Found TB for first CA

[belliott71 0]

Monday I am completing my first CA. I just need a little advice. The sellers had a home that they needed to net 236,000. They were motivated so I pitched the SLO for 3 years. They didnt want 3 years so I pitched the CA and they took that deal. Now on the original option agreement (with seller and myself) I inflated the price to include 75% rent credits and 7000 option money. So the option price that the sellers and myself came out to be 259,500 with rent credits filled in as TBD and I gave him some option money($100). 18 days later I made a deal with the buyer for 6000 option money and 300 dollars per month rent credit. The price that we agreed on was 244900 minus rent credit and option money. Now here is my question.

 

Do I need to get with the sellers before we sign the assignment and change the figures on our (seller and myself) option agreement so that it matches the deal that I have agreed with the buyer?

 

Hopefully Michael, Adam or any other CA guru will chime in on this one.

 

Thanks for the info.

 

Brad

[Doug Pretorius (ON) 9]

Yes, I would change the agreement with the seller prior to assigning it.

[MichaelC 160]

Brad, I'm confused, so help me out a bit here.

The CA Agreement between you and the seller should be the very same one that you are going to be assigning over to the tenant/buyer. All the terms should be agreed to in advance, and when you find your t/b, you complete the deal with the CA Assignment of Agreement. That's when you collect your assignment fee/option money. Deal is done, and you're no longer a principal.

Explain to me what it is you're doing with this deal.

[belliott71 0]

Michael,

The seller and I came to an agreement that they needed $236000 from sale. So I bumped the price on the option to 259500 to allow for option money and up to 75% rent credits. On the option contract I put TBD for the rent credit. When I advertised the house at 259500, I just had a bunch of tire kickers. I then kept lowering the price which in turn lowered the maximum rent credits I could allow. So in the end I had to lower the house to 244900 with 6000 option money and 300 a month rent credit. This would net my sellers close to 236000, but the sales price figures I have with the buyer doesn't match my option that I have with the sellers. I realize this is the same way to get to the net price of 236000, but for some reason here in Tennessee 244900 with 300 rent credit looked more attractive than 259500 with 75% rent credit. So the sellers and I are going to meet in advanced to clean up the option contract. If there is a different way to this I would like to know.

 

Thanks,

Brad E

[MichaelC 160]

Brad, first thing you must do is know what the market is willing to accept for the subject property. Going back to the seller and telling them they have to take a $10K cut in the price is never a fun thing, and will often cost you the deal. Plus, you look shady. Convince them upfront what the true price is and you'll avoid that scene in the first place. And if they don't agree, let the homeowners fight the market themselves. One month from now, maybe six weeks, you'll get a call back from a much more motivated seller. Trust me. Your goal is not to take on the problems of the homeowner and battle the marketplace. Price the property correctly from the get-go, move it ASAP, collect your cash and move on.

The other potential landmine I see is leaving terms open and contracts blank. Always a potential for problems. Do your homework from the beginning, Brad, know what the market will bear, and complete the terms from the beginning. Avoids many problems down the road. Good luck!

[belliott71 0]

Michael,

 

The homeowner never took a cut in price. I told them I would net them 236,000. They knew everything up front that rent credits plus option price were going to be tacked on to the price. I never left the sales price open on the option. I am the one that took a hit because I lowered my option fee from 8000 to 6000. Here is what it looked like on paper.

 

The owners knew they were going to net 236000 so our option looked like this.

The rent they wanted was between 1550 and 1700.

 

Contract between seller and myself

Option price was written up 259500

Rent credits TBD

Option money $100

 

I advertised this house at 259500 at $1650 per month rent

 

rent credits originally 50% (I was prepared to go up to 75% because it would have netted 236650)

option money $8000

 

This original deal with 50% rent credits would have netted the owners 241600 which would have been a bonus for the seller.

They did a crappy job on the interior paint job, so if the tenant/buyers balked I was prepared to up the rent credits to 75% if they wanted to fix. Like I said before I got a lot of response but no takers. Well, actually I had one guy give me 500 earnest money to hold but later changed his mind.

 

After a week I lowered the price on the house and lowered the starting rent credits to 25% with a maximum of 50% (instead of 75%) This would have still netted the owners 236000 like I had originally told them.

 

The third week I changed it to 244900 $6000 option money and no rent credits.

The buyer I have now asked for rent credits so I gave him $300 per month and the seller is netting $235300. The sellers are happy because they dont have to put it on the market and let it set for 3 months with a mortgage of $1500.

 

Now my deal nets them close to what I had told them ($700 difference) but it is different than what the option says. Like I said, they knew the net price and they knew I was going to add rent credits and option fee on top of what they needed to net. We just need to meet before the assignment and change the figures on the option to match the selling price that I agreed with the buyer. The sellers are cool with changing the numbers around on the option.

 

I guess I could put a range on the option price minimum 244900 to maximum 259500 and put 0 to 100% rent credit. This way I wont have to bother because it is in the range. Is this legal and would this work?

 

Thanks for the replies.

 

Brad

[Doug Pretorius (ON) 9]

Brad, as a rule you shouldn't have to make such drastic changes to the terms. I understand that this is your first and so it's subject to some hiccups. All in all as long as the you and the seller agree you certainly can change the terms if you need to, just don't make it a habit. You want to set up your deals from the get go on terms you're sure you can get so that there are no surprises for anyone later on. That will give you a good reputation in the long run too.

 

You learned something very important about your market with this deal, make sure you keep it close in mind for all your future deals. Namely, in your area price is more important than rent credits. It's the same in my market. So what I do is give buyers a credit similar to the principal reduction on a typical mortgage with payments that size. The buyers are happy with it and it means only a few thousand comes off the price.

[MichaelC 160]

Brad, thanks for the clarification. I guess I'm slow and dense every so often.

The bottom line is the homeowner is getting almost exactly what you quoted from the beginning, so they're happy and that isn't a problem.

The only thing I strongly recommend against is leaving key elements of the contract blank, to be filled in at a later day. That can open the door to legal issues. It may even cause confusion for your t/b's, who might view with skepticism what you are doing. And that means they take a walk. . .