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.