Optioning Houses - Posted by matt

Posted by matt on December 01, 2002 at 02:58:24:

Jim,

I see. That’s why you said that I may have to assign my purchase and sale agreement that I have with the seller over to my buyer. I understand.

Since this is my first option that I ever have had on a house, and I mean an option not a lease/option, let’s see if I know what to do from this point. If I’m wrong, or you see a problem, I would appreciate your advice.

I have an option agreement with the seller that states that I or my assigns may buy the property in the next six months. I told the seller going in that I would not buy, but I would first contact some other investors I work with to see if they are interested. If they are not, I would market the house at my expense and not take it off the market. If the seller finds a buyer before I do, I walk. If the seller wants to use a realtor, that’s fine as long as the realtor excludes me from the listing. If I find the buyer before a realtor, the realtor walks and gets nothing. If he finds the buyer, I walk.

I have found a possible interested buyer. This guy owns a couple of rental properties and said he would be able to close in a week. Let’s say I show him the house and he likes it and he makes an offer that is exceptable.

Now, here is the part that I’m not sure about. As I said, my buyer seems to be a seasoned investor so I want to make sure I do this by the numbers so I don’t get cut out of the deal. Here are the steps I think I should take. If you see a hole that I should fix, please tell me:

  1. I show the house to the buyer. I except buyers offer. I fill out a purchase and sale agreement with me as the seller and him as the buyer. I collect a deposit to make sure the buyer is serious.

  2. I meet again with the owner of the house. (Who is currently living in the house) and fill out a purchase and sale agreement with him. Making him the seller and me the buyer. I put in my purchase and sale agreement that my finacing is coming from my buyer. That way, if for some reason my buyer backs out, I’m not locked into buying the house. I would explain that to the owner of the house anyway.

  3. Before closing, all lawyers that are involved know that this is going to be a double close. at closing, I sign the agreements with the seller saying that I’m buying the house. The seller and his lawyer already know that I will not be writing any checks, but my buyer will write all the checks that are needed. The seller and his lawyer wait in one room. I then sit down with my buyer in another room and sign the agreements with my buyer. My buyer is finacing the deal. He will have the required checks for both the seller, the sellers lender, closing costs and a check made out to me.

In this case I would not assign because my buyer said he wouldn’t get a loan from a bank so there won’t be a problem with title seasoning. So my questions are, did I leave something out? Do you see any holes in what I plan on doing, and most important what can I do to prevent this seasoned investor from going around me to the owner of the house and cutting me out of the deal? And last, do I tell this seasoned investor that I have an option on the house before I even show him the house?

Jim, you have no idea how much I have appreciated your help. It may not seem like much to someone like you who has done several deals, but to someone like me who is just getting started, it means a whole lot.

Regards,
Matt

Optioning Houses - Posted by matt

Posted by matt on November 06, 2002 at 13:02:47:

When I put an option on a house with the intent to find a buyer and sell for cash, should I do the title search as soon as the option contact is signed with the owner, or should I just let my buyer do the title search?

Re: Optioning Houses - Posted by Jim FL

Posted by Jim FL on November 06, 2002 at 13:10:52:

Matt,
This is really personal choice.
I personally think it is a good idea to do them right away.
This allows me to know before placing any of my funds toward marketing the house that I actually have something to sell with clear title.
and title searches or abstracts are not that expensive in the over all scheme of things.

Talk to a few local title companies about providing this service.
Some will do it for FREE or very cheap if you promise to close the transaction with them.
I get mine done for less than $100 per property in most cases.

When I have a buyer ready to go right away, I just get the paperwork to my attorney who then does all the final stuff, including the title work.

He includes this in his fee, so it breaks down to less than $100 for the title search.

Good luck,
Jim FL

Re: Optioning Houses - Posted by matt

Posted by matt on November 29, 2002 at 09:33:27:

Jim,

Thanks for answering my post.

I have an option on a house now. I’m a bit confused as to what to do when I find my buyer. After I have them fill out a purchase and sale agreement with me, isin’t the lender going to see that the title to the house is not in my name which will prevent the lender to say that I don’t have clear title to the house?

-Matt

Re: Optioning Houses - Posted by Jim FL

Posted by Jim FL on November 29, 2002 at 16:42:07:

Matt,
Once you find a buyer, you have options for closing the deal.
You could do a double close, as long as the end buyers lender has no title seasoning issues.
If they do, then perhaps assigning your agreement with the buyer to the seller is a good idea.
For the assignment, you simply gather your fee at close, which is the difference between your option price and the price your buyers have agreed to pay.
Contact a good competent RE attny to help set it up.
I do most of mine this way, saves closing costs as well.

HTH,
Jim FL

Re: Optioning Houses - Posted by matt

Posted by matt on November 30, 2002 at 18:05:16:

Jim,

Thanks again for the advice. I’m not sure what title seasoning is, could you explain it to me?

-Matt

Re: Optioning Houses - Posted by Jim FL

Posted by Jim FL on November 30, 2002 at 23:49:31:

Matt,
Sure, I’ll try to shed some light.
When a lender has a “Title seasoning” requirement, they want the seller to have been on title for a certain length of time.
If you are in a sandwich lease option, and performing a double close, you are only on title for a few minutes, so title seasoning might get in the way of a close.
Hence the reason we use other methods to close on certain deals.

HTH,
Jim FL