Selling A Pure Option

[Joseph44 0]

Hi everyone,

I'm not new to investing, but to doing options I am. I was just reading Cannon's and Rexford's take on pure options. My questions: 1) What is the reaction of your buyers when they find out they paid x amount of $$$$$ more for the property than what the owner wanted?

And 2) On a pure option you're selling retail. Where do terms come into the picture? This I don't understand. Maybe I'm having a senior moment, but could someone elaborate more. Thank you and have a good day!!

[Sold ! 0]

Joeseph,

 

First of all, your option should be for a lot less $$ than Fair Market Value. You'll do more options with Motivated sellers than with folks who have time to wait for full price. Then, you can turn around and assign the option to a buyer for an option fee, or double close with him and make the full difference between option price and your price. You can even flip for some quick cash to another investor.

 

I don't think a full price option is going to work unless you have a buyer who just has to have THAT HOUSE AT ANY PRICE.

 

Try to get your options at 30% under market value to make some serious money.

[Jonathan RexfordFL 8]

Joesph,

 

Its really a non issue. Reason being is that if someone wants a house they will buy. Sure everyone wants a deal but emotions over come that.

 

Depending on the Exit side of the deal..(meaning how you are going to close) will determine what is said to the end buyer.

 

Personally I do not like double closes....just too expensive. When you are working a 10-30% spread it can take a bite out of profit.

 

I would rather send the deal back to the seller and get my fee at closing from canceling the option agreement....(Remember the memorandum you recorded...it needs to be released).

[bartendjoe 0]

I would rather send the deal back to the seller and get my fee at closing from canceling the option agreement....(Remember the memorandum you recorded...it needs to be released).

<{POST_SNAPBACK}>

 

How would you "get my fee at closing" in this scenario? I have a SLO and I'm looking for a way to avoid a double-close.

[Jonathan RexfordFL 8]

Assign your contract that you have with your BUYER back to seller for a cancelation fee of your option on the property.

[bartendjoe 0]

Assign your contract that you have with your BUYER back to seller for a cancelation fee of your option on the property.

<{POST_SNAPBACK}>

 

I'm not sure how my seller will respond to a $20k fee. Do you list the fee in the agreement or just state that the fee is the difference between your purchase price and the t/b's purchase price. I'm in a SLO and my purchase price is $155k and my t/b's price is $175k.

[Jonathan RexfordFL 8]

Seller may go sideways. Never know until you have a conversation with them. I would have a little talk with title company and just tell them to handle it.

 

How is your Tb'er getting financing? is it a subprime loan? Reason is there may be a seasoning issue even if you did a double close.

 

Release fees are alot easier to swallow than Assignments.

[-Tony- 0]

My t/b asked me when we were closing, "So how much did I not make?" I told him the truth 18k.

 

To solve this problem I have learned to have the deed put in escrow with instructions. This way all the paper work is done in the begining...ask your attorney about it. He should be able to set it up for a price (it shouldn't be too much), it will save you these head aches in the long run.

[Alan (NYC) 0]

Jonathan, or anyone!!

 

Lets say you have a 60 day pure option with a seller for 400,000. During the 60 day time period you find a buyer for 435,000. According to your post, you would go back to the seller, cancel the original option agreement, and release the memorandum. You would also assign your contract you now have with your buyer back to the seller for a cancellation fee of your option on the property.

 

Question 1 - In a pure option stategy, aren't you assigning your rights of the original deal with the seller to the buyer for a fee? Usually that fee is the difference between the original pure option agreement with the seller, in this case 400,000 and the agreed upon price to the buyer, 435,000. So, what new contract do you have with the buyer?

 

Question 2 What new contract are you setting up with the seller if you are cancelling the option agreement?

 

Unless I am confusing things a bit, it seems this is all too complicated with too many different contracts. I'm starting to think that the simplest and best way to do this is to allow your buyer to close with the original assignment agreement. Who cares whether he sees your making 20,000 or 100,000 on the deal? He does not know your relationship with the original seller. You could be the original sellers business partner or have another financial relationship with the seller that is not the buyers business.

 

I would like to get everyones thoughts on this. I'm looking for the best way to market a pure option without taking possession of property and certainly without a double close.

[Jonathan RexfordFL 8]

Alan,

 

The major problem with doing assignments is its tough getting funding from a buyer getting a mortgage. Banks don't like flips.

 

We use a purchase and sale agreement. It will be set up during escrow. Remember you are in CONTROL. This next deal that I am planning to do I am going to get a purchase and sale signed by seller before I do the take down.

[Alan (NYC) 0]

Jonathan,

 

How does a purchase and sale agreement work and specifically, how do these agreements protect you? Jonathan, walk me through this.

 

Thanks,

Alan

[Sold ! 0]

Alan,

 

The major problem with doing assignments is its tough getting funding from a buyer getting a mortgage.  Banks don't like flips.

 

We use a purchase and sale agreement.  It will be set up during escrow.  Remember you are in CONTROL.  This next deal that I am planning to do I am going to get a purchase and sale signed by seller before I do the take down.

<{POST_SNAPBACK}>

 

What's your "out", Jonathan?

 

With a P&S agreement, you are obligated to buy the house. I'm sure you have an "escape" clause in there somewhere, right? Are you asking for a 60-90 day close? Do you have a clause in there that states that if you cannot find a qualified buyer for the agreement that you can cancel? Do you make it an option by adding a clause in there that says something like: "Seller grants buyer exclusive 30 day (60,90) option to purchase property at said price and terms" ?

 

Curious

[Jonathan RexfordFL 8]

Rich, later I will write a check list on what I do. I am never on the purchase and sale agreement.