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MikeT/NC

Couple ?s for Michael

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Michael, I've been busy with my rental business and have been out of the loop for awhile on working these Coop. Assign.s.I started doing marketing last week and have got a couple that are ready to move forward. Hopefully it'll be a nice payday cause the house is valued around $250K. So here's a couple of questions.

 

1..Do you verify that they are current on their mortgage payments?

 

2.. Let's say the sellers want to net 250K, and you want to assign it for $7500. You would market the house to the buyers for $257,500. Right? Then on the CA Assignment you would just put the $7500 as the assignment fee. The $257,500 is really never put down on paper anywhere. Right? You just basically tell the T/bs that the price is 257500 and they need to bring the 7500 to the table (along with some closing cost) and thats it?

 

Hopefully this thing will come to fruition. I've had several in the past to fall through at the 11th hour and actually had two fall through as I was on my way to their house to get the papers signed.

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Hi, Mike. . .

1) If I were in the deal long term, say as in a sandwich lease, I certainly would. But when doing a CA I am a bit more casual regarding this. I may just ask the homeowner if they are current and take them at their word. But if I have even a slight doubt I will require verification. It's a judgement call.

 

2) It's irrelevant what the homeowner's want. Instead, it's always a question of what will the market bear. In your example above, let's assume that the property is in the price range of $250K - $260K. Then the numbers as you described will work. . .almost. What I mean is if the homeowners will net $250K, you would add to that whatever amount of option consideration you are keeping and whatever rent credits, if any, you are offering. So if you were keeping $7,500 option consideration and the rent credits totaled, say, $6,000, then the gross price to the t/b would be $263,500. The question you need to ask is whether or not that figure will be accepted by the market. If so, you've got a workable deal. If not, the homeowners need to have their expectations lowered a bit.

That $263,500 price, by the way, is shown on the Option to Purchase Agreement, Paragraph 1C.

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Thanks Michael, That's what I was really asking, how to show the amounts. So in the example above if you have an agreement signed with the seller for $263,500 and you're figuring that your fee is going to be $7,500 what happens if you find a buyer willing to put down $10,000. Do you just go back and sign another agreement with the seller to reflect the larger option fee before assigning it to the t/b?

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If you receive more option money than anticipated you have several options, none of which are a negative:

 

1) You can give the additional money to the homeowner, explaining that the t/b surprised you with this and he, (the homeowner), receives some nonrefundable cash upfront. Of course, this option money, like all option money, is credited in full towards the purchase price.

 

2) You can pocket the extra cash. However, this lowers the homeowner's net price and so you'll have some explaining to do. Something like, "They love the house, Joe, but their offer will mean about $2,500 less to you than we had discussed. If he accepts, you've earned an extra $2,500. If he rejects it, tell him you'll see what you can do. Get back to him in half an hour with the good news: the t/b has agreed to the homeowner's price and is also paying some additional cash upfront, (see 1 above).

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Thanks Michael, After doing a little more due diligence I think the home owner is a little overly optimistic as to what the house is really worth. Also the monthly payments are way higher than is to be expected. I think they must be on a 15 yr. term. Just the fact that it's been listed with a realtor in the past and hasn't sold tells me the market is speaking and it ain't good for them.

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Be the bearer of bad news and tell the homeowner your initial analysis doesn't support his numbers. Then, taking a humble approach, tell him you're sure the problem is you, and ask if he can share his market data with you: recent sales, rentals, etc. Chances are he doesn't have any and his numbers were pulled out of the air. But this puts the burden of proof on him and, hopefully, gets the homeowner to reassess his numbers. Then, maybe, you have a workable deal.

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