Option To Purchase (not Lease With Option)
Hi,
I heard in a talk at my local REIA meeting something called "Option to Purchase" real estate as a way to control a real estate. I cannot get the speaker to elaborate more because he moved on to other topics. I have some vague idea what it means. I would like to get your take on what it is about. And, more importantly, what would be a good circumstance to use an option rather than offer a contract straight.
Let me elaborate a bit more. By the option, I don't mean the option in the "lease with option to buy". One case I can think of to use an option is the following:
Let's say a house is listed for $150K. I made an offer of $130K and was not accepted. Instead of up the offer, I pay a certain amount (say $500) to purcahse an option to buy the house at $130K within the the next 3 months. The option might include a clause that if the house is to be sold at a price equal or lower than $130K, then I should get the first consideration. Otherwise, the seller might have to compensate for my loss, etc.
Actually, that is not such a bad scenario at all. As I was making it up, it seems to be a bit clearer to me 
Well, there must be other circumstance which you could use this Option thing. And there are arguement against using option, I am sure. I would like to hear those who used option to give me your experience and the circumstance under which you decide to use option.
I would like to learn more about the ins and outs, pro and cons of using option. Where can I read up on it? Is there any real estate course that devote some part to teach about using options? Any suggestion will be greatly appreciated. Many thanks in advance.
Koko 
Try an option for this...You find a chunk of raw land where the county planner is going to place an off ramp from the interstate. So we talk to old Maw Kettel who ownes the land. she doesn't want to sell right now ,but she might in a few years.
"Okay well will you give us the first chance to buy you land. That way when you go to sell you know you have a buy. She says sure."
We sign that option for 45k per acer on 10 acers, with a 10 years experation.
"I'll give you 10 dollars per year just to keep it renewed ok" and she gives you the green light. 4 years later the exit ramp goes in and you have the right to 10 acers of prime commerial RE that now sells at 150K per acer. Mention it to the right people and you just sold 3 acers to Bugetell for 450K. Now you have 7 acers left free and clear because you paid of you option in the first purchase. That would be how I might use an option. It can be used on houses also but I might sign a purchase agreement for a house and have a financing clause or a weasle clause instead of an option.
Best to you
Sire
Sire,
Thanks for the reply. That is indeed a good scenario. Is there any teaching material out there that would go into more discussion with using options? Any suggestion?
Koko
Options have a number of advantages. Because the fee you pay for the option is non-refundable (usually) some sellers are more than willing to let you "tie up" a property with an option for much longer than they would let you keep it under contract.
For example, I once was approached by a partnership which owned a big industrial building which was loosing money. They had paid too much $1.2M but really didn't want to recognize the loss by selling for $900k which was about what the property was actually worth. So they agreed to give me an option to buy for $1.2m in the next three years plus their operating losses from the date of the option forward. As part of the deal I took over the management of the buiding so that I could control the operating income and expense and began a set of renovations which I thought would add value to the property hoping that I could increase the value to something above $1.2 m so that my option would be valuable. The consideration for the option in that case was my willingness to manage the property. As it turned out property values increased enough over the three year period that my option was valuable regardless of the redeployment of the building.
Typically land development projects are done on option. "I need two years to put together permits, etc. to divide your 200 acres for a tract house development. How about we negotiate a price now and i pay 5% of that price each year to keep the option open?"
While commericalking has provided some good info, options on commerical property and options on residencial property are really to completely different things.
At it's core, there is no difference between a "pure option" and the option within a "lease/option." Both give specific terms, price, and time limits on the buyer's right to purchase.
Plain and simple, an option gives you the right, but not the obligation, to buy a property for whatever terms were agreed upon.
Example: you offer $500 option fee with a purhcase price of $130K and a 30 day term. Now you have 30 days to find your buyer, financing, etc BEFORE you have to actually offer a purchase and sale agreement. If after 30 days, you have not exercised your option to purchase, the seller keeps your $500 and is free to offer their property for sale to someone else.
Roger
Hi, I too am trying to learn about pure options I'm not to interested in Lease Options but would like to know where I can get a free Purchase Option Form, and if there are any books that anyone recommends reading on the topics of options. There are many vacant lots in my area and people are building like gangbusters I would like to tie up a few lots and then sell my options to purchase to a developer....any advice????thanks
A well known speaker & very erudite writer on the subject is Barney Zick, and his website ought to lead you to his materials.
Our RE Exchangers' (brokers/agents)group bought his Options Course & materials a couple of years ago and we've felt we got more than our moneys worth. Barney is a real student of the subject & practices what he preaches & is not just another course hustler trying to make a living on books & tapes.
Thanks JM, I have looked at his website but it is not much help, it does look as if he's trying to make a living off selling books and courses, do you know of any other resources that I can check out that would cost less than $3500....or know where I can find a free "pure" or "straight" purchase option form...the freebies here only have the lease option form....thanks again
Why dont you do something really wacky like have a lawyer draw one up for you. Give him the details of the option that you would want to do and let him draft it.
OOOOOORRRRRRR
You could draft the document yourself and have an attorney review it and make some changes to it.
Thanks for the helpful advice,
rickBozo I hadn't thought of that I will just run down to my local "FREE" attorney and get them to write one up for me at no charge, I thought one of you guys might have a basic form or know where to find one.....brilliant
jsmith:
Hope this helps.
OPTION TO PURCHASE REAL ESTATE
OPTION AGREEMENT by and between....
####### Adam, We appreciate the form, however it shouldn't be posted in the Forum area. It needs to be in a downloadable form. PDF, DOC etc. and added to the Freebies section for other people to use.
Click on Products and Services, Freebies.
Thanks.
########[ Edited by joel on Date 05/23/2004 ]
thanks for the help adam, your the man the "FREE" man