I am a mortgage banker of 16 years, and I have also flipped a limited number of houses over the years. I am considering taking out a purchase option on various properties and then turning and selling them. I may add value through repairs and remodeling, or I may just resell and undervalued property.
I also can do the financing and have poored over all FHA’s and the various lenders flipping guidelines and had many conversations with various FHA underwriters to assure I’m not missing a guideline.
Here is the rub, when I asked a realtor that I work with, what their experience is with straight purchase options and what the general realtor communities view are, she became extremely negative and even told me that purchase options are illegal. I would love to know more of the investor communites response to this?
So please speak up!!! Thanks again
i cant really say exactly for your state you live in…but most times when a realtor doesnt understand the deal they quickly run to say its illegal :bs im so glad you came here to find out whats really going on with it… but purchase options most of the time are no where near illegal…its merely creative investing what state are you in?? so we can help you more…
Chuck gave a great responce. Ask the Realtor to show you that law and then get a new one. Not being a Realtor I’d say an option doesn’t give them a commission unless excersized. Herbster
Thanks for replying to my inquiry. I wasnt real happy with what the realtor had said, but had also taken in with a grain of salt. I also realize that I most likely wont be chasing a listed deal, FSBO are my targets.
I live and work in Washington State, I have called the state attorney general and they dont have any specific oppinions, but they recomomend and have shown formal oppinions stating that municipalities, and school districts should use purchase options to tie up property that they may be interested in buying.
I also called the Washington state real estate commission, and they said that they dont have oppinions, and they dont govern such transactions. They said that these are civils matters. So I commented that they are really contract law which is purely a civil matter and they confirmed that to be true.
The only exception to all this that I could find in the statutes and RCW’s was that if you wanted to sell the property without ever owning it, you were acting as a real estate agent, and must be licensed. However I’m not going to do that, I will take title to the property right before I sell the property, by excersizing the option to buy, and paying the related excise tax which is typically a seller related item.
I would love to hear more of your comments.
Actually you don’t even need to take title. There’s nothing illegal about staking an equitable interest in real property then selling that interest, even if you have it deeded directly from the seller to the end buyer. As long as your cut isn’t listed as a “commission” “broker fee” etc you’re not acting as a Realtor. Check with your creative-real estate-proficient attorney to find out the best thing to call it.
Nsu is right. You are simply a Principle in the deal, thus giving you the right to sell your interest. Be careful though, you are representing you, not the seller or the buyer. To state your working for the seller or buyer would make you practicing real estate w/o a license. Herbster
In my experience, the reason you got the frown from your Realtor is because investors who do option deals are direct competition to them and who likes that?. With proper option agreements, the seller can keep on selling the property as FSBO if they want if if they happen to find a buyer before you do, you’re just out of the deal and they don’t owe you anything. Not so with Realtors! If a seller happens to find a buyer on their own, they still have to pay the commission even though the SELLER found the buyer! First, you can only option properties that are FSBO because when they’re listed, you can be sued for "Interference of Contract) Options do give you an equitable interest which allows you to sell the property w/o a license. I’ve done plenty! Let me know if I can help you further
Belaircorp
You have overlooked two types of listings that allow sellers to continue selling, the open and the exclusive agency, so your comments are somewhat misleading. If a property is listed I suggest contacting the owner first and determining the type of listing.
Secondly, I can option a exclusive right to sell listing but of course the Realtors rights have to be recognized when doing it. A few times I had the Realtor cancel the listing and receive a small fee, and then gave them the listing to go into effect when it was rehabbed or marketable.
Sometimes I just paid their fee in the deal and got rid of them completely. Or with an option the commission was paid by the seller when the end buyer closed. The Realtor wants to see the money they will earn and I show it to them.
Purchase options are not illegal! If you option a property then find a buyer for that property who is willing to buy it higher than your option price (of course), you can do 2 things…
- Sell your option to the buyer for the difference.
- Put together a purchase and sale agreement between your buyer and the seller and create an invoice for your difference that you will give to the closing agent (title company). You will be listed on the seller side of the HUD-1 as an additional payee.
If there is a listing agent involved then, the Realtor will get paid from the seller proceeds not yours, unless you’re the one who hired the Realtor.