Many consumers and real estate agents often minimize the value of option money. In Frisco Texas the majority of people think option money is when you write a check for $100 and you get 10 days to evaluate the home. If we look a little deeper you can find many different ways of leveraging option money.
For this example we are assuming you are in a seller’s market with most homes receiving multiple offers, as has been the case in DFW for the last 4-6 months on many homes. Many buyers were walking away frustrated with losing out on many offers. Even when they had the same offer, theirs was not the one selected. To make an even stronger offer you can leverage option money.
This takes some nerve and some execution but can work very well. If you know the homes in the area and are confident that the house is in good shape, you can increase the amount of the option money and make a stronger offer. Think about that for a second. Instead of offering $100 for 10 days or 7 days you increase that to $2,500 or even $5,000. How does the seller feel about that?
From the seller’s perspective they are now getting $2,500 or $5,000 guaranteed whether you buy the house or not. If you move forward, they get their asking price. If you don’t the house goes back on the market and they pocket the option money. Not a bad deal for the seller. Who just created a stronger offer?
Now from the buyer’s perspective you have created significant risk. This is why it is critical they know the market and the homes. If you are working with a buyer and they have been targeting a specific area, they can gain confidence and understand the condition of the homes they are making offers. I wish I could take credit for coming up with this but I learned it from someone who secured a home for one of their buyers after losing out on the previous 4 homes with offers over list.
This strategy is not for everyone. If they are willing to expose themselves to this risk based on their experience, this type of offer is something I explain to my buyers, I look at this situation when the buyer:
1. Is wiling to risk losing their option money.
2. Wants the home and is emotionally attached to this particular home.
3. Wants to increase the strength of their offer without increasing the total dollar amount.
4. Is confident about the home’s condition.
So are you going to try this the next time you’re facing a similar situation?
Comments(0)