What is an option contract on a house
In legal language, a real estate option is an agreement that grants the party owning the option, the Optionee you , the exclusive, unrestricted, and irrevocable right to purchase property from the party selling the option, the Optionor , during the specified period of time that the option is in effect. I want to reiterate that in order for an option agreement to be contractually enforceable, the option to buy contract must be given in exchange for consideration, or money.
The option to buy consideration is like an earnest money deposit, it can be cheap, and it gives you the equitable interest in that house.
So think of option consideration as a small amount of money from you to the seller and will give you a ratified contract. Depending on factors such as the price and demand of the home, the option fee can range from a few dollars to a few thousand dollars.
Being completely transparent, I sign most of my option agreement on single family homes for less than 5 dollars, however I would sign agreement for a few hundred dollars if I was super confident in deal and ability to resale.
Option fees are typically nonrefundable. In other words, if you decide not to exercise your option to purchase the house within the agreed-upon time frame, you forfeit the option money. An option-to-purchase contract must clearly state the duration of the option period. There is no correct or preferred unit of time and option periods can range from months to years. Typically, however, in the residential context, option periods range from 30 to 90 days. Depending on the terms of the contract, the buyer may exercise the option to buy the house at any time during the set option period or at a date specified in the option-to-purchase agreement.
If the buyer lets the period pass, the option expires and becomes null and void. In that situation, the tenant forfeits the option fee. If you are a speculative real estate investor then options can be more beneficial than flipping hard real estate. I know that most investors talk about flipping real estate and making more money than they know what to do with, unfortunately this is not always the case.
There are many roadblocks and risks associated with flipping properties and while it is true that you can make a lot of money flipping properties, you can also lose a lot of money and lose out on deals because of many issues that can arise such as financing, appraisals and unscrupulous title agents to name a few.
An option to purchase contract takes the risk out of the game and is a great strategy for all investors to consider but especially those beginner investors as it is a low risk, high-profit strategy to buying real estate.
An Option to Purchase contract gives you control of property without ownership. As an investor, you need to always ask yourself what is the problem to be solved for the customer. An option gives you the contractual and legal right to buy a house but not the obligation to buy the house.
That is the beauty of the Option to purchase contract and the key to wholesaling. That legal equitable interest in the house, gives you the right to market the property without being a licensed real estate agent.
You need the right to market the house or the property. In addition, during the option period, the seller can continue to negotiate and accept back-up offers from other potential buyers. From Wikipedia, the free encyclopedia. This article does not cite any sources. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. March Learn how and when to remove this template message. Retrieved from " https: Real estate in the United States Legal terminology.
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