Real Estate Sellers do have Options

By
Real Estate Agent with Majestic Properties 3061802

We work with a lot of real estate sellers that are not understanding that they need to be flexible.  As Realtors, it is our job to make them understand that the real estate market currently favors buyers and although this doesn’t mean they have to give the property away, it does mean they have to be open to different scenarios that will ultimately sell their property.

no_donkeys.jpgWe recently prepared a purchase contract for some Miami Shores buyer clients and the deal never materialized because the sellers were being stubborn and wanted things done their way. It was a very strong offer and I personally thought the sellers were making a bad call. Needless to say, those same sellers had 2 other offers which they also turned down and their property is now priced below those original offers. OUCH!!

Sellers must consider all offers; they should study them carefully and make sure they don’t turn anything down without first giving it good consideration. If you get an offer with a contingency based on a buyer selling their own property, make sure you explain to your seller that it may be the perfect scenario. There are many ways of accepting contingencies without harming the sale of a property.   It could mean adding a kick-out clause and/or stipulating a closing date. <!--{PS..0}-->

We have been presented with options a great deal lately and thought it would be a good idea to explain the different options out there to better understand them.  I had an agent a couple of days ago totally blow me off when I suggested a Lease Purchase.  The property was for sale but it also appeared on the MLS for rent.  It never occurred to that agent that all it meant was a delayed closing and the seller would be getting rental income in the meantime.  

Having an option may mean a sale by the end of the lease term. Elizabeth Weintraub does a great job explaining the basic differences of options.

Basics of an Option
  • Buyer pays the seller option money for the right to later purchase the property. This option money may be substantial or as little as $1.
  • Buyer and seller may agree to a purchase price now or the buyer may agree to pay market value at the time the option is exercised. It is negotiable. However, most buyers want to lock in the future purchase price upon inception of the option.
  • The term of the option agreement is negotiable, but the common length is generally from one year to three years.
  • Option money is rarely refundable.
  • Nobody else can buy the property during the option period.
  • The buyer can sell the option to somebody else.
  • If the buyer does not exercise the option and purchase the property at the end of the option, the option expires.
  • The buyer is not obligated to buy the property.
Basics of a Lease Optionoptions.jpg
  • Buyer pays the seller option money for the right to later purchase the property. The lease option money may be substantial.
  • Buyer and seller may agree to a purchase price now or the buyer may agree to pay market value at the time the option is exercised. It is negotiable. However, most buyers want to lock in the future purchase price upon inception of the lease option.
  • During the term of the lease option, the buyer agrees to lease the property from the seller for a predetermined rental amount.
  • The term of the lease option agreement is negotiable, but the common length is generally from one year to three years.
  • The option money generally does not apply toward the down payment.
  • A portion of the monthly rental payment typically applies toward the purchase price.
  • Option money is rarely refundable.
  • Nobody else can buy the property during the lease option period.
  • The buyer generally cannot assign the lease option without seller approval.
  • If the buyer does not exercise the lease option and purchase the property at the end of the lease option, the option expires.
  • The buyer is not obligated to buy the property.
Basics of a Lease Purchase
  • Buyer pays the seller option money for the right to later purchase the property. This option money may be substantial.
  • Buyer and seller agree on a purchase price, often at or a bit higher than market value.
  • During the term of the option, the buyer agrees to lease the property from the seller for a predetermined rental amount.
  • The term of the lease purchase agreement is negotiable, but the common length is generally from one year to three years, at which time the buyer applies for bank financing and pays the seller in full.
  • The option money generally does not apply toward the down payment.
  • A portion of the monthly lease payment typically applies toward the purchase price.
  • Option money is nonrefundable.
  • Nobody else can buy the property unless the buyer defaults.
  • The buyer typically cannot assign the lease purchase agreement without seller approval.
  • Buyers are often responsible for maintaining the property and paying all expenses associated with its upkeep, including taxes and insurance.
  • The buyer is obligated to buy the property.

Being “firm seller” in a buyer’s market is not a good strategy, especially considering the seller incentives that are being offered all over the place.  In Miami we are seeing everything, from closing costs to money back, to maintenance fees, free pool installations, and even cars!!

We need to show our value as great, creative and knowledgeable Realtors in order to improve the odds of selling our clients' property in a real estate market where competition is fierce.

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Rainer
46,548
Harold Watts
Teles Properties - Palm Springs, CA
Palm Springs Real Estate Blog

Ines,

Great post as always.  "Firm Sellers" will not fare well in this market.  By giving the different options to sellers & buyers, it can be a win-win for everyone.

Nov 19, 2007 02:29 PM #10
Ambassador
1,091,707
Celeste "SALLY" Cheeseman
Liberty Homes - Mililani, HI
(RA) AHWD CRS ePRO OAHU HAWAII REAL ESTATE
Moving the cheese...for Ines  lol!
Nov 19, 2007 02:55 PM #11
Rainer
71,052
Thomas Weiss
Thomas R. Weiss - West Palm Beach, FL

Ines,

Most sellers are as we said before! unrealistic, but with the right guidance, they can make the right decisions..

Tom Weiss

Nov 19, 2007 03:01 PM #12
Rainmaker
223,300
Rick & Ines - Miami Beach Real Estate
Majestic Properties - Miami Beach, FL

George - as always, you are right.  When a seller hires a Realtor, they should trust their expertise and their experience.....a second opportunity may not come along.

Gail - Oh No!!  That's the last thing I want people to think....but it's funny nevertheless.

Mariana - you are at the top again....."in shifting markets", do you see what I see?

Hi Mary - fortunately for us, we inform our customers so much of the changes, that now they call us for reductions and they are open to our suggestions.  We also have the luxury to turn down business if we see a customer is not willing to be a bit flexible.  Thanks for the good wishes.

Harold - You pointed out the most important factor......"it can be a win-win for everyone" and that's exactly our goal.

Nov 19, 2007 03:01 PM #13
Rainmaker
223,300
Rick & Ines - Miami Beach Real Estate
Majestic Properties - Miami Beach, FL

Ooooh! you guys skipped right past me!

Sally - with the graphic, I was thinking more in the lines of "don't be an a......."ok.......I won't go there! LOL! 

Hi Tom - I have become a good judge of stubborn and unrealistic customers - those are the ones I do not wish to work with and I let them know ahead of time.  That way I don't waste their time and they don't waste my time and my money when I try to market their property.

 

Nov 19, 2007 03:28 PM #14
Rainmaker
146,488
Arizona Real Estate Associate Broker
MR Realty - Mesa, AZ
Rick & Ines - This is a very informative post for the consumers and those 'hard headed' sellers! I myself have often heard all the different phrases and wasn't real clear on the differences. Now I know, this is good stuff. Thank you. I know our market here is exercising more and more options like this and is a great opportunity for sellers that are flexible. Kudos!
Nov 19, 2007 05:46 PM #15
Rainmaker
121,550
Vickie Arcuri
ONE Sotheby's International Realty - Fort Lauderdale, FL
South Florida Luxury Real Estate
Hi Ines, I love this post!  How very informative.  Unfortunately, there are still too many "firm Sellers"...like you said, we're not asking them to "give their house away", but at least be more reasonable in evaluating Offers...it amazes me when Sellers turn down offers that are very reasonable, especially in a Market where they don't have Offers rolling in daily.
Nov 19, 2007 09:07 PM #16
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Missy Caulk
Missy Caulk TEAM - Ann Arbor, MI
Savvy Realtor - Ann Arbor Real Estate

Ines, I think you said it right, " being a firm seller in this market is not an option".

They must be flexible to make it happen or buyers will move on. Lots of options out there, excellent list.

Nov 19, 2007 11:03 PM #17
Rainer
132,170
Lysa Napolitano
Daytona Beach, FL
Ines, we recently had a same situation here too. The seller wouldn't hear touch the offer and hung up on the agent. We weren't sorry to see it expire...
Nov 20, 2007 12:33 AM #18
Rainmaker
223,300
Rick & Ines - Miami Beach Real Estate
Majestic Properties - Miami Beach, FL

Candace - I was doing some research for some customers and decided to share the information - it's how it works around here. We need to be ready when they come.

Vickie- as much as we can tell sellers that an offer is a "commodity" nowadays, they are not experiencing the market like we are and they will always have that emotional doubt....."my property is better than the rest".  We've dealt with plenty of firm sellers that later realize they made a mistake.

Missy - the way I see it, if they are not flexible, they don't have to sell.

Nov 20, 2007 12:34 AM #19
Rainmaker
223,300
Rick & Ines - Miami Beach Real Estate
Majestic Properties - Miami Beach, FL
Lysa - that is really unfortunate, but the reality of this market is that both sellers and buyers will come around.  There is no other way.
Nov 20, 2007 12:48 AM #20
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

What's the matter with a listing agent that wouldn't agree to a lease/purchase.  Good Grief, that's a sale.

I wouldn't have "suggested" it though.  I'd have just written it.  The written contract has a lot of power that a few words don't.  But, you know your market better than I.  In fact, I'd have presented it as a purchase contract and included the lease as a contingency.  Sellers do a lot of stuff when presented on paper. 

We used to do a LOT of lease/purchase agreements in the early 1990s.  We also took a substantial non-refundable deposit that sweetens the deal for the seller.  Problem is that today folks don't have the cash that they did in the early 1990s.  Most of our lease purchase buyers either had a house to sell or needed to age a repaired credit report.  They took money from their 401k.   Not all eventually closed, but most did. 

We're in a very rough market and, while I don't plan to do them myself, no patience, I think that the lease purchase can be an arrow in the quiver of many agents. 

Nov 20, 2007 01:01 AM #21
Rainer
71,052
Thomas Weiss
Thomas R. Weiss - West Palm Beach, FL

Ines,

You are just the best!! all you can do is try and help, As best as you can.

Tom Weiss

Nov 20, 2007 01:15 AM #22
Rainmaker
223,300
Rick & Ines - Miami Beach Real Estate
Majestic Properties - Miami Beach, FL

Lenn - it does take a bit more of work, no doubt about it, and options would not work for every seller.  But for those that are renting anyway, why not?  especially when there could be a sizable deposit if the deal doesn't go through.  

I do think options will become more and more common - very like the early 90's.

Tom - that's what we are here for - and most people CAN see that.

Nov 20, 2007 01:59 AM #23
Rainmaker
595,547
Lisa Hill
Florida Property Experts - Daytona Beach, FL
Daytona Beach Real Estate
Excellent post Ines! Very clean and concise. Thanks for the insight :-)
Nov 21, 2007 03:46 AM #24
Rainmaker
223,300
Rick & Ines - Miami Beach Real Estate
Majestic Properties - Miami Beach, FL
Lisa - it's one of those things that we KNOW of, but we're not really sure of the details......so I thought I would put it out there.  thanks!!
Nov 21, 2007 03:55 AM #25
Rainer
24,441
Bill Westel
Eco-Steward Realty - Asheville, NC
ECO

Hi Ines:

Sorry for being a bit late but I am in the middle of doing a lease purchase right now. It does take a bit more negotiating, and I have to wait a year to pick up my commission check, but a sale is a sale. Thanks for the informative post!

Dec 06, 2007 05:02 AM #26
Rainmaker
223,300
Rick & Ines - Miami Beach Real Estate
Majestic Properties - Miami Beach, FL
Hey Bill - sometimes you can get at least part of that commission upfront - depending on how much deposit and what you negotiated, even at least the lease commision but you are right.....a sale is a sale.
Dec 06, 2007 06:21 AM #27
Rainer
24,441
Bill Westel
Eco-Steward Realty - Asheville, NC
ECO

Hey Ines:

I am getting a percent of the option fee upfront as part of my commission. Its not much but better than nothing. Closing is scheduled for January 31st, 2009. At least it allows for long range fianacial and tax planning!   

Dec 07, 2007 04:06 AM #28
Rainmaker
223,300
Rick & Ines - Miami Beach Real Estate
Majestic Properties - Miami Beach, FL
Bill - that's the way to go!  There are plenty of sellers out there that are not achieving their goals even after a year has passed.  It puts money into the seller's pocket and guarantees a closing date.  Way to think outside the box!
Dec 07, 2007 01:51 PM #29
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