When optioning-Do u disclose price from buyer? - Posted by Len(NYC)

Posted by J. Clifton on October 14, 2001 at 17:03:49:

Yep, it would be a mess. I just brought it up in light of the many irrational people we run into in the field, who might just bite themselves to keep an investor from getting money, if they were clever enough. If BOTH the end buyer and the seller colluded to cut out the investor, they possibly could do another contact, get a memorandum recorded, THEN try to get the refund based on clouded title. But, yes, I LOL to such efforts!

When optioning-Do u disclose price from buyer? - Posted by Len(NYC)

Posted by Len(NYC) on October 14, 2001 at 10:41:45:

I plan on putting a house under option in the next few days, I may have a buyer already lined up. Its my boss at work in fact. I figure that Im going to put the house under option for 210-215k and then sell it for 230k, the house is appraised at 255-260k. How do you go about assigning the contract over to him with out 1) showing the buyer they couldve saved 10-15k on the deal? 2)When do you get this money, how is your cut paid out to you? if the seller is paying thru refinancing- or through cash in an account? Do they have to give you 10-15k seperately? There must be a cleaner way of doing this, I would appreciate any advice, since this will be my first deal.

Re: When optioning-Do u disclose price from buyer? - Posted by JohnBoy

Posted by JohnBoy on October 14, 2001 at 11:52:51:

Typically when you assign your contract you get all your assignment fee up front in cash! Your buyer just buys your contract that you have with the seller. You fill out an assignment form between you and your buyer that states you are assigning all your interest in the contract over to him for $X amount.

This sounds like your boss may be buying this for himself and that he isn’t an experienced investor that buys a lot of property. That being the case, then getting him to just hand over $10k - $15k to you up front like this may make him very uneasy about it. So what you can do is have him put up the assignment fee to be placed into an escrow account to be held by your attorney or the title company. Once the deal closes where he gets clear title the escrow account would release your money and pay you at the closing. If something went wrong where your boss couldn’t get clear title for some unforeseen reason, he would get his money back.

Typically the assignment fee would be non-refundable with the exception of your buyer getting clear title to the property. Which means if for ANY reason the buyer fails to close other than being able to get clear title, the buyer loses his deposit and you make your profit regardless. But since this is your boss, you might not want to enforce that unless you don’t care about your job! :slight_smile:

Whenever you do assign a contract your buyer will know what you were paying for the property. They will have your contract since they are taking it over. As mentioned, the only way to hide the amount you are making is to set up a simultaneous closing with the title company. The problem with that is if your boss is getting a mortgage his lender may have a problem since his contract is with you to buy the property and you are not the person on title. Your seller is! A lot of lenders have a problem with this and most today want to see 12 months seasoning on title.

Like the other poster said though, you could set up a deal with the seller where they agree to buy your option back and enter into a contract between your boss directly. But then your seller is going to know what you’re making and that could cause a problem with him.

Since this is your boss and if this were me, I think the way I would handle it is, approach my boss by saying:

You know Mr. Boss, I have this property I have an option on that is worth $260k. I have someone that is seriously considering buying it from me for $250k. Only I will need to wait for them to go out and get approved for their financing which could take up to 90 days before we close on this and something goes wrong I’ll lose more time having to find another buyer, which isn’t a problem except I would like to get this sold quicker if I can because I can use the money for another property I’m looking at. If you’re interested in this property I’ll let you have it for $230k if you can buy it now where I can get my money out of this quicker. I’ll take a loss of my profit to get it sold quicker. Instead of making the $25k I stand to make in 90 days, I’ll cut that down to $15k for someone that will take it now! You’ll make $30k in equity off this!

The reason I’ll take the $15k now instead of the $25k later is because I need at least $15k for this other deal and if I get that I stand to make $50k on that deal. So taking a hit on this one would be worth it if I can get someone to jump on this now!

If he asks you about the other deal, SORRY! I ain’t saying nothing more about it until it’s a done deal!

This kind of puts your boss into the position that HE is getting a heck of a deal on this since you are cutting your profit from $25k down to $15k and that looks a lot better knowing that then just seeing a $15k profit going to you! That $15k should of been $25k and now he can make $30k in equity instead of only $10k just because you need $15k now and can’t wait 90 days because of some other deal that you have cooking.

Re: When optioning-Do u disclose price from buyer? - Posted by MSchmidt (IL)

Posted by MSchmidt (IL) on October 14, 2001 at 11:06:35:

As mentioned, I would favor a double close in this case. When a boss finds out you made $10-$15K it has a funny way of effecting future bonus and pay raises =)

Call a few title companies in your area and ask if they will do a double close, explain what you have and what you want to accomplish.

Re: When optioning-Do u disclose price from buyer? - Posted by Doug (ON)

Posted by Doug (ON) on October 14, 2001 at 11:00:50:

As I understand it from your post (and please tell me if I’m wrong) you are getting a straight option on this house and selling to your boss who will pay cash by getting a mortgage.

If this is the case, then one way to make the deal ‘cleaner’ is that once you have the house under option for say $210k, you sign a separate option with the your boss for $230k.

At this point there are two ways you can handle it.

  1. You can do a double closing, which may be difficult.
    Or 2. You can sell the $230k option back to the seller at the closing table and have the closing agent put you in for collecting $20k of that.

Unfortunately, with anything but a double closing, either the buyer or the seller will know how much money you’re making. That’s one reason why flips are usually for relatively small amounts of cash (say $5-$10k.)

Doug

CYA Question About the Assignment Fee… - Posted by J. Clifton

Posted by J. Clifton on October 14, 2001 at 15:20:42:

Thought balloon time: What happens if you set up the assignment fee as “non-refundable with the exception of your buyer getting clear title,” just as you have always described, but your buyer changes his mind, runs down and records a memorandum of the transaction, then demands his money back based on the title being clouded?

Re: When optioning-Do u disclose price from buyer? - Posted by Len(NYC)

Posted by Len(NYC) on October 14, 2001 at 15:11:45:

Wow,
Those are all good suggestions, I appreciate it. I think the last example of 30k equity for the buyer- is the best delivery, thanks for such an informative post that uses great negotiating skills.Ill let you know how it all turns out.

Re: CYA Question About the Assignment Fee… - Posted by JohnBoy

Posted by JohnBoy on October 14, 2001 at 15:51:00:

If the buyer records a memorandum then that would only work against them to close the deal or be sued, wouldn’t it? Also, that would be between the original seller and the new buyer since the buyer took over your contract. Assuming you got a release of liability signed off by the seller. So the memorandum wouldn’t have anything to do with me or the assignment fee. Our end of the deal is done as long as clear title could be delivered!

Re: CYA Question About the Assignment Fee… - Posted by J. Clifton

Posted by J. Clifton on October 14, 2001 at 16:26:39:

No, I mean our brazen end buyer gets cold feet and, by filing a memorandum immediately, tries to negate his committment SPECIFICALLY on the assignment end, by making sure clear title COULDN’T be delivered. He may indeed be sued by the seller, but wouldn’t he be entitled to the assignment refund regardless, because the ‘clear title’ condition could not be met?

Re: CYA Question About the Assignment Fee… - Posted by JohnBoy

Posted by JohnBoy on October 14, 2001 at 16:38:50:

How can the end buyer make sure clear title couldn’t be delivered? Because of his own doing by recording a memorandum and refusing to release it unless he gets his money back from the assignment fee??? LOL

I don’t think so. For one, it would be HIS memorandum against HIS own purchase agreement which HE would have control over. Plus he could be sued by both the seller and the investor for trying to scam everyone!

He assumes the original purchase contract which makes him obligated to close. I doubt he could record his memorandum of contract to get himself out of his own contractual obligation! Heck, if that was the case then any buyer could do that to get out of any purchase agreement! A memorandum isn’t for the purpose of screwing yourself or getting yourself out of a contract. It’s to protect your interest to prevent the seller from selling to someone else.

Man, wouldn’t that be a mess if all we had to do every time we entered into a purchase agreement is to record a memorandum of it and then say we refuse to release or own memorandum on a property we are contracted to buy just to get out of our contract and get our earnest deposits back! LOL