Straight option. - Posted by Dave

import · November 21, 2003, 9:39am

Posted by Dave on November 24, 2003 at 11:27:38:

Brent

In this situation, nothing need be recorded or notarized right? Just a signed purchase agreement?

import · November 21, 2003, 9:39am

Straight option. - Posted by Dave

Posted by Dave on November 21, 2003 at 10:39:05:

Hi All

I have found a property that I can buy for $50,000 that is worth $65,000. I dont have any cash so can I tie this up with a purchase contract? What verbage would need to be in this contract so it would work like a straight option? I would like to flip to someone else within 60 days if I can. If I cant I want to be able to walk away. Also How do I go about selling the contract? Do I advertise in the newspaper or things like that? Thanks

import · November 21, 2003, 10:03am

Re: Straight option. - Posted by Randy (SD)

Posted by Randy (SD) on November 21, 2003 at 11:03:19:

It depends a lot on who you’re dealing with, if your dealing with the owner you can submit an offer to purchase for the $50,000 asking price and secure that option with a $10 earnest money deposit. On the buyers name line you put your name and or assigns. This allows you to assign the contract to someone else which you do of course for a fee of say $2000.

Some escape clauses that you can use are ?subject to my partner?s approval". Some ways to market your contract might be looking in the real estate wanted section of your local newspaper and call ?I buy houses ad". Or run your own ad ?$10,000 equity" nice three-bedroom home on corner lot call investor 555-1212.

import · November 21, 2003, 10:51am

Re: Straight option. - Posted by Dave

Posted by Dave on November 21, 2003 at 11:51:09:

Thanks Randy

So I would not say something in the contract about trying to sell it to someone else? Should I just tell the seller this verbally? I wont make any promises but I want to tell them somehow that I will only try for a certain period of time.

import · November 22, 2003, 6:48am

Re: Straight option. - Posted by Sal

Posted by Sal on November 22, 2003 at 07:48:39:

Dave,

In the contract you could have an ACCESS statement: This statement identifies your need to bring in inspectors, partners, assigns, etc., to view the property before you actually close or take possession.

import · November 21, 2003, 1:52pm

Re: Straight option. - Posted by Brent_IL

Posted by Brent_IL on November 21, 2003 at 14:52:22:

Why not use a 60-day option contract that refers to your purchase agreement for the terms of sale. ?Trying? for longer than 60-days wouldn’t be possible without renegotiating, so the certain period is limited. No additional promises necessary.

import · November 21, 2003, 2:52pm

Re: Straight option. - Posted by Dave

Posted by Dave on November 21, 2003 at 15:52:09:

Thanks Brent

You mean use 2 documents? I have never heard of that before. Cant an option contract have the terms in it or vice versa? What would go in each?

import · November 22, 2003, 10:05pm

Re: Straight option. - Posted by Brent_IL

Posted by Brent_IL on November 22, 2003 at 23:05:21:

Yes, an option can include the terms of sale. The other way around is a purchase contract with contingencies. The contract for sale of real estate that I use addresses many things that are of no consequence if there is no sale and I try to limit the number of copies that are floating around.

I keep transactions separated because in the past I?ve operated on a ?Need to Know? basis. This isn?t necessarily a good thing. When I had several strokes a few years ago, no one knew what was going on and I couldn?t tell them. It was a textbook recipe for disaster.

I try to leave as few things to chance or open to future negotiation as possible. The purchase contract locks down the financial terms and the substitution-of-collateral and subordination clauses. It?s referred to by title and date in the option contract. I can record a memorandum of option without disclosing the terms of sale. I use two performance mortgages, one for the option, and the other for the purchase contract in case I need to utilize one of the collateral-shifting or discount terms. Most transactions are held in trust.

Today, I would simply use the contingent purchase contract with a long escrow or an EHTrust®-type arrangement.

import · November 23, 2003, 4:36pm

Re: Straight option. - Posted by Dave

Posted by Dave on November 23, 2003 at 17:36:25:

Thanks Brent

This would be my first deal. I would like to keep as simple as possible for myself and the sellers. Do I have to record and option? I dont believe I have to record a purchase contract, right?

I plan on doing all this in my own name for simplicity and cost factors. I would like to use just a contingent purchase contract. What do you mean by a long escrow?

Thanks, Dave

import · November 23, 2003, 6:49pm

Re: Straight option. - Posted by Brent_IL

Posted by Brent_IL on November 23, 2003 at 19:49:42:

It isn?t mandatory to record anything, but most of the time it?s a good idea. Once the seller closes around your option, it?s a mess. Memoranda are recorded to establish your claim on the property.

Most escrows close after settlement. If the ?option period? is longer than a few weeks, say six months, a seller who has changed his mind could allege that a common purchase contract having a few contingencies is not being performed or has been abandoned. A contract reference to an extended or long escrow avoids all that.

import · November 23, 2003, 6:57pm

Re: Straight option. - Posted by Dave

Posted by Dave on November 23, 2003 at 19:57:32:

Can memorand be recorded for a standard contract?

I understand that a seller can get nervous and say that you forgot about them but I still dont understand what you mean by a long escrow. Are you saying that the contract should say someting about the closing date being as long as the option is good for? Sorry if I am way off base.

import · November 23, 2003, 7:40pm

Re: Straight option. - Posted by Brent_IL

Posted by Brent_IL on November 23, 2003 at 20:40:35:

A memorandum can be recorded that refers to a standard purchase contract. If a purchase contract is notarized, you can record the whole thing. Memoranda are used to keep the terms of sale private.

A memorandum of any agreement has to be connected to the property in some way to be recorded. Options, purchase contracts, mortgages, and deeds of trust establish an interest in the property.

An option has a built-in expiration date. A purchase contract does not. I don?t care if the seller is nervous; I?m concerned about a possible legal position that would cut me out of the deal. If you want to use a contingent contact as an option, establish your intentions by putting in dates and times in writing. You can frame the times as references to specific occurrences if you don?t want to use an exact date, e.g., title will transfer within six months of removal of all contingencies.

It’s cleaner if the contract to purchase refers to the option agreement that will invoke the use of the contract, but it isn’t necessary. The option agreement must state that the terms of sale are according to the purchase contract.

import · November 24, 2003, 5:57am

Re: Straight option. - Posted by Dave

Posted by Dave on November 24, 2003 at 06:57:57:

SO basically I just need to make sure that my purchase contract spells out that if the contingincies are not met, title will not change hands and the contract becomes void. Would that sound something like this?

This contract is subject to buyer finding an acceptable assignee within 60 days.

Thanks Brent

import · November 24, 2003, 10:04am

Re: Straight option. - Posted by Brent_IL

Posted by Brent_IL on November 24, 2003 at 11:04:14:

That contingency is as good as any, but I’d define who determines “acceptability,” e.g., the buyer, and add something that states that the seller will return any money deposited into escrow forthwith if the contract is cancelled.

Make sure that the terms of sale that you negotiate with the seller have universal appeal because they are the terms that a subsequent buyer will have to close under.