In most states, there are three requirements for an enforceable option contract.
1. The contract must be in writing and signed by the property owner.
2. The contract must have a specific description of the property and a predetermined method of calculating the sales price (an agreed-upon amount, a certain figure per acre or per square foot, etc.).
3. You must pay something to the property owner for the option contract itself. You cannot get credit for it at closing, as if it were earnest money. If you even suggest such a thing in the option contract, the whole arrangement could be unenforceable.
How much you pay for an option will depend on (1) the lowest amount the owner will accept, and (2) the largest amount you can afford to gamble if you cannot find a lender or another buyer. Remember, the money is not refundable.
Many times, option holders will find another buyer and then have two simultaneous closings - the owner to the option holder, and then the option holder to the new buyer. This is very expensive and inefficient. The better way is to put a clause in the option contract giving you the right to assign it to someone else, if you choose. That person then goes through with closing with the owner.
You should consult with a local attorney. State laws vary widely, so I do not recommend using a generic form from the Internet. On the other hand, U.S. Legal Forms will sell you state-specific forms and give you a free preview so you can decide if the form is what you really need.
If you do not go through with the purchase, you lose the money you paid to buy the option. That is all - nothing worse happens to you.
It is always a possibility that a buyer will go around you, find out the details of your arrangement, and then simply wait you out. There is no foolproof way to keep this from happening. As a practical matter, though, it is very rare. Out-of-town buyers simply do not have the time or contacts to do this. Local buyers either want to preserve their honorable reputation, or you already know to avoid them because they are unethical. If you have a good relationship with the owner, and stay in close contact with him or her, then he or she will usually tell you if something fishy starts happening.
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06292010
1. Investing In Commercial Real Estate
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