Pure Option

[Guest Marc]

Hello everyone,

 

What is the best way to market a property that I have a pure option on. MC gave me some good ideas. Does anyone have any more.

[Doug Pretorius (ON) 9]

How to Sell Your Home in 5 Days by Bill Effros

 

I've been doing a lot of research and it looks like the method described in this book (perhaps with a few changes like longer advertising time, voicemail, and a shorter open house) consistently sells houses for their highest market value. The bidding system which is at the core of both this system and NoDiscount's system, ensures that you will not over or underprice the house.

 

If your market is very slow, or you want to further differentiate your house from others, or you want to try to push the price up even higher, you can also offer incentives like:

 

* No down payment

* No closing costs

* No moving costs

* Free big screen TV

* Free car

* Free Caribbean cruise

 

or even simple things like:

 

* Help selling their old house

* Help qualifying for a mortgage

* Closing agent referral

 

The only limit for optional incentives you can offer is your imagination. And the more you offer, the more buyers you entice, the higher the price goes.

 

There are tons of testimonials all over the net about how well this system works. The only negative I've heard so far is when people went ahead with the sale without generating enough interest, in every case they either didn't get bids or the bids didn't go high enough for them to breakeven. But the book clearly states that this is the case. You MUST receive 25 calls by Friday (with advertising starting on Wednesday) otherwise you call the sale off and try to figure out what went wrong. The author claims that this problem is almost always due to your starting price being too high.

 

The logic behind the system is pretty hard to argue. He says that if you want to generate interest in your home, don't list it for what you hope to sell it for, list it for what buyers hope to pay. eg. If comps show the house to be worth say $200,000, what do 99.9% of sellers do? They list it for $210, $220k, thinking that buyers will try to haggle them down which is true, unfortunately this pricing strategy all but eliminates interest in the house.

 

With this system you would instead list the house for say $99,500. The bidding process is then set up to have buyers compete with EACH OTHER, instead of competing with YOU! That forces the price up until everyone else has dropped out and you're left with the highest bidder.

 

Here's real estate pricing models in a nutshell:

Traditional - Dutch Auction

Sellers start at an unrealistically HIGH price that no one is willing to pay, generate virtually no interest, then they slowly they drop the price until someone bites. Or they leave the price high and hope the market eventually catches up through appreciation.

 

5 Day Method - Round-Robin Auction

Sellers start with unrealistically LOW price, generate enormous interest, and allow buyers to bid the price up until no one is willing to top the highest bid.

 

In the end the house will sell for roughly the same price regardless of which system you use. The difference is how long it takes.

[Doug Pretorius (ON) 9]

I should add that sometimes a seller does intentionally underprice their house in the hopes of causing a bidding war. But there are 2 problems that usually occur:

 

1. They don't price it low enough, so it doesn't generate the interest they're hoping for.

2. They or their agent don't have a system in place to encourage buyers to bid against each other.

[Guest marc]

Hi Doug,

 

Thanks for the good info.

 

What do you do if you have an option witha seller of 200K and the highest bid from a buyer is 190K. Do I have to accept their offer if it's the highest bid?

 

Thanks,

 

Marc

[Doug Pretorius (ON) 9]

No, you clearly state to every bidder that the bidding process does not obligate them to buy nor obligate you to sell. The binding sale occurs only once you have both signed a purchase contract.

 

However, if you have an option at $200k and the highest price you get is $190k, then your option is overpriced.

[Sold ! 0]

Yeah, you got hosed somewhere or you didn't do your homework.

 

Offer should be 20-40% below comps for the area. It gives you room to play and negotiate.

 

Do your homework.

[Brian - L.V. 0]

I just went out and purchased Bill Effros' book yesterday. About 2.5 hours later, I had read it cover to cover. It's pretty basic and a very easy read. Honestly, I don't think I learned a ton from the book (based on what I've already learned in this forum) but it's a worthwhile read.

[Brian - L.V. 0]

I've recently been doing a lot of marketing/contacting homeowners with the intention of getting pure options, mainly on homes that are a little too expensive to do a LO on (so far in my experience). I've gotten some really good leads, but I've also gotten the few that are like, "I need to sell within the next 60 days, but need a minimum of $XXX,XXX for my house." Their "minimum" is pretty close the range I'm looking for, but not quite there.

 

Is it better to submit an offer now for the price that I'm looking for, or to wait a month or so when their expectations may be more reasonable when they find out that their house isn't fly off the market at full price? Being that I'm looking for a purchase option, do I submit the offer on the pure option contract?

[Sold ! 0]

Brian,

 

Submit an offer. They'll say yes or no.

 

When you are ready to submit the option, do it in the form of a Purchase and Sale agreement with a clause in it that states something like the seller grants the buyer 90 days from the date of this contract to purchase this property at $____________. They sign it, you go find a buyer for the paper.

[MichaelC 160]

Is it better to submit an offer now for the price that I'm looking for, or to wait a month or so when their expectations may be more reasonable when they find out that their house isn't fly off the market at full price?

Make the offer now. If they reject it, keep your eye on the property. Another month goes by and you'd be surprised at the attitude adjustment that occurs.

Being that I'm looking for a purchase option, do I submit the offer on the pure option contract?

Yes, the Pure Option Agreement will suffice just fine. Or, as Sold ! described above.

[Brian - L.V. 0]

Yes, the Pure Option Agreement will suffice just fine. Or, as Sold ! described above.

 

Thanks for the ideas, guys. I really like the thought of working an option into the purchase contract. Maybe it's just a little negative thinking at work (I know..... ), but I'm a little worried that we'll get the terms negotiated and it'll fall apart when I whip out the purchase option agreement (key word obviously being option). The sellers I've been talking to are generally motivated (most thought their houses would sell the first week at full price based on last years' home buying frenzy) to sell, but the homes don't really lend themselves very well to a LP ($500+k) from what I've found. BTW, it's funny how sellers will sound motivated to sell but will say, "We're in no hurry to sell. We'll try selling it ourselves for the next few months. The market will pick back up in a couple of months. I'm just testing the market right now. etc".

 

I'm looking for a good way to word my offer based on the fact that I'm going to be selling the option to an end buyer at a profit. I don't want them to think I'm being shady by acting like I'm going to be the one buying, but I'd rather not say I'm going to selling at a price higher than my option price (which to me screams that I think they're house is underpriced). Any suggestions? Am I just being a stronzo that is letting the "fear" of possibly losing a good deal stop me from pitching what I want (most likely.....).

 

Make the offer now. If they reject it, keep your eye on the property. Another month goes by and you'd be surprised at the attitude adjustment that occurs.

 

Very good advice. I'll do that.

[Doug Pretorius (ON) 9]

Brian, it really doesn't have to be any more complicated than this: "I will find a buyer for your house, sign here so I can get started."

 

The cool thing about straight options or escapable purchase contracts, is that they're very simple and you can leave them with your seller if need be since it's just a cash sale anyway.

 

Another thing you can do to make money is hold a 2nd mortgage. It will make it easier for the buyer to qualify (smaller 1st or less down, depending on how you structure it). This increases the value of the house to certain buyers, which lets you make a profit even if your purchase price is higher.

[Sold ! 0]

I'm looking for a good way to word my offer based on the fact that I'm going to be selling the option to an end buyer at a profit. I don't want them to think I'm being shady by acting like I'm going to be the one buying, but I'd rather not say I'm going to selling at a price higher than my option price (which to me screams that I think they're house is underpriced). Any suggestions? Am I just being a stronzo that is letting the "fear" of possibly losing a good deal stop me from pitching what I want (most likely.....).

 

 

Then, Doug said.....

Brian, it really doesn't have to be any more complicated than this: "I will find a buyer for your house, sign here so I can get started."

 

Brian,

 

You are an investor. Tell them that you are going to try to find a buyer for their house in order to make a profit for your efforts, (worded differently, of course). To say anything else is misleading and the last thing you want to do. For them to think you are doing this out of the kindness of your heart and for no compensation is a bit silly, don't you think? Be up front and honest, they will not only appreciate it, but they will develop a trust in you and will refer you to their friends and acquaintances when the need arises.

 

Honesty is the best policy.

[Craig 0]

You must clearly state your intent in New York or else.

[Brian - L.V. 0]

Thanks guys. I was never approaching them like I was interested in living in the house. I've been making sure that they realize that fact, also.

 

One thing that I learned today is it seems like its more effective to submit my offer using the pure option agreement. A homeowner that I submitted an offer to last week( I used a letter of intent) sent me a counter-offer today and it's riddled with contingencies. They want me to put $10k in escrow which is not not refundable after a 15 day inspection period; I pay for all inspections and appraisals; I take the house as is and their limit to repairs is $500; I have 30 days to close, but they can lease-back for 30 days if need be.

 

The only thing bright point is their proposed purchase price leaves me with about $20k equity, based on comps.