Option Consideration - Posted by Napoleon(NC)

Posted by Charles-DFW on July 15, 1999 at 01:48:03:

I believe what is at issue is the exchange of “consideration”, ie, money or something of value,
and value is relative to the parties.

If all you have is an option “contract” where the seller gives you the option to buy his house within so many years at a certain price. I think it could be argued that there is not a valid contract because there is no exchange of consideration.

However, with a lease/option contract, It could be argued that leasing the house, is the consideration given for obtaining the option.

I am not a lawyer, and am not giving legal or RE advice, this is just my opinion.

Option Consideration - Posted by Napoleon(NC)

Posted by Napoleon(NC) on July 14, 1999 at 08:54:15:

Hi guys,
I am looking into a lease purchase deal on a town home with a very motivated seller. The selling price of the house is 120k. How much of an option consideration should I offer and how much should I expect from the tenant/buyer if I am going to sell it to them for 129k. Please provide some sample terms.


Re: Option Consideration - Posted by Chuck DeFiore

Posted by Chuck DeFiore on July 15, 1999 at 23:13:06:

In Las Vegas, we don’t offer, just write in $1.00 for option consideration. Our contract states “and other valuable consideration”.

Hope this helps,


Re: I Love It - Posted by Tim (OH)

Posted by Tim (OH) on July 14, 1999 at 15:43:25:

The previous responses to this question are from people that very plainly identify themselves as NOT L/O experts. However, I’ve beens studying Lease/Options and would agree with EACH and EVERY response. Just goes to show you that the basic principals of finding MOTIVATED sellers and working the best WIN/WIN deal has no boundaries.


Re: Option Consideration - Posted by Brad Crouch

Posted by Brad Crouch on July 14, 1999 at 12:25:28:


Offer no option consideration to the seller. If the seller wants/needs some cash, you might be able to negotiate the pre-payment of a few months rent, or even a security deposit. After all, those things are refundable . . . option consideration is not. A few months of pre-paid rent comes back to you in a few months.

From your tenant buyer, you want as much up front option consideration as your market will bear, but at least 3% to 5% of the purchase price, as a MINIMUM. Instead of asking the tenant buyer for a specific amount of option consideration, ask him/her how much they have to initially invest in their new home. Let THEM mention a figure, and reject it if it doesn’t fall within your guidelines. The more they have at risk, the better tenants they’ll be.

If this seller is really “motivated”, they’ll be looking more at “debt relief” than thinking about initial option consideration, so don’t offer any.

Good luck,


Re: Option Consideration - Posted by Stacy (AZ)

Posted by Stacy (AZ) on July 14, 1999 at 10:35:59:

Zero option consideration to your seller, but be reasonable and don’t let it be a deal breaker if he wants $500 - $1000. Put zero in your contract and act as though this is the normal way you do business, which it should be.

I’d go for as much consideration as I could get from the T/B, but settle for 3K to 4K minimum if I had to.

Stacy (AZ)

(not a L/O expert)

Re: Option Consideration - Posted by Redline

Posted by Redline on July 14, 1999 at 09:59:01:

I am no L/O expert, but I wouldn’t offer ANY consideration unless the seller demands it - and even then it wouldn’t be much.

On a sale price of $129k, I’d want to get atleast $8-10k of consideration from my buyer - and I’d be trying for more.


Hmmmmmm . . . - Posted by JoeKaiser

Posted by JoeKaiser on July 14, 1999 at 22:12:38:

Let’s say you and the seller end up butting heads and your deal goes a little weird. Now, it’s up to the judge to decide if you do, in fact, have a valid option on the property and so he asks you, “Mr. Bonaparte, how much did you give the guy as option consideration?”

Your response . . . “not a bit, your honor.”

His response . . . “get out of my courtroom, knucklehead.”

It’s never a good idea to have to leave the courthouse on the run, if you can help it, and $100 to really lock it up ain’t such a bad thing.


Re: Hmmmmmm . . . - Posted by Brad Crouch

Posted by Brad Crouch on July 15, 1999 at 14:00:12:


The first thing I read from your lease option materials, was that in the past (your past), you had always believed that initial option consideration ought to be paid in the amount of at least $1,000. So you freely offered this amount on all your lease option deals.

Then one day, you woke up and realized that you had been costing yourself much more than was necessary, and decided to discontinue the practice of offering initial option consideration on your L/O deals.

I believe it was you (could have been Bronchick) who first presented the idea (through course materials) of countering an initial option consideration request by the seller with an offer to “pre-pay” a few months rent, instead. The theory being that the seller could get his cash requirements/needs met while the amount from the investors pocket, would soon be replaced.

This was expanded to include “security deposits” on the newsgroup . . . the whole idea being about having the ability to negotiate, and not assuming a stance of inflexibility and rigidity.

As for your current statement about $100 for investor option consideration . . . I think you’re just having some fun while at the same time pointing out a “possibility” if a judge should ever become involved. Maybe a similar event has recently happened to you?

You are most likely correct about a judges decision (in my opinion), in the event a lease option deal ever went that far. But we are supposed to know the risks and how to minimize them.

I believe that if you do deals honestly and without deceit or sneaky intentions, you have very little chance of getting as far as a courtroom. But I don’t have the experience behind me that you have, either.

With all that being said, as I think about it, I don’t really think it is such a bad idea to offer $100 as a “standard” amount to include on all L/O deals. A certain peace of mind would be achieved, maybe, and you would “be protected” against that one in a thousand cases where you actually would need it.

Also the seller would now be thinking of “smaller amounts” rather than into the thousands. Kind of a “lowering expectations” tecnique of negotiating.

If you figured just the money on this . . . how much you would be putting out of your pocket on collective deals, against how many times that money would turn out to be “well spent”, you’d probably be better off not to offer anything at all. But, yes, this would raise the risk level a bit.

But the “no money out of pocket” crowd would probably start screaming . . .

One of the ways to avoid all this “court stuff” is to use a PACTrust. It really is a pretty good legal shield that protects all parties involved in an owner carry situation. I mention this in passing, not because I’m “selling” anything. I don’t make a dime . . . .

Anyway, I think that if you HAVE the hundred, it wouldn’t hurt anything to offer it. But if you have nothing, then it would be best not to offer anything.

That’s how I see it.


Re: Please clarify, Joe - Posted by Stacy (AZ)

Posted by Stacy (AZ) on July 14, 1999 at 23:22:06:


Out of the three contributors of Lease/Option training materials I use, none seem to agree on this issue. The others I learned from imply that actual dollars exchanged for option consideration is pretty much a moot issue in most states. The typical “Ten dollars for value received” wording really seems to be more of a legalese standard contract requirement than something that would cause problems in a real life court room. Other issues of any particular case would probably outweigh the fact that “$10 or $100” didn’t actually get exchanged. I’ve researched my own state’s statutes, and have found no minimum amount of option consideration required for a valid contract. Maybe it’s burried in case law somewhere, but I can’t find it.

But, I’m here to learn from you. In your experience, has this ever been a make or break issue in court?

Just trying to get to the bottom of conflicting information. I have no problem fronting $100 just to make an enforcable contract.