CA Option Money

[Mr.B 0]

I see what your saying, but again its up to the T/B to decide if the price is right. I would mention to the seller if their price was way out of line with the market that they may have a hard time getting their T/B qualified for a loan.

 

~Mr.B

[MichaelC 160]

Sorry I'm joining the fray here a little late. There's been a good exchange of ideas and experiences here. I'll pipe in with mine.

I am always asked where I enter the deal. "Hey, Mike, this sounds great. But you're not running a charity. How do you get paid?"

My stock answer is, "The tenant/buyer pays my fee, Mr.Homeowner." You have no out of pocket expense whatsoever."

Believe me when I tell you that reply is almost always the end of the "How do you get paid?" issue. Less is more in this regards. I emphasize the bottom line to the homeowner. That is, the net amount they will receive at closing should the tenant/buyer exercise their option to purchase. If the homeowner is hearing from me that their net selling price is, say, $25,000 more than if selling with a Realtor, or even $12,000 more if selling themselves, I've won their hearts and minds.

On the occasion when a homeowner insists to know more, needs to know much I am putting in my pocket, I might give them an estimate.

"Mr. Homeowner, based on my experience, I would say with this property in this neighborhood, I expect to receive between $3,000 and $5,000. But again, this does not come out of your pocket. This is paid by the t/b, and doesn't affect your bottom line at all. As I mentioned earlier, your net price at closing will be $225,000. Which, as we have discussed, is about $25K more than you could expect otherwise."

If these homeowners are motivated and legitimate to any degree, the deal is done. If not, and their ignorance and greed are causing concern with me making $5K, I steadfastly refuse to cut or share it. I'll walk away, and you probably should, too.

I'm greedy like they are and want the whole thing. They'd better have a good sob story if they want some of it. They wouldn't ask a Realtor for part of the commission, which is larger percentage wise and coming out of the seller's net.

That's exactly right, Kim! You're a professional, and deserve to be paid as such. If you suggest to a homeowner that you're willing to split the option money, guess what? You'll end up doing just that. Be polite but firm in your resolve not to be giving away half your earnings.

It's when I'm calling back with the numbers that I'm mucking it up. I'm guessing I'm explaining more detailed than necessary.

Yes, you are. Remember, less is more. Remember to emphasize the advantages to the homeowner, and the net price to them at the close. Those are the "hot buttons" that usually get me the deal.

The contracts have a blank for the option money and the date it was paid. I remember from the conference call earlier in the summer, you said (at least I think it was you) that you write in "to be determined" and "on a later date" or something similar. Aren't they then asking, "what's that and how much am I getting?"

Writing in "to be determined" or leaving the amount blank is one approach I have used. Some folks will say not to do so, and that some amount must be written in. If this is your way of thinking, you can either pay the homeowner $1, write that amount in, and explain to the seller this is a required legality.

Or, you can explain to the homeowner that the amount will be filled in when you and the t/b agree to the amount. Either way, I have not found that paragraph to be problematic for the homeowner. I'll say again what we already know: when dealing with a motivated seller, the two primary concerns are debt relief and net selling price. Satisfy those demands and the rest should follow.

In the end its up to the T/B to do their Due Diligence.

This is true, Mr.B. But Kim is correct. Do you really want to become known as a con man who is scamming unsuspecting "victims"? The property needs to be reasonably priced. It can be at the top of the fair price range and you'll have no problems. Price a property, though, at 35% above market, and word of this gets out, and you can be sure it will come back to bite you.

Also, it is in our best interests to have the property priced well. We're looking to move the property quickly so we can get paid. Overpricing a home by $25,000 isn't going to do that.

[Kimberly 0]

Michael,

 

Between what you said and what Doug said, I've got it. I should just Shut Up! Less is more and I'm talking way too much. Give the necessary information, but leave out the details.

 

Thanks!

 

Kim

[Doug Pretorius (ON) 9]

With the seller I just signed up, I used virtually identical wording to what Michael mentioned above:

 

SELLER: "This sounds great, but what's in it for you? How do you make your money?"

 

ME: "The tenant/buyer pays me, nothing comes out of your pocket."

 

That was the end of it.

 

In future deals I'm also going to do two more things Michael mentioned in this post:

1. Write in "to be determined" for the deposit.

2. NOT offer the seller any part of it.

 

Mr.B, Michael makes very good points here about setting up your deals. When doing a CA it's your job to make it work for all parties. Gouging the T/B isn't going to get you any referrals and will sooner or later destroy your reputation, both of which are the lifeblood of any ongoing career in CAs.

[-Tony- 0]

However, he has dropped his price a lot for the neighborhood. He comps at $185k now. His company is providing generous moving benefits/allowances yada, yada, yada.

Kim,

I would use that for my base and add appreciation which brings it up around 200K.

[Kimberly 0]

However, he has dropped his price a lot for the neighborhood. He comps at $185k now. His company is providing generous moving benefits/allowances yada, yada, yada.

Kim,

I would use that for my base and add appreciationwhich brings it up around 200k

Thanks Tony.

 

I did. That guy wasn't motivated anyway. The company he works for isn't shutting down operations here until December. What he doesn't realize is that the selling season for fsbo and agents is over, school has already started.

 

Where I have been really messing everything up was in talking way too much!

 

Kim

[Doug Pretorius (ON) 9]

Kim, a word about talking too much...since you KNOW that's a problem I share with you!

 

I think our tendancy to say too much comes from a combination of two things: 1) Having too much book-knowledge about this business, 2) Not having enough confidence in ourselves.

 

I've noticed that you can answer just about any technical question posed on the forum, and yet it seems you are unsure how to do your own deals. That is exactly how I have been for years, especially on the creative side of REI.

 

However, as you take action despite that fear and uncertainty and begin to have success (and remind yourself it isn't a fluke ) your confidence starts to build and you slowly realize the truth: They NEED you!

 

Not everyone realizes it, and some can be downright vicious in their ignorance, but all sellers need what you've got; period end of story.

 

As this dawns on you, you begin to relax, and you start looking for reasons NOT to do business with people. I'll never forget what A. D. Kesslar wrote in a little ebook I've got of his: "Work only when you want, how you want, and with whom you want." If you don't get along with someone you're considering doing business with, just walk away. It isn't worth the stress and potential problems when there are thousands of people just waiting for us to call (or call them back )

 

Once you get into that frame of mind you start talking less and listening more. You know that you know. The way to let the seller know that you know is by listening, not speaking. Like the old cliche says: "You don't learn anything when you're speaking."

 

...so I'm going to shut up now!

[Kimberly 0]

Doug,

 

I'm getting the deals, slowly but surely, just not as many as I figure I should be getting. My frustration has come from the fact that I can call 20, meaning talking to a live human being, and I'll get ~4 that are interested. So by my way of thinking, I should be converting at least 2, maybe 3, of those into deals. So...I've decided to have my jaw wired shut to keep me from saying too much and killing deals that should be mine!

 

Kim

[Doug Pretorius (ON) 9]

Kimberly, you figure you should be converting 50% of those who show interest...OK. How many are you currently converting, since you are getting deals, afterall?

 

I called 7. 3 wanted to know more. 1 signed. Of course this is my first, so I have no idea what kind of averages I can expect. If I sign up just 1 out of 100 calls, I'll be doing around 2 deals a month, without even advertising!

 

Frankly, I don't see myself wanting to do more than 3 or 4 a month anyway, unless I meet a nice young lady who would like to work with me

[Kimberly 0]

Doug,

 

How many are you currently converting, since you are getting deals, afterall?

Of the calls I'm making ~20% show an interest. It doesn't seem to matter if it's fsbo or frbo. 2-3% of the total calls are turning into deals. Maybe I'm being a overly optimistic.

 

If I sign up just 1 out of 100 calls, I'll be doing around 2 deals a month, without even advertising!

I'd like to be getting around 5-8 deals a month. If I could up the numbers turning into deals, it wouldn't be all that much effort! NO advertising required.

 

Frankly, I don't see myself wanting to do more than 3 or 4 a month anyway, unless I meet a nice young lady who would like to work with me 

Ah, but there's all that snow where you live. I've been crying because my swimming season has been short this year. Some days in August our highs here have only been in the low 80s, it should have been 100 or over!

[-Tony- 0]

Ah, but there's all that snow where you live. I've been crying because my swimming season has been short this year. Some days in August our highs here have only been in the low 80s, it should have been 100 or over!

Kim,

I have lived in Tulsa and I know you get snow there (ahhhg the ice storms). as for the pool looks like you might want to look into a heater

[Kimberly 0]

I have lived in Tulsa and I know you get snow there (ahhhg the ice storms). as for the pool looks like you might want to look into a heater

Tony,

 

While we do get some of the fluffy stuff, you're right, it's usually ice instead, but it only lasts a day or two. As for the heater, already have one and it's set to 90 degrees right now!

[-Tony- 0]

auh.....auh......We could soup it up for you and get 170-180 or so..........Grunt Grunt

[Sold ! 0]

I'm missing something here, I guess..........

 

"Mr. Homeowner, based on my experience, I would say with this property in this neighborhood, I expect to receive between $3,000 and $5,000. But again, this does not come out of your pocket. This is paid by the t/b, and doesn't affect your bottom line at all. As I mentioned earlier, your net price at closing will be $225,000. Which, as we have discussed, is about $25K more than you could expect otherwise."

 

The option money does come out of the seller's pocket, though, doesn't it? Not physically, but, he does have to honor that $$$ amount as part of the purchase price of the home later on. If you keep $5000.00 option money as your fee, then a $100K house is REALLY selling for $95K to the TB. The owner/seller never sees that $5K you took.

 

Therefore, I see why MC concentrates on the NET to the seller and compares it to the net from other avenues he could take, like the realtor.

 

But, in reality where the truth be told, the option money DOES come out of the seller's pocket.

 

Right?

 

 

Sold!

(Rich B.)

[Mr.B 0]

Sold! Look at it from this point of view. A buddy of mine is a car salesman. I had a used car that I needed to get rid of, but didn't have the time or inclination to try and sell it myself. I told my buddy if he would sell it for me then I just needed 1500 dollars, he was more than welcome to sell it for anything above that and pocket the difference.

 

It's the same scenario except with a house instead.

 

~Mr.B