I know this may vary from state to state but if anyone has ever done an option what did you call the fee?
I have one in the works right now. Had the seller sign the option agreement and I did a “round robin” auction on the house and it worked very well. I won’t make a killing but $10K is definitely worth the little work I did. Just to be on the safe side I also had the seller sign a simple addendum when I had him sign the contract, and called my fee a “consulting fee.”
Well I screwed up by allowing the FHA underwriter to see my addendum (should have never went to the underwriter, should have gone straight to the closing agent). They kicked it out and said I had to get paid directly from the seller AFTER closing and he cashes out. I don’t see him being a problem, heck he signed 2 documents saying I’m getting $10K. But going forward I will probably want to call my fee something else. I’m thinking “repair reimbursement” or “2nd mortgage payoff” or whatever. Better yet next time I’ll get my attorney to handle it.
What do you call your option fee?
I’ll take a guess. Release of Agreement, R of Contract, maybe R of encumberance. But I’m no closing agent or lawyer. Ask one. Herbster
my closing attorney lists it as an option fee. you can also do consulting fee or release fee.
The best way to ensure that your deal closes is to choose your own lender and closing attorney and push the buyers to them
Should be called a consultation fee which has never been a problem on my option deals and never a problem with several title companies I’ve dealt with. You’re right. It should have gone straight to the closing agent who handles the disbursement and your fee simply comes out of the seller’s proceeds. Do not use 2nd mortgage pay off on the HUD because this will “redflag” the deal if there is no 2nd mortgage payoff. Remember,the lender will also review the title report for any and all liens. Also don’t forget that the lender will also want to review the HUD before authorizing release of funds. In my experience, because I’ve done numerous (and still do) plenty of option deals, the lender is primarily concerned with a clean title and the buyer’s ability to qualify for the loan, not what the seller wnats to give away from his proceeds unless you waive this in their faces which sometimes will trigger some unwarranted pre-closing condition. Just keep it clean and simple.
and don’t get greedy. some of us want to get a 50k option fee on a 100k deal. try to keep the fee in line with the normal costs of a sale so that you don’t attract attention from lender and you’ll be fine.
Congrats on the 10k deal…
Maybe “Trustee” after you put the property in a trust… or line item on sellers HUD1… Heck title can pay anyone they want… I have had sellers pay car loans and other non personal liens…
Done all of the time… The key is not to be on the Purchase agreement as the seller in the beginning and also having a lender you can refer the buyer to in these situation who can perform based on your business model…
Happy hunting
Michael
nsu1997
Unless you have an active real estate license, never use consultant or any thing that might possibly convey the message you might be.
What you can do is write up a purchase agreement between the buyer and the seller with a clause that the option that exists shall be released in escrow by the optionee by payment of the release fee in the amount of $.
Take over to the seller and get it signed and your on your way.
I like that Bay Area Brian.
As it turns out this deal may be dead. The round robin auction worked a bit TOO well. Price got drove up to $295K but the FHA appraisal came back at only $256K! :crying2 Welcome to the post-lending-fiasco world! Conservative central!
Tried to challenge it, no dice. Seller won’t net what he needs at this price but he still may do it…honestly the appraisal is square so it’s either this or hold the house til the market turns around. All I can hope for is he throws me a bone now. Heck I did MY job, I got him a bonafide buyer at MORE than market value.
Big Congrats on the success of the Round Robin. Why don’t you just order your own appraisal and pay for it yourself and have a little “meeting of the minds” wink, wink, and tell him where it needs to be and give him a nice tip. And I don’t mean advice. :beer
Naaaahh too late now. Good idea though.
The deal should close today or tomorrow at $256k. Although he’s barely making proceeds now I still convinced him to let me walk with $4k. Better than nothing! :beer