Remember the Option deal... - Posted by Pavon Bailey

Posted by Pavon Bailey on November 30, 2000 at 16:00:43:


Thank you for your response. It is appreciated.

To answer your question, I’m using a straight option contract for this deal.

Secondly, I included all that info because I didn’t want the seller to think I’m trying to pull a fast one on him. However, I do like the recommendations you made. I have the info brochure saved on disk, so I feel I will be updating it periodically.

Also, my option contracts start off, “In consideration of _______________________dollars ($________________), …”. By adding that question in the info handout, the seller knows NOT to ask me for any upfront money.

As far as the agent’s commission goes, I meant that if the sale goes through, not if the sale fell through. I may need to rewrite that sentence because of tyour interpretation. Thanks for letting me know. smiles

Thank you for the response, HT. Have a wonderful and productive day.

Warmest regards,

Pavon Bailey

Remember the Option deal… - Posted by Pavon Bailey

Posted by Pavon Bailey on November 30, 2000 at 15:10:20:

…I spoke about previously? Well, I called the seller and I told him about the option plan I had for him. He seemed really interested and wanted me to tell him more about it. I feel it’s better that I fax him an information leaflet that would answer most of his questions.

Here is the questionnaire below. Please look over it and tell me what you all think:


Any homeowner that is having difficulty selling his or her home or investment property.


I would personally assist you in selling your home. I will market the house at my time, efforts, and expense. In return, you give me an option to purchase your home at a predetermined price within a certain time period.


An option is a legally binding, unilateral agreement between two parties that gives the buyer the option of purchasing the property. He or she can choose NOT to exercise the option with no legal ramifications. However, if the buyer elects to exercise the option to purchase the property, the seller has no choice but to sell the property to the buyer at the agreed upon purchase price.


The only risk is the possibility that I do not successfully sell the house. If that unexpected event was to occur, then your house would still be on the market. However, no charge would be assessed to you if I fail to sell the house.


If that circumstance arises, then you can buy my option from me for 1% of the purchase price, which should be equivalent to a month’s mortgage payment assuming all variables are constant. We will then part friends.


If I sell the house, then I will exercise my option to purchase your home from you. Since I legally do not own the house, I will have no choice but to exercise the option or get sued by you and the new buyer. Keep in mind that I am merely marketing the house along with you–nothing more, nothing less.


Several advantages are present for you if you choose to use this program. Some of the advantages are: house is not taken off market; seller retains rightto continue selling the house; no risk to the seller; seller has another person AGGRESSIVELY selling the house with him.


That is fine as well. However, it’s best that you tell the agent that you will have someone else marketing the house along with you. You, the seller, will STILL be responsible for the agent’s commission if the sale falls through, whether I sell the property or your agent sells the property. If the agent knows that he or she will still receive a commission from the sale, he or she should have no problem with me selling the house along with you.


You will not receive an option consideration from me.Your consideration comes from my time, efforts, and expenses from assisting you in selling your home.


Preferably yes. However, some people are cautious about giving away their keys. If you feel uncomfortable in any way, shape, or form, I will not pressure you to give me a key.


Yes, this program is legal. I verified it with my attorney.
My only concern is that you, the customer, is protected from all angles.


Feel free to contact me by phone at xxx-xxxx, pager at xxx-xxxx, or email at

Please let me know what you all think. I’m supposed to fax the seller this information leaflet tomorrow.

Have a wonderful and productive day!

Warmest regards,

Pavon Bailey

Re: Remember the Option deal… - Posted by Brent_IL

Posted by Brent_IL on December 01, 2000 at 15:34:23:


This is my .02 based solely on my experience. Others may disagree. My approach to buying and selling RE has changed continuously over 20+ years.

When I fisrt made offers the only thing I had going for me was an understanding of real estate and financing terminology. Because I had no money, poor credit, and low income I felt that the only way to present myself as reputable buyer was to appear knowledgeable and astute.

I never mentioned the sellers or their needs at all. Intellectually, I understood that I should appeal to the seller?s situation, but I was afraid that if I slowed down they would ask me how much money I could put down. I talked so much that they couldn?t say yes if they wanted to. I got nowhere.

Things improved when I realized:

1- Sellers are best informed on a need to know basis.

2- Informative writings, as contrasted to advertising, can only give people enough knowledge to confuse themselves. Real estate is a major part of your life. Not so for most sellers.

3- Sellers do not initially ask questions because they want information. They ask questions to avoid committing themselves because they don?t feel comfortable enough to trust you. They need reassurance that they are doing the RIGHT THING. Only repeated questions need to be answered, and then minimally. All anyone wants to know is, ?What are you going to do for me??

The approach I now use is to put everything I feel could be of any conceivable value to me in the offer to purchase. Now, I don?t have to explain substitution of collateral, 2nd mortgage position, or why the seller should pay my closing costs. It?s all in the contract.

I insist that everyone on title, RE agents (his, maybe mine), and known mavens be present for my offer, which I make in person. I am not very visually oriented so I don?t pick up on a lot of property defects. I have little interest too. I bring along someone who knows about these things. His job is to list defects and the costs to fix. While he walks through the house with the seller, I joke with the RE agents to let them know that I understand that they have earned their money and any offer I make will make sure he or she gets paid. The inspector leaves. Mission accomplished. He gave me time with the agents, and I can always use the info during negotiations.

As we talk, I fill in the contract blanks to reflect whatever terms the seller and I agree upon. It is at this point that your creative skills become important. The only time I give a detailed or technical answer is to intimidate the agents just enough that they stay quiet during my presentation.

Some people grasp things quickly and become bored with minutiae. Others tend to go slower. I?ve practiced my basic sales talk so I can hit the highlights in 35 minutes or extend it to 1.25 hours. Most of the time is spent learning about the seller?s plans after the property sells. We talk about financing as a solution to their problem. Unless you are dealing with a distressed seller, there must be enough cash to pay the RE commissions, closing costs (especially mine), and enough for the seller to take a weekend vacation. The creative part is making sure the cash is not yours.

No seller will ask about your net worth if they feel you are helping them get to where they want to go. In their heart the seller is not thinking about all cash. It is just a pile of paper. No one needs all cash. Everyone needs the things the cash can provide, i.e. income, capital growth, freedom from the fear of running out of money, or providing a down payment on a new home. Use one of the 101 ways to give it to them. Once they know that any potential legal questions can be handled by the attorneys or the title companies (which they understand because you told them so), they will sign.

Most people experience buyer?s remorse after making a major financial commitment. Get out the door before they ask for time to reconsider.

If I cannot reach an agreement, I collect every paper, illustration, and contract and take it with me. I don?t want anyone wondering what something means when I am not there to explain it. I give them my phone number, my ? Things have a way of changing? speech, and go.

This post turned long, but if someone had told these things to me, and if I was humble enough to believe it (fat chance at the time), I could have saved a decade of disappointment and struggle.

In essence,

Most surveys allow us to appear as though we are doing something. That way we don?t have to talk to sellers that might be rude or condescending toward us. In effect, we can hide without challenging our self-image. In addition, the legal liability could affect you in the future.

If you make offers, some will be accepted. The money must come from somewhere. You need to know the where.

If you want to make offers without making the effort to find motivated sellers, ask a RE agent for a listing of all houses on the market for 6 months or longer. Also, check those where the listing office has changed. Some of these people are now ready to listen. The results will be much better than the survey approach. If they blow you off, who cares? You can talk to the next seller, but they?re still stuck. All expenses and still no buyer.

I?ve learned that when I have to practice I may as well do it in front of a seller. There are many sellers, and one me. I won?t run out.

P.S. Instead of the 1% option, try this. One of the terms of the contract I use is the ?SELLER?S OPTION TO CANCELL.? It is in caps. When I explain it, I tell them that “even if we have a fair deal now, Wal-Mart may decide that your house should be the electronics department of their new store, and offer you $100,000 more than it?s worth. This gives you the right to accept a better offer anytime before closing, simply by reimbursing me for my time and expenses.” This clause also helps out if their lawyer freaks when he reads the contract. If the sellers are wavering, it is cheaper for them to pay me off than to challenge the contract.

Re: Remember the Option deal… - Posted by dewCO

Posted by dewCO on December 01, 2000 at 11:27:15:


JoeK is right. And, is this seller MOTIVATED and hasn’t been able to sell the property? If so just do the option. Write it up, send it to them and have them sign. They will ask questions if they HAVE ANY.

Anything you put in writing can and will be used against you. Just put the option in writing and have them sign it.

Re: Remember the Option deal… - Posted by Tom

Posted by Tom on December 01, 2000 at 09:26:01:

Just my opinion, but this is way to much information, skip it, get face to face with the seller. This information will make them run for the hills and you’ll never hear from them again.

Also, in a couple of your post you mentioned that “you were assisting the seller” don’t say that. You are the buyer and you are selling your property.

Re: Remember the Option deal… - Posted by Mark-NC

Posted by Mark-NC on December 01, 2000 at 07:49:49:

I tend to agree with Joe, this is way to much information to give to the seller. If I was a seller motivated or not this thing would scare me.

I have found with options that many sellers are not going to go for this unless it is an open option. which means, “who ever sells or closes on it first wins”. And I get nothing if I don’t find a buyer to sell it to it. That’s how I explain it short and sweet. That means I have to market it hard to make my money it’s absolutley no risk to them so it’s an easy sell on the option. If I don’t do my work I don’t get paid.

With your plan of taking a 1% buy out of the option if they sell is going to be hard to sell. For all they know you could just sit back and wait for it to sell. I don’t think you are going to get many people to bite on that. Besides, It looks to much like a commission the way you have it presented and if the right person say a realtor or attorney saw this flyer it could cause you some problems.

You have to be carefull here. You are not helping them sell their home at all. You are an investor and you are buying it for resale. I know in our state I believe the fine is somewhere around $10,000. for representing yourself as someone who can help sell your home without a real estate license. I know thats not what you are doing but thats the way you have it presented.

As far as the closing goes. This is a flip. You will have to close on your option and resell to your buyer “the basic flip”. Or you could sell or assign your option to your buyer but then you have the price disclosure between your buyer and seller that you will have to deal with.

Just my 2 cents


Re: Remember the Option deal… - Posted by JoeKaiser

Posted by JoeKaiser on December 01, 2000 at 03:46:26:

You cannot “assist” someone to sell their real estate unless you are licensed to do so. That’s why agents wear gold blazers.

Of course, if you “assist” someone to sell their property to you, that’s fine.

There are hard ways to make money in real estate, and there are easy ways. This would be a hard way. Why would you even consider this approach when there are so many other (and better) ways to make things happen?

Explaining the virtues of an “option” to moms and pops doesn’t sound like much fun to me.


Re: Remember the Option deal… - Posted by Dan(MO)

Posted by Dan(MO) on November 30, 2000 at 20:21:29:


This sounds very similar to what I had in mind in a post by myself about three weeks ago. Keep in mind that if the seller lists with a realtor, the seller can ask the realtor to exclude you. By doing this, if you sell the house then the realtor gets no commission. Some realtors may balk at this but not all of them will.
Also, about the key, it really depends on if the house is empty or not. If it is empty, then by all means get a key so you can show your buyers on your own time. If the sellers still live in the house, then you can simply send the buyer over there (with prearrangements with the seller) to look at it. You may even want to meet them over there, however you feel is best to make the presentation and sale.
Seasoning, like the others posted, may be an issue with the lenders. I have been told that very few conventional lenders and no “subprime” lenders will approve a deal with no seasoning. Exceptions (for now) are FHA and VA loans. Before doing these deals, find a lender that does not have a problem with what you are doing so that you dont get snagged “up the creek”.

How do you plan on doing your closings? Are you going to do a “double” closing with you closing with the buyer first and then the seller? make sure your title company and the buyers lender is agreeable to this. Are you going to assign your option to the buyers? Make sure you know how you are going to get paid for your option (or the spread between your buying and selling price) before doing the deals. Also, who is going to pay the closing costs? I guess what I am asking you is, do you know your exit plan for these type of deals?
Here is the thread that I mentioned above. Read it and it may help you

Best Regards,
Dan (MO)

Re: Remember the Option deal… - Posted by Sheik

Posted by Sheik on November 30, 2000 at 15:55:44:

In my opinion, you are over complicating the whole thing. If this guy really wants to sell then put it under contract for your negotiated price. All the seller is concerned with is whether you are going to close not with what you are going to do with the property.
He couldn’t care less about your “programs”.

Keep in mind that you might have some difficulty in closing these types of deals where you, the investor, are attempting a flip with a note sale. (At least, that’s what I thing you are attempting). A lot of lenders (read your buyer’s lender) wants to see title seasoning.

Good luck


Re: Remember the Option deal… - Posted by HT

Posted by HT on November 30, 2000 at 15:47:17:

This looks like a great info brochure.

A few questions however, In the section, “What happens if you sell before me?”, do you really want to mention to the seller that they can sue you?

Instead of of giving them that type of ammunition, why not just emphasize the positive, such as “If I sell before you, then your problem is solved, your property is off your hands, let’s celebrate and wait on our checks!”

Second, how is the seller still responsible for the agent’s commission if the sale doesn’t go through? If no sales transaction takes place through completion, how is a commission due?

Third, is the “common joe” familiar with option consideration? I don’t think most are. Mentioning it may make them seek further info and ask for a larger fee?

Maybe I’m missing some info here, if so I would appreciate it if you would enlighten me.

Other than the questions posed, I think you did a really nice job of explaining options in simple terms that should lead to you acquiring quite a few deals.

Best of luck on your future deals.

NOTE: One last thing, are you structuring your option deals with option contracts or straight purchase agreements with contingency clauses?

Re: Remember the Option deal… - Posted by Pavon Bailey

Posted by Pavon Bailey on November 30, 2000 at 16:04:58:


Thank you for your response. It is appreciated.

I’m not placing the house under a purchase agreement. for this deal, I am using a Straight Option. If I find a buyer, then I will exercise my option. If not, I will not exercise my option. there is no flipping involved. All I’m doing is helping the seller market the house.

Have a wonderful and productive day. i need to go type a paper for class. Take care, Sheik, and thanks for the advice once again.

Warmest regards,

Pavon Bailey