people experienced in using options to buy??

Because land options generally enable the developer to “control” a site for an extended period prior to settlement, the contract “may” have to reward the vendor – which can be as simple as agreeing to pay the asking price.

An option is a formal agreement between the buyer [developer] and seller [vendor] subject to specific conditions.

From a developers perspective, these conditions will often include planning approval; engineers report; finance; and dependent upon the project, subject to selling/leasing all or a percentage of the proposed development OTP [“off-the plans”].

Upon entering an agreement with the vendor, the developer will generally submit a deposit [5-10%] which is held in an escrow/trust account. The developer will often negotiate terms whereby the deposit is refunded in full if the conditions of contract are not satisfied.

However, the developer will have no recourse on capital invested during the “due diligence/evaluation” phase, which will be lost if the conditions are not met and option is not exercised. This can be costly.

In terms of on-selling land before settlement, this could be a condition agreed too with the vendor – included in the agreement.

Otherwise, you may enter another agreement with a third party [or multiple parties] subject to the transaction meeting the abovementioned [or other] conditions. In effect, the third party would finance the amount payable to the vendor on closing, and you would retain any profit [or loss] over and above the original purchase price.

The “approach” is no different from demonstrating an interest in buying any property. The key is conducting an interim evaluation of the property [do your homework] and preparing an offer that makes sense to all concerned.

There is no “format” as such because a different set of terms and conditions can apply to every transaction. I would advise that a qualified lawyer prepare all documentation.

— Michael

However, (in my opinion) one cannot ‘do’ an option deal on a development site without having some upfront risk money to put in. I have the impression that many people think otherwise.

The upfront money is required to pay for the option fee, surveyor’s and architect’s fees and
council application fees etc.

I am not necessarily taking about Sean’s situation so much as my remarks being general kind of remarks.

I have spoken to and even actually met with several people over the last couple of months who have read stories about options and the money which can be made and who therefore would just love to get active in this area.

It isn’t as easy as the stories may give you a misleading impression. One also needs an understanding of what to look for and be able to work out what exactly one can build on a site and the values of the land as well as the value of the end product.

One pundit even thought he could get by by using an architect to search out suitable sites and to tell him what he could do with the land.

Unless one has a good understanding what to look for in the first place and how to apply the council’s rules one would go broke paying the consulting fees of an architect everytime he (or you) finds a property which more likely than not may turn out not to be suitable.

The ‘easy’ way to learn is by teaming up with a developer and making yourself useful to him/her and then perhaps hope to learn something on the run.

Summing it all up, I want to emphasize that in addition to essential knowledge one just cannot do a deal without putting in some upfront risk money. Anyone who leads one to believe otherwise is, more likely than not, leading people astray.

Pisces133