People often ask “What is an option in real estate?” An option is always a good thing to have, but in real estate, the term takes on a different meaning. Traditionally, when a seller puts their home on the market it can be purchased by anyone. However, when there is an option to purchase real estate agreement, everything changes.
When there is an option contract in real estate the buyer has an exclusive right to the property. In the case of an option, the property is no longer considered to be a standard contract. Instead, when there is an option to purchase real estate agreement on the table the deal changes, and may become more lucrative.
How Does an Option Contract in Real Estate Work?
Do you want to know more about how real estate option contracts work? Use these 5 parts of a standard option contract to help you develop the right type of purchasing contract for your specific needs.
- In Writing
Any real estate document must be in writing. A standard option contract must be documented properly thus a handshake, or verbal agreement is not enough to validate an option contract in real estate. Today, you also need to check the property title so that you know the signatures needed for the contract.
The property location is one of the most important pieces of information in an option to purchase real estate agreement. If the property has an address, a parcel identification, or another type of legal number associated with the property including a PIN number – write it down. All types of data with property location details are needed to process an option contract in real estate correctly.
An option contract includes some amount of consideration. In real estate, “consideration” is a term that refers to the amount used to create a legally binding contract. A consideration can be money or another type of asset that the buyer and seller agree to. If you are a home buyer it is ideal to keep the total cost of the property purchase as low as possible. As a buyer, you may be able to pay as little as $10.00 as a consideration. However, as a home seller, you may want the buyer to pay a more conventional amount. Usually, a tenant/buyer will pay 3% – 5% of the total purchase price of the property.
There is a specific time frame to write an option contract in real estate. This gives the homebuyer an amount of time they can exercise the option. Within the specified time frame, the buyer can exercise his option up to that date during any time of the specified dates.
The homebuyer will know the dates for the option, and thus there is no wiggle room after the option expires. If the homebuyer decides to purchase a property within 6 months into a real estate option, there is no penalty for exercising the option and purchasing the property.
- Purchase Price
The purchase price of a property is stated in the option contract. It must be written into the contract in order for the purchase agreement to be valid. Using an option contract in real estate is an ideal strategy to implement during the selling process in order to make the most out of the sale. Ideally, by having a purchase option in place you can take control of the property without using any additional funds. If you need support developing your real estate investment techniques, call the offices of Jeff Barchi. You can discuss how to write an option to purchase a real estate agreement to get the best price for your property.