It looks like prices in northern NJ are finally coming down to reasonable levels. Not only that, but there’s been a 3-month (give or take) ban on foreclosures so the back log still hasn’t hit the market yet.
Recently, I was overseeing a private sale for a home in a highly desirable area. Sellers accepted $510k for it and the buyer, who was a long time local, was convinced that the price was right for the area. He applied for the mortgage and was denied b/c the appraiser came back in the low $420s. FINALLY. (although it’s still arbitrary due to the unique location of the property which the appraiser didn’t seem to fully acknowledge).
Now there’s a deal within my reach. Absentee owners want $200k for their home, and I believe it could be sold for $240-250k. I don’t want to buy it and hold onto it.
Can anyone guide me through convincing the sellers to accept an option contract that says I’ll buy the property only if I can find an end buyer to flip it to?
Is it even possible? Ideally, I’d like to have about a 30-45 day option to purchase at $200k… and also have the right to market the property on the MLS during this period for a quick sale. If someone offers around $240k, then I’ll get funds to buy it cash at $200k and resell to end buyer.
The way you present this to the sellers is important. You need to stress that YOU ARE PAYING THEM for a little TIME…They get to KEEP your money regardless of the outcome. What you need to explain here is the market right now is TERRIBLE and NO ONE, even the BANKS know what a house is worth until the MARKET tells you. By accepting your option offer, THEY GET PAID and at the same time they learn where the market is in that area. YOU make your money if the spread works. The ONLY person RISKING anything is YOU…Tell them them this…They make money no matter what.
Make sure you get at LEAST 60 days for your option…That will give you enough time to show the property, find your buyer, get the title work done, and finally close.
The option agreement itself is simple…There are basic option agreements available online from a bunch of sites.
I’d just tell them that the market in the area stinks and doing an option allows you to find out WHERE things are, THEY GET PAID while you find out, and if you can’t get the option price, they STILL keep YOUR MONEY and they get the market info for FREE!!!
How much money am I putting on the table to “buy my option” to sell the house?
If I understand correctly, for example, I’ll put down $1,000 as a non-refundable deposit and ask them to allow me a 60-day option to proceed with the sale or cancel. Is that right?
That’s up to you and the seller…Usually $1000 is enough to get their attention but not enough to HURT YOU if you have to walk away. If they will take less, do less…I’d start out at $500 and have the check already made out to them…Show it to them when you start your pitch…Bring another blank check with you and keep it in case you need to up your offer.
One other thing…You will need ACCESS to the house during your option holding period if you plan on finding a buyer so make sure they are comfortable giving you a key to the house. Cover that subject AFTER they sign the agreement but BEFORE you hand them the check. If they don’t like the idea of giving you a key…REMIND them that they would be doing the same thing with a realtor with the IMPORTANT EXCEPTION being that a REALTOR won’t be putting a $1000 check in THEIR HANDS and in reality will be TAKING about $10,000 FROM THEM in commissions…YOU get NOTHING in commissions and are PAYING them for a 60 day window…The OWNERS have NOTHING to lose here. They either SELL the home to you within 60 days or they KEEP your MONEY and move on…Either way they MAKE $1000!!!
Here is my question… Who are you planning to market the house to? Since you are not the owner of record your buyer cannot get conventional or FHA financing (or VA or USDA…) and there is not nearly enough profit for an investor to come and buy especially when you figure in closing costs. Doesn’t NJ have some obscene real estate transfer tax? I know NY does.
You can’t be paid a huge “marketing fee” on the HUD as lenders have caught on to that, and it seems like a huge leap of faith for you trust the owners to write you a check after closing.
Jake’s advice will definitely help you close the deal, but I am interested in your exit strategy.