Posted by Houserookie on June 29, 2002 at 12:59:30:
You can always tell potential buyers that it’s a fee they are paying to “lock in” tomorrow’s price, today.
Heck call it a lock in in. That is what an option is right?
And that if they do not buy, then they lose out.
They are paying this fee because you are taking the risk that they may or may not buy from you.
Austin
Option Consideration - Posted by Patrick (in Vegas)
Posted by Patrick (in Vegas) on June 26, 2002 at 17:25:42:
I’ve noticed that most of the Lease/Option posts discuss an option consideration of 5%. Is there any reason for this? Is it just a pluck-from-air number?
Thanks,
Patrick
Re: Option Consideration - Posted by DB
Posted by DB on June 26, 2002 at 19:08:04:
The minimum consideration is usually 3-5% down. You, figure if they were to get an FHA mortgage, they would need 3% down. Depending on how your agreement is written, they may have “rent credits” going toward the purchase price of the home as well.
Just remember, always ask the buyers how much they have to put down!! If you tell them that you were looking for 5% down first, they might of had 10-20% to put down!! Thee who names the number first “loses”!
dave
No,No, No - Posted by Tom (GA)
Posted by Tom (GA) on June 27, 2002 at 15:51:36:
You’re a little confused here.
Option Consideration has nothing to do with a down payment in any form whatsoever. It is simply an amount given as consideration for entering into the option contract.
It doesn’t even have to be money.
Tom
Re: No,No, No - Posted by JohnBoy
Posted by JohnBoy on June 27, 2002 at 20:57:22:
It doesn’t have to be money, but will you take something other than money from a tenant/buyer you were willing to L/O too??? Not me! Unless it was something like a car worth $10k where I can sell it for a fast $5k and only credit them for $5k as being what the value of the car is. Maybe something like that I might consider. Otherwise its cold hard CASH! 
BTW, I don’t think he meant it as down payment since he originally said “consideration” is usually 3% - 5%. I think he was only referring to when asking the buyer how much you have to put down, meaning option money to put down. I always ask how you have to put down, but when they sign the agreement it’s listed as option money and not a down payment. So if you want to get real technical then ask how much option consideration can you put down?
Re: No,No, No - Posted by Tom (GA)
Posted by Tom (GA) on June 28, 2002 at 07:49:58:
I realize that a lot of people use “Option Consideration” and “Down Payment” interchangeably. It is just a good way to get in trouble if you have to go to court. (Tom’s Pet Peeve #12574865)
Tom
Re: No,No, No - Posted by DB
Posted by DB on June 27, 2002 at 21:25:25:
yes, I meant consideration since he stated it in his post. I usually like the words down payment as well. I know you can accept other forms of collateral, but we are talking percentages here! He didn’t mention anything else about accepting cars, boats, rare coins, or whatever.
I simply understood his post by asking what the other investors usually accept as a normal “option consdideration” (down payment) on their properties.
Thank you Johnboy, for correcting my post. I knew what I meant, and I always write it up as “non refundable option consideration”.
dave
Re: No,No, No - Posted by JohnBoy
Posted by JohnBoy on June 28, 2002 at 11:46:39:
If you are listing option money as down payment money in your contracts then you are correct. You are looking at a good way to get into trouble.
But if I ask a buyer how much they have to put down, then enter into a L/O agreement with them where their money they paid is listed as non-refundable option consideration then whatever I said prior to that like asking how much can you put down, is irrelevant. Anything pertaining to real estate MUST be in writing and the contract is what dictates what is and what has been said. Anything you said verbally is not enforceable. Everything pertains to what the contract says, period!
The word “down payment” should not even exist in the contract anywhere pertaining to anything under a L/O agreement.
Re: No,No, No - Posted by Tom (GA)
Posted by Tom (GA) on June 28, 2002 at 11:55:44:
I agree. But just because you and I know that doesn’t mean that everyone that reads the board does.
Tom
Re: No,No, No - Posted by Stacy (AZ)
Posted by Stacy (AZ) on June 28, 2002 at 12:52:58:
I know what you mean, Tom. I’m reluctant to use the term “downpayment” when I market L/Os, because of Judge Judy later ruling that I misled the buyers. But the term “option consideration” surely confuses more potential buyers when used in ads and flyers. So, I use “downpayment” in my sales materials.
As long as “downpayment” is not in the signed contracts, I’m thinking I’m OK.
Re: No,No, No - Posted by DB
Posted by DB on June 28, 2002 at 23:18:33:
I agree with you Stacy. I use the words “down payment” verbally, but in the contract I make sure it says “non-refundable option consideration”!! A confused mind will always say NO.
dave
Re: No,No, No - Posted by JohnBoy
Posted by JohnBoy on June 28, 2002 at 16:12:32:
I wouldn’t use down payment in anything that is put in writing. I only use it verbally as a figure of speech when asking how much they can put down.
I don’t list a down amount in any ads anyway because I like to leave that open to ask how much they can put down. You never know, they may say more than what you want!
But if you want to list an amount instead of saying option consideration or down payment, say…
$5,000 Moves You In!
That doesn’t say anything about what the $5k is for! It could be for down payment, option consideration, closing costs, or whatever you want it to be for!
If you use down payment in any advertising and later one of your tenants go to court to dispute this they could bring in a copy of your ads to show you advertised the money as being for a down payment but pulled a fast one on them later by switching it to option consideration in the contract. Now whether that can have an affect on things or not I couldn’t say. I guess it can depend on what the Judge thinks about it. But why even leave anything to chance if you can do it without having to leave anything to chance???
Re: No,No, No - Posted by JohnBoy
Posted by JohnBoy on June 29, 2002 at 09:09:28:
Verbally is one thing, but Stacy said he uses it in his marketing materials which would be advertising down payment in print. That would be misleading where later it “could” be used against you.
Re: No,No, No - Posted by Stacy (AZ)
Posted by Stacy (AZ) on June 29, 2002 at 12:46:43:
Actually, I use the term “down” in my materials. Here’s an example:
http://www.phxhomebuyer.com/Southwind.htm
I’m really not all that concerned about it. The risk is miniscule. I’d just feel better if the general buying population understood “option consideration”. Seems every time I use that term with “potential” buyers, it gets them concerned and confused. Now I usually wait until I have someone committed before I explain all the details and legalese.
Works for me.