How much to charge for option fee? - Posted by Sara_CA

Real Estate Investing Real Estate Financing
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Posted by Sara_CA on September 11, 2009 at 17:55:03:

Gene,

Thanks for your reply.
I will try to get 5% non-refundable. Settle for 3% non-refundable. Goes toward the purchase price if he exercise his option. The same way for lease/optioning a SFH.

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How much to charge for option fee? - Posted by Sara_CA

Posted by Sara_CA on September 11, 2009 at 11:40:18:

Re: How much to charge for option fee for land?

Someone want’s to lease/option for 1 years a parcel of farm land in CA. If during the year long lease period his crop grows well on that type of soil he will exercise his option to purchase. Reasonable I thought. What should I charge as option consideration? Lease rent is agreed upon. Purchase price I will ask for 110% of current asking price. But what about the option consideration fee? Should the option fee be part of the purchase price? What is the typical option fee if it were a SFH?

Thanks for this great board and the lively discussions from the RE experts who post here.

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Re: How much to charge for option fee? - Posted by Ken

Posted by Ken on September 11, 2009 at 15:27:49:

What is the land worth if you were going to rent it for the same purpose he will use it for.That would be a place to start plus a little extra since he is tying up the property and you cannot sell it easily to anyone else.I would tell him he is basically paying rent so it would not go toward the purchase price

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Re: How much to charge for option fee? - Posted by Gene

Posted by Gene on September 11, 2009 at 13:02:10:

If I am the tenant/buyer…I try to get down to zero.

If I am the owner/seller I try to get as much as I can.

There is no standard…its all about negotiation…

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Re: How much to charge for option fee? - Posted by Sara_CA

Posted by Sara_CA on September 11, 2009 at 17:27:18:

Ken,

Thank you for your reply.
I am charging both rent and option-to-purchase fee. We will have two documents, one for Monthly Lease Agreement, one for Option-To-Purchase Agreement. The buyer just told me he wants a 2 year option, not 1. The price for monthly rent has been agreed, but the price for tying up my property for two whole years, unable to sell to anyone else, should be more than just “a little extra” I think. He wants to establish the purchase price now. So I am going to charge him 1.2 mil for sell price instead of the original 1 mil.
What do you think, 3%, 5%, of the purchase price? Non-refundable? Sort of like earnest money?

Thanks again.