An Option to purchase Real Estate is a contract between two parties giving the purchaser the exclusive right (without the obligation) to buy the property. During the term of the option no-one else can buy or sell the property including the owner. For accepting this obligation the seller received and keeps an option fee whether the option is exercised or not.
Having a commitment in the form of an option to purchase works well for the buyer as well because it commits the seller to an agreed upon price as well as terms and conditions for the sale.
The buyer can walk away without making the final purchase if they like but the option purchase fee is kept by the seller in consideration for keeping the property off the market for the specified term.
If your buyer is sincere and confident they should see the value in the purchase of this option.
In situations where homes were purchased with a deposit and then the market took a dip before the closing the buyer may want to walk. That could be a problem for them. The seller can refuse to let them based on the fact that according to the law they have to complete the deal at the agreed upon price. If they don’t the seller has the right to sue for losses that are the result. They may have to sell at a reduced price.
Buying an option to purchase is better for everyone. In business options are purchased to hold a property or a business off the market while the buyer raises capitol for the purchase or has some time to do a feasibility study on the viability of the business.
The option to buy price is negotiable, as are all of the terms and conditions of sale but there is a logic to it. The bigger the number the stronger the commitment. The longer the term of rental the larger the consideration should be.
To put it simply if you wanted to purchase this property right now the asking price would be: for example $350,000. We may take a little less if the money is there and we can have it sooner than later. Simply because we can put it back to work.
But let’s say you need some time to raise some funds. In order to make it worth our while to take the property off the market and hold it for you to purchase later there are a few conditions we would ask you to consider.
- First of all we need to agree on when you will be making the purchase and what we will do if that time comes and the funds are not there. According to the agreement we will offer we will then have full control of the property at that time to do with as we see fit. The buyer may ask for an extension and it will be granted providing it is in the best interest of all parties involved but the decision is entirely the sellers to make.
- Second we need to agree on the price you will pay at the time of purchase. The logical way to approach this is to apply the local rate of inflation to the asking price of today. We would use a rate of 6% per year making the purchase price $371,000 after 12 months, $393,260 after 24 months and so on.
- Third we need some consideration from you to bind the agreement. Providing you go through with the purchase we will apply the funds to reduce the price.
- Fourth we need to sign a rental agreement for the term specified and agree to the rate and terms.
The intent should be clear and the agreement simple to understand. When we have a verbal agreement we can have the paperwork prepared and move forward as quickly as possible.