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Here’s an interesting Reader Mail question I got in follow up to “The Real Estate Option Contract…Undressed” post. It deals with:

  • land options,
  • equitable interest,
  • and ignorant Realtors…

See if you can identify with Ken’s question, and/or maybe you have some feedback of your own you can offer him…

From: Ken Barns
To:
** REI Tips **
Subject:
Real Estate Option Question

Hi Jp,

Great video on real estate options. I do have a few questions.

First, my goal is to invest in vacant land. Let’s say I get a piece of property under option contract for $20,000 but FMV is $45,000. I market the property to a vacant land broker/Realtor or investor.

The vacant Realtor tells me the only way they will try to sell it to their buyers if I exercise my option to buy the property. Being that I don’t have $20,000 to purchase the property, however,

I am able to get the seller to do seller financing $2,000 down $200 a month. The question is can I go back and present the deal to the vacant land Realtor since I now exercised my option to purchase the property even though I am making payments on it?  Basically, can I sell/or assign a real estate option if I am making monthly payments on it?

Best Regards,
-Ken

Interesting question, Ken. I think I can clear this up for you, and I’m betting others might have some helpful advice to share as well.

But first off, let me say I’m not an attorney and I am not giving legal advice here.  In fact, please (everyone) consult with your real estate attorney before you go and use any of this. Gotta cover my butt here…

Having said that, let me say I’m pretty darn sure your Realtor’s flat out wrong and full of the crap of ignorance but totally convinced of his total awesomeness and right-ness.

Equitable Interest (You Got It!)

The fact is, having an option (or a purchase contract) in place gives you the equitable interest in the property you need, so you can legitimately advertise for its resale.  So long as you don’t actually sell it before you’ve bought it. (I know, Captain Obvious.)

Then once you have an interested party, you can either exercise your option and purchase the thing, then immediately resell…OR you can just assign your option…which is not actually selling the property, but rather your equitable interest in the property…which is (I believe in most states) considered personal property rather than real property.  A whole different ball of wax.

The Problem with So Many Realtors…

This stinks, but in my experience most Realtors aren’t very good at “outside the box” thinking.  So unless you’re serving up a plain vanilla deal, they’ll play the “I’m a Realtor and I’ve never heard of that, ergo you can do that and it’s illegal” card.

Not trying to beat up on Realtors here – I’m NOT anti-Realtor. I used to be one.  It’s just a sad truism that (and there are of course exceptions to this) the vast majority find it necessary to assume that anything they’re not familiar with is probably illegal and will get you/them in trouble.  I fact, I tend to find the same thing is common in attorneys.

So What Are Your Options? (Pun Intended)

Well if you’re determined to use this guy to list, then personally I’d probably start by sharing (confidently) with the Realtor that you realize it’s not what he’s used to, but it’s actually quite legal to advertise something for sale if you have a legal contract in place (in this case an option), just so long as you don’t sell before you buy.

In fact go ahead and tell him you have a buddy (me) who’s local MLS has even introduced “Equitable Interest” as a new listing category recently for just such occasions.  And yes, it’s true.

If he remains defiant / obstinate, then moving on to another Realtor is always an option.  I’m just saying…some folks don’t want you be an expert…cause they’re the expert.

Now Back to Your Original Question, Which Was…

“…can I go back and present the deal to the vacant land realtor since I now exercised my option to purchase the property even though I am making payments on it?…Basically, can I sell/or assign a real estate option if I am making monthly payments on it?”

Well that depends on the scope of your Realtor’s ignorance frankly.  😉

As I said, you should have already been able to list it.  Now that you have actual owner financing in place, you just snatched another few “sticks” from the owner’s “bundle of ownership rights” (anyone who’s been through Realtor school is probably smiling at that one).  So you should be DOUBLE able to list the dang thing!

But I should point out that you won’t need the Option agreement anymore.  In fact, you will have already exercised it and it’s now considered executed.

Now you didn’t specify the type of owner financing you mean, but there’s two main types:

  • “Standard” Owner Financing: The deed transfers over to you and the seller gets a note for what you owe him and a mortgage/deed of trust securing it.  In other words, the seller is the “bank/lender”.
  • “Contract for Deed” / “Land Contract”: You don’t actually get the deed transferred over to you until you’ve finished making your installment payments.  But you’re still considered “owner”.

In either of these types of owner financing, if you defaulted on your payments the former seller would have to foreclose (rather than evict) in order to kick you out and reclaim the property.

So, long story short, you should definitely be able to list this thing with an option in place.  And double as much with owner financing in place. Whether your Realtor believes it or not.

And also I suggest getting a new Realtor. 😉

Hope that helps.  Anyone else have any thoughts on this?  Share them below please – We’d love to hear ‘em.

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