questions on a Pure Option

[happyardy 0]

Guys,

I showed a house(I have Pure Option on it) to a lady yesterday who seems very interested. She has started to take steps to get financed. I got an email from her just now which I am pasting below. I have a few questions on it posted below after her email.

 

 

Hi Rahul,

 

Thank you for getting the information regarding the electricity bills so fast. I sent my information that was needed the my mortgage specialist a few minutes ago, and hopefully he will get the ball rolling as soon as possible.

 

However, he asked me about getting you to fax him the Purchase and Sales Agreement.

 

I understand it is where is as is, but could you possible see if the owner will include the fridge and stove.

 

Also, can you check and see if there will be a cost to me on closing for the taxes, called tax adjustment. Brian told me it maybe a cost to me, sometimes owners include the taxes paid on the house in the total cost, others want the taxes they have paid for the next 6 months back.

 

I am hoping this is going to go quickly, but please know that I am serious about wanting this house. Also, once the mortgage of this house is approved for me, would you mind me having a home inspection done? I am happy with what I sees with regarding the plastering and painting, but I just want to make sure the foundation and roof is okay.

 

If you have any questions please call me at 739-9605 or 687-0805. And the fax number to my mortgage specialist is 754-5401.

 

Thank you for your time,

Rhonda Colbert

 

 

 

My questions:

 

1. Which Purchase and Sales agreement is she talking about that her mortgage broker wants? I just showed the house to her yesterday and we havent signed any agreement as yet. Please let me know if I need to get something signed from her now that her mortgage broker wants.

 

2. She has asked if there will be a cost to her called tax adjustment. What do I say to that? My general answer will be that she will be responsible for the standard closing costs for a buyer. Though at this point, I must admit that I dont know what those standard costs are(the breakdown) . So, can someone let me know?

 

3. When should I allow her to get the inspection done ? After we have signed the papers ?

 

4. Should I take a deposit from her now to get the house off the market? I am not sure how much she can afford/give. How much should I ask for? The selling price of the house is $64K/-

 

 

Also, could you let me know if I need to cover anything else? Once I know, I can reply to her email.

 

thanks & regards

- Rahul

[Doug Pretorius (ON) 9]

Lots of questions! I'll try to help:

 

1. Be VERY careful! They could be trying to figure out how to get around you or how much you're making so they can whittle you down. Will you be assigning the option to her? If so then I would get her to sign a non-circumvent agreement (where she agrees to give you her first-born child if she tries to go behind your back with the seller) and then MAYBE send her the option with the dates blanked out so they don't know how long they have to wait you out to close behind your back.

 

Otherwise send her the pertient details i.e.: "No the appliances are NOT included."

 

2. The standard Ontario sales contract says that the adjustments will be prorated. Depending on when the closing is done sometimes the seller has to pay and sometimes the buyer has to pay. I think you should talk to your lawyer about how to respond to this and/or make an amendment to your contract to clarify who's responsible for what.

 

3. She said this is a "as is, where is" sale right? Well then if you allow her to do an inspection you DO NOT take the house off the market. The only purpose of an inspection on this type of sale is to decide whether or not she's going to go ahead with it since the terms will not be changed based on condition.

 

4. The above notwithstanding. My standard policy for any deal where I have nothing to lose (no looming payment) is to give 3 business days exclusivity for a $500 non-refundable CASH deposit.

 

 

I can't believe you can get a house for only $64k! How much work does it need?

[happyardy 0]

Lots of questions! I'll try to help:

 

1. Be VERY careful! They could be trying to figure out how to get around you or how much you're making so they can whittle you down. Will you be assigning the option to her? If so then I would get her to sign a non-circumvent agreement (where she agrees to give you her first-born child if she tries to go behind your back with the seller) and then MAYBE send her the option with the dates blanked out so they don't know how long they have to wait you out to close behind your back.

 

Otherwise send her the pertient details i.e.: "No the appliances are NOT included."

 

2. The standard Ontario sales contract says that the adjustments will be prorated. Depending on when the closing is done sometimes the seller has to pay and sometimes the buyer has to pay. I think you should talk to your lawyer about how to respond to this and/or make an amendment to your contract to clarify who's responsible for what.

 

3. She said this is a "as is, where is" sale right? Well then if you allow her to do an inspection you DO NOT take the house off the market. The only purpose of an inspection on this type of sale is to decide whether or not she's going to go ahead with it since the terms will not be changed based on condition.

 

4. The above notwithstanding. My standard policy for any deal where I have nothing to lose (no looming payment) is to give 3 business days exclusivity for a $500 non-refundable CASH deposit.

 

 

I can't believe you can get a house for only $64k! How much work does it need?

 

 

Doug,

Thanks for your answers. I appreciate it.

 

The house is fully functional right now. It had tenants in it upto Dec. There are no major repairs as far as I know. The carpeting etc and some things here and there could be repaired. One of the persons that I showed the house to was an investor and he said that it would take 3 to 4 grand to make this house shine out.

 

This is a townhouse and the comps are around $70K. My option price is $57,600/- . It is a decent working class neighbourhood. This is in Mt. Pearl which is just outside of St. John's.

 

To answer your question about will I be assigning my option to her; I dont know at this point. I mean, whatever is the easiest & safest way for me to get paid.

Since she is getting financed, I am thinking that the cleanest way for me to get paid might be from the seller's side with a release of interest agreement. Also, the seller already knows that I am trying to sell the property for around $66,500(Seller has seen my ad) and seems OK with it.

What do you suggest?

 

 

I showed the property to her(single mom with a 2 year old daughter) & her parents yesterday. They asked me if I dont live there anymore and then I said "This is not my house". They asked me if I was a realtor then to which I answered "No. I am a real estate investor". They said "Oh, OK." and continued with their tour of the house. They didnt seem to be much concerned about that part.

 

So, I am not sure if they are really concerned about me being the investor. They, could very well be as you are pointing out.

 

Should I ask her to elaborate on which purchase agreement her mortgage broker is asking for?

 

thanks

- Rahul

[Doug Pretorius (ON) 9]

Since they didn't make an issue of you being an investor during the showing I would suspect that they aren't so much "concerned" as they are trying to figure out how to get you out of the picture so they can get the house cheaper.

 

If you're going to do a release with the seller then under no circumstances would I allow the buyer to see the option, if I were you.

 

Sure, you can always ask which contract they're talking about. Who knows maybe they just want to see the purchase contract that they are supposed to sign. But I'm guessing that they want to see YOUR contract which is a definite no-no!

[happyardy 0]

Since they didn't make an issue of you being an investor during the showing I would suspect that they aren't so much "concerned" as they are trying to figure out how to get you out of the picture so they can get the house cheaper.

 

If you're going to do a release with the seller then under no circumstances would I allow the buyer to see the option, if I were you.

 

Sure, you can always ask which contract they're talking about. Who knows maybe they just want to see the purchase contract that they are supposed to sign. But I'm guessing that they want to see YOUR contract which is a definite no-no!

 

 

I'll ask her about the contract that her mortgage broker wants me to fax to him.

 

I still have the Memo. of Option signed by both the homeowner and me and it is properly witnessed as per the requirements here. I just havent recorded it as yet and if needed will do that.

 

Do I need to get a lawyer for this deal? I am wondering where my lawyer will fit in all this. The original seller will have a lawyer and the buyer will have her lawyer. Do I as an investor in the middle needs to get a lawyer too?

 

thanks

- Rahul

[MichaelC 160]

Rahul, in addition to what Doug said. . .

However, he asked me about getting you to fax him the Purchase and Sales Agreement.

Remind her that she hasn't signed a P&A Agreement yet, so there is nothing to fax over.

I understand it is where is as is, but could you possible see if the owner will include the fridge and stove.

It isn't your chore to negotiate on her behalf. You are assigning the deal subject to the terms you have already negotiated.

Do I need to get a lawyer for this deal? I am wondering where my lawyer will fit in all this. The original seller will have a lawyer and the buyer will have her lawyer. Do I as an investor in the middle need to get a lawyer too?

You shouldn't. Without any unexpected blowups, you'll only need to file the Release Agreement to assure you get paid.

[happyardy 0]

Rahul, in addition to what Doug said. . .

However, he asked me about getting you to fax him the Purchase and Sales Agreement.

Remind her that she hasn't signed a P&A Agreement yet, so there is nothing to fax over.

I understand it is where is as is, but could you possible see if the owner will include the fridge and stove.

It isn't your chore to negotiate on her behalf. You are assigning the deal subject to the terms you have already negotiated.

Do I need to get a lawyer for this deal? I am wondering where my lawyer will fit in all this. The original seller will have a lawyer and the buyer will have her lawyer. Do I as an investor in the middle need to get a lawyer too?

You shouldn't. Without any unexpected blowups, you'll only need to file the Release Agreement to assure you get paid.

 

Mike,

OK. I spoke very briefly to the buyer's mortgage broker right now. He(broker) called just to let me know that buyer was approved on her financing. He said he could send me the finance letter right now if I needed. Should I ask him to send me that? Do I need it ?

 

By the way, I am not sure if the broker knows that I am the investor. He said "your house" when he spoke to me. Do I need to make that clear to him now about what my position is in this deal?

 

I asked him if we could close soon. He said something about it still needing to go to the underwriter etc. So, he said it could be a week or 2.

What are the steps for me now ?

 

I still dont have anything signed with this prospective buyer. I think that is the first thing I need to get done now, right ? She is very much interested.

 

Also, she had said that once her financing got approved, she would want to get the inspection done to check for foundation cracks and roof. So, I guess now she would call me for that.

 

Anyways, can you let me know how I proceed from here? Also, do I let the seller know at this point that we may have found a buyer?

 

thanks

- Rahul

P.S: BTW, I spoke with the homeowner yesterday and she said that the stove & fridge are included in my option price . So, I can give them to the buyer(she is really interested in those 2 appliances) in my sale price but I am thinking how I could use these appliances to motivate her to close early etc. Any ideas?

 

thanks

- Rahul

[MichaelC 160]

Congrats, Rahul! Not at the Promised Land yet, but inching closer.

How are closings normally done up your way? Title companies, attorneys?

[happyardy 0]

Congrats, Rahul! Not at the Promised Land yet, but inching closer.

How are closings normally done up your way? Title companies, attorneys?

 

Mike,

Yeah. Its not over till its over.

I think closings are done by attorneys.

Doug(or other fellow-Canadians), isnt that right ?

thanks

- Rahul

[MichaelC 160]

The reason I ask is because one you can ascertain who will be doing the closing, you can speak with them, explain the specifics of the deal, and determine the best way to proceed to protect your interest.

OK. I spoke very briefly to the buyer's mortgage broker right now. He(broker) called just to let me know that buyer was approved on her financing. He said he could send me the finance letter right now if I needed. Should I ask him to send me that? Do I need it ?

Why not get a copy? No harm to you.

By the way, I am not sure if the broker knows that I am the investor. He said "your house" when he spoke to me. Do I need to make that clear to him now about what my position is in this deal?

It really shouldn't matter to him, your position in the deal. His concerns should be can he get his client funded, will the house appraise, and is the title marketable.

I asked him if we could close soon. He said something about it still needing to go to the underwriter etc. So, he said it could be a week or 2.

What are the steps for me now ?

 

I still dont have anything signed with this prospective buyer. I think that is the first thing I need to get done now, right ? She is very much interested.

Again, you need to find out how these deals are typically closed, and then speak to the people involved.

Also, she had said that once her financing got approved, she would want to get the inspection done to check for foundation cracks and roof. So, I guess now she would call me for that.

I'm sure you'll be hearing from her with regards to this.

Also, do I let the seller know at this point that we may have found a buyer?

Yes. He'll be more than pleased.

P.S: BTW, I spoke with the homeowner yesterday and she said that the stove & fridge are included in my option price . So, I can give them to the buyer(she is really interested in those 2 appliances) in my sale price but I am thinking how I could use these appliances to motivate her to close early etc. Any ideas?

In other words, tell her if she can close by a certain date that you will throw in the appliances because Rahul is such a sweetheart? Sure, you can dangle a carrot. Or you can even try selling them to her for a few hundred bucks if you want to go that route.

[Doug Pretorius (ON) 9]

I think closings are done by attorneys.

As far as I know attorneys do all the closings across Canada. I know they definitely do here in Ontario. There are title companies but they mainly just sell insurance, although I think they might also handle some of the big commercial deals.

[happyardy 0]

I think closings are done by attorneys.

As far as I know attorneys do all the closings across Canada. I know they definitely do here in Ontario. There are title companies but they mainly just sell insurance, although I think they might also handle some of the big commercial deals.

 

Thanks, Guys.

I spoke to the buyer right now. Her mortgage broker needs a purchase and sale agreement at this point to process her financing further. He probably needs it for the house appraisal to finalize her loan.

Also, he asked her to add "subject to final approval on financing" and "subject to inspection" in the purchase and sale agreement. That, I guess is reasonable. But how long do I keep the validity of this agreement ? 1 week, 2 weeks ?

I still have a month left on my option.

 

OK, so closings are done by attorneys. Which one do you recommend that I sit down with to explain the specifics of my position? The seller's OR buyer's attorney? Any pros & cons for choosing one over other?

I am inclined to go to the seller's attorney.

What agreements do I use?

thanks.

- Rahul

[MichaelC 160]

You're going to need a purchase and sale agreement between the homeowner and your buyer for the price she agreed to pay for the property. Then you are going to need to get a release of your option so you can assure you are paid at closing. One of the pinned threads in the Lease Purchasing forum runs through this process in detail. Review it here, Rahul. Post number 37 in the thread is a good overview of it all, as per Jonathan Rexford.

OK, so closings are done by attorneys. Which one do you recommend that I sit down with to explain the specifics of my position? The seller's OR buyer's attorney? Any pros & cons for choosing one over other?

I am inclined to go to the seller's attorney.

I would opt for the seller's attorney, also.

[happyardy 0]

You're going to need a purchase and sale agreement between the homeowner and your buyer for the price she agreed to pay for the property. Then you are going to need to get a release of your option so you can assure you are paid at closing. One of the pinned threads in the Lease Purchasing forum runs through this process in detail. Review it here, Rahul. Post number 37 in the thread is a good overview of it all, as per Jonathan Rexford.

OK, so closings are done by attorneys. Which one do you recommend that I sit down with to explain the specifics of my position? The seller's OR buyer's attorney? Any pros & cons for choosing one over other?

I am inclined to go to the seller's attorney.

I would opt for the seller's attorney, also.

 

Mike,

I read JR's thread.

So, is it time now for me to record my Memo. Of Option ? It is all ready and just needs to be recorded. ( $101/- but thats not my concern right now). Let me know.

My main concern is that I just have a month left on the Option now. What happens if the buyer's financing takes longer than that? How do I take care of that in the Purchase and Sales agreement?

 

BTW, if required, I think I can talk to the seller and get a new option for a longer period. I mean, if I have a definite buyer, the seller would be definitely interested.

 

I'll contact the seller and have a meeting with her lawyer. Do we have a Purchase and Sale agreement in your list of agreements, Mike? I am looking and dont seem to find it.

thanks

- Rahul

[MichaelC 160]

So, is it time now for me to record my Memo. Of Option ?

I would say so.

My main concern is that I just have a month left on the Option now. What happens if the buyer's financing takes longer than that? How do I take care of that in the Purchase and Sales agreement?

BTW, if required, I think I can talk to the seller and get a new option for a longer period. I mean, if I have a definite buyer, the seller would be definitely interested.

Exactly, Rahul. Get an extension. Shouldn't be an issue. He wants his house sold. You did exactly as you said you were going to do and got him his price.

I'll contact the seller and have a meeting with her lawyer. Do we have a Purchase and Sale agreement in your list of agreements, Mike? I am looking and dont seem to find it.

No P&S Agreement. They can vary from state to state, let alone crossing the border. The attorney will have one for use in your location.

By the way, all of this may seem a bit overwhelming right now, Rahul. But once you sit and talk with your lawyer, it'll all fall into place for you.