could buy for a lower price in 6 months, or the higher price in 12 months. I bought him for the lower price in 6 months, because I had checked all my boxes and fell in love with the horse. He is very quirky, and can be a difficult ride to the jumps, so I wanted the time to see if I could figure that out. I also took him in before winter, so I wasn’t going to have as much time to try him out and learn the quirks like if I had tried him in the summer. It was essentially a paid trial, and I took out insurance so we were both protected while he was in owner limbo. The woman who owned him had been trying to sell for awhile, and giving the timing and our connections, this lease-to-buy was the perfect fit.

But- if the horse is an easier ride (no serious quirks) and it’s still summer (those with only outdoor rings can still ride), then this might not need to be an option. If you’re more concerned about purchase price than knowing who he goes to well, then definielty get more people into see him under the sale only pretense. Nothing wrong with wanting an easy sale!