Hey JP great vid..

I got a few questions..

1) Can this option be recorded and therefore “cloud up” the title? I think one of your other forms-”Affidavit and Memorandum of Option Buying” does, but I was wondering if this can have the same effect as the affidavit.

2) If it does have the same effect, does it also need to be notarized?

3) If it does need to be notarized, by a long shot do you have any idea how I might get it notarized across 2 states(I live in one, seller lives in another) and also record in yet another state?

I appreciate your time, thanks JP!

In most places I believe a document must be notarized in order to be recorded. So as long as you get it properly notarized, I’m pretty sure you could record it….and yes, it would cloud title. I’ve done that before.

With regards to doing it across state lines, I believe the notarization format can be slightly different from state to state. So I’d think the format/wording would need to match whatever state you’re going to be recording the document in. But I have no clue about whether or not your notary has to be approved by that state in order for it to be official. You’d have to ask a notary public that one.

Thanks for commenting, and hope that helps!

…jp

JP,

Thanks for the awesome info. In filling out the option contract I need a little further explanation on the option fee. This is simply the legal consideration to make contract valid? When does earnest money come into play? I am not quite sure of the difference.

Thank you.

Hi, Patrick. Here’s the deal…
“Option Consideration” is the fee (some amount of money typically) that you pay the owner in exchange for giving you the option to purchase. It’s fair consideration in return for what he’s giving you, which is an exclusive right to purchase for a period of time. If it helps, kind of think if it like when you pay for a parking place. That spot is yours for a limited time, based on your fee.

But with option consideration, that amount can be whatever both parties think is fair and agree to. Be it $1.00 or $1M dollars. Also keep in mind you (if you’re the optionee) won’t be getting your option consideration back if you elect not to exercise your option. It’s the seller’s either way. It’s not a deposit, but more of a fee you both agree to.

If/when you decide to exercise your option to purchase, then you’d put an actual purchase contract in place, which would deal with any earnest money at that time.

Make sense, man?

…jp

If I understand correctly, once you assign the option contract and collect your fee (via assignment of option contract?), you’re out of the picture entirely, right? If your seller and your end buyer can’t come to terms in the end or the buyer doesn’t perform that’s his own problem when it comes to the assignment fee, right?

Next question, I am wondering about inspection. Would you put it under option contract without inspecting, and then let the buyer assume the contract that has its inspection contingencies? Would a smart buyer buy the option before inspecting the place and paying the assignment fee?

Anyway,I don’t mean to get too convoluted but I’m hoping you could clarify the role and timing of assignment fee, earnest money deposit, inspection/finance contingency periods, etc, in an end-to-end transaction that involves seller-wholesaler (with option contract)-end buyer (who assumes option contract).

Thanks!
.-= Eric´s last blog ..3 Secrets to Reading Housing data for the Real Estate Investor, Part 1: Understanding Seasonally-Adjusted Data =-.

To your first question…that’s not typically how it works in my experience. I almost always take my profit when the deal w/end buyer closes. Just seems fair to me. If I were in their place, that’s what I’d expect also. In most of my wholesale deals I’ve been a line item on the HUD.

Second question…you could do it that way. I don’t really pay for home inspections…I do it myself and make sure there’s enough room in the deal for me to make some mistakes. I’d say do your best to inspect it before you put your option down…but in the end, it’s not that big a deal…cause you’re just buying an option. You’re not stuck buying the property if something pops up later.

Regarding your third question, this could vary but here’s one potential sequence for an A-B-C transaction:

B gets an option to purchase property from A (option for a set period of time, at a set price, paid for by way of option consideration of some sort)
B (you) assigns option to C (end buyer), and agrees to take assignment fee as a line item on closing HUD. (you could get a note from him if you want something more in writing, then at closing your $$$ received in in payment of the note. Just a thought.)
C is now in B’s place, and approaches A about exercising his option to purchase. They work out terms, put a purchase agreement in place and set a closing date.
At closing, C buys from A, and you get a check from the title company for your part.

So that’s one way to make it work. Make sense?

…jp

are you saying that recording the option is up to you, but it solidifies your equity interest should there be any challenges?

Let’s say you have an option contract that lasts 14 days. On day 15, if someone seems a posting of yours on the internet for that property (that you made during your option period), are you in violation?

I’m asking because I never thought through how perfectly a (flexible) option might be for having legitimate listings so you can build a buyer’s list, even if you don’t think realistically you will be able to sell it.
.-= Eric´s last blog ..3 Secrets to Reading Housing data for the Real Estate Investor, Part 1: Understanding Seasonally-Adjusted Data =-.

I’m not really sure what you mean by your first question…you don’t have to record your option. I never have in the past. The option gives you equitable interest you can then use to market for resale though.

Regarding your second question, I’ve honestly never thought of that. But I surely wouldn’t think you’d be in violation of anything, not any more than if someone picked up a newspaper and read your ad to sell the property from last Sunday, even though your option expired the following Wednesday. If I were ever challenged on it (highly unlikely) my strong feeling would be that the date you actually published the ad is what would count. That’s my opinion at least.

…jp

Hi J.P.,
Thank you for the down loaded forms!
But my computer locked up on the page to send to three or more friends. How do I get back there so I can do that. I realy want to see your vids on filling out the forms.
Thanks again,
David

Hi, David! I think this is the page you’re looking for…

Thanks! And enjoy those forms!

…jp

Hi J.P.,
Got the page thanks, now it will not send, as it says I have an email address that is not right.
That can’t be as they are all active contacts, any sugjestions?

Thanks,
David

Hi J.P.,
Could not get them to send from your page so I copied sent them via my email. I know I will not get your vids in a nice neat grouping, but I realy wanted to get your info to some people. Thanks for your Testimony and busness model.
David

J.P.

I’m about to submit an offer using your very handy option agreement form. I just need a little clarification before I do. Does a Purchase agreement need to accompany the option agreement? Or does the purchase agreement get filled out when I exercise my option?

Thanks,
Brandon

Hi, Brandon! Choice B! Go get ‘em!

…jp

Hey just downloaded your 53 real estate contracts! Thanks! I had a couple of questions though if anybody can answer. I am a new investor looking to close my first wholesale deal. I was combing through your wholesale contract and I noticed that you were using a attorney to close. I was wondering since I would be using a title company, would it be necessary to change that in the contract. Also, I did not notice in your contract for a clause protecting me if I did not perform my duties or failed to close within the given time in the contract. For example if I did not find an end buyer, how would I handle that? And thirdly, is it possible to hold off on paying the earnest money til you find an end buyer, and have the earnest money they pay you cover the earnest money for your contract with the seller?

Hi, Matthew – glad you like the free forms!

Regarding using an attorney to close versus a title company, I don’t see it’s a big deal. I’d just fill in the name of the title company. But since they’re Word files feel free to change “attorney” to “title company” or “closing company”.

Regarding clauses to protect you, I usually just rely on my short inspection period. If my “partner” (i.e. potential buyer) doesn’t like the deal, then it didn’t pass inspection. But this isn’t something you want to drag out for long in my opinion. If you’re not pretty certain you can get a buyer and you’re not prepared to close yourself in that case, then I’d suggest using an Option Contract instead of a Purchase Contract.

Regarding Earnest Money, remember I have my attorney holding an earnest money check on my behalf. I don’t give it to the seller directly unless I’m dealing with a listed property (like an REO) in which case you don’t really have much choice. Usually I’ll just put $100 earnest money per property for unlisted deals and have never had a seller balk when I explain I just can’t put up thousands of dollars on every house due to the number of deals I’m involved in. They seem to always understand because I’ve already built rapport with them before that point. Make sense?

…jp

And what other contracts or documents do I need to have between my seller and I to be covered before I go and market this wholesale deal besides getting the title search done.

I have a property which is a remodeling project. I placed an add in the paper looking for an investor. luckly I found one but there is just one problem, I’m having trouble closing the deal. The deal is for $20,000 would it be wise to offer him a real estate option contract? Would it make him feel secure? Do you have any suggestions on how to close?
Thank you for your time as well as the info presented at youtube. Fell free to Email me.

My friends call me Cess!
Thanx again!

Hi, Cess – thanks for commenting!

Honestly I don’t have enough information here to advise you. You say you’re having trouble closing the deal…but don’t say why. Is your potential buyer having a hard time getting the cash to close? Financing? Is he feeling insecure about something? If so, what? Have you continued looking for other buyers?

If you can offer some more info, I’ll gladly do my best to toss in my $0.02 for ya

.

…jp

Ok this is Matthew again, and pardon me if these questions might seem mundane to you but, Im trying to get a good grasp on these contracts as a newby! After finding a end buyer for this property, what contracts are used next to follow up the transaction and which contracts ensure that I the investor get paid for my equitable interest? If you don’t mind just quickly explaining the process after I locate the end buyer and the contracts to use(all the way to closing). I would really appreciate it!

Thanks for both of these downloads JP and for the opportunity to donate to a very worthy organization.
Fred Unger
God Bless and have a Merrry Christmas and blessed New Year

Thanks for taking the time and effort.

NewBie Question: I have a option to purchase aggrement, now I want to list the property on MLS. my question is who is gonig to sign the listing paper Optionor or optionee (me)

Hi, Imran. Thanks for commenting.

If you have a legal option in place, then you have what’s known as “equitable interest” in the property, which gives you the right to market for it’s resale — as long as you don’t actually sell it until after you’ve actually consummated your purchase (even if only moments before). And the right to market the property should also include the right to LIST it in the MLS should you so elect.

So if it were me, I (Optionee) would be the one signing the listing docs. But my standard disclaimer applies here. I’m not an attorney and I don’t play one on TV. I’m not acting as your agent or legal counsel, and you should always consult your own experts before taking any action/inaction based on my opinion here. (There, butt effectively covered.)

Thanks again for posting – hope that helps!

…jp

Thanks a Million,Was just about considering an option contract when i saw your article and the forms.As an upcoming Real Estate Investor. It did give me a simple explanation of how a simple contract works.

Please keep it coming pal.

Thanks J.P. for sharing all of your knowledge! It is very helpful. I would like to share my Mac knowledge with you. For Mac users all you need to do is click on the target once and it will download. That's the beauty of a Mac.

JP,
First off thank you for creating this site. I have learned more here than any other REI site.
My question is on the “Fluffier Option” .
It states “3. PAYMENT OF OPTION FEE. Purchaser agrees to pay the Seller a down payment of ________________ plus all closing costs upon the Execution Date. “

I am confused on what the option means when it says all “plus all closing costs”. Why would you have to pay closing costs upon the execution date?

Thanks

Great little pit stop. Thanks for the enlightenment. I've been asking around about this type of contract with no success, and finally stumbled across your info. Thanks again for everything.

hey i have 3 other business partners and i placed their email address to refer them. i wasn’t able to an error message would pop up and say that reitips does not see these emails as valid

You’re welcome, Earl – and thanks for commenting, man! God bless you as well.

…jp

Great question, Jerry. And the answer is simple. I explain to them that I may have a colleague or partner who could buy this thing, but I’m not sure. I’m not able to explore that option, however, unless I have at least an option in place on the property…just to make sure our agreed upon terms are set before I go shop around for someone else to flip it to.

Said another way, if the seller will grant me an option at a price that works for me, I’ll invest my time and effort to help solve his problem by tapping into my resources for a final buyer to flip it to.

Make sense?

…jp

jp,

You wouldn’t happen to know how I could get a hold of a Lease Option form package would you.

Jerry

Sure you can use them on commercial…might be good to customize them a bit based on the transaction.

Thanks, SJ. I provide the forms as a service to whomever might find them useful. Thanks for your kind words – they are warmly received!