I want to pose an interesting variation to an 'option to buy' contract.
An acquaintance is considering selling their house, which has recently been rezoned medium density. They have been agent hunting, all of who are putting an option contract into discussions as there are a few developers active in the area.
Can a vendor with a 2 year purchase option over the property (from the developer) sell to an investor at a fair price, with the knowledge that there is an exercisable option over the property, leaving sufficient fat in the deal for the investor if the option is exercised? Does the holder of the option have first right of refusal?
(The premium is around 30-40% above market on today's value, vendor would be looking at taking 10-15% considering stamp duty would take $30-40k out of the deal).
Hi Scott
The challenge will be the option holder. In this case probably a developer who is in the process of getting a DA approved for the property. It's almost certain that the developer will secure and protect her/his option with a caveat over the property.
Very generally, the caveat puts a paddlock on the property and this will stop the the owner from on selling the property during the term of the option. What you could actually work out with the owner and the developer is another matter. Almost anything is possible, if all parties agree but without this agreement the option/caveat will block you.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
The vendor might be able to sell the property, but they will have to sell the property WITH the option attached to it. This means if the developer wants to exercise his option on the new owner then the new owner has no choice. The only problem will be trying to find a buyer who will buy a property with an option on it.
Most people don’t understand these things and will simply steer clear of them.
If they just want to sell their house now anyway, then why bother with the option at all. Will it add value or take value away? They could just sell the house and ignore the developers option. Or if they are going to go for the option, why not wait out 2 years and rent the property out while waiting to sell?
Just make sure you secure the option, so they that money is theirs (and they can use it for future investments), and that the developer has no way of bailing out and taking their option with them
Ryan McLean | On Property
http://onproperty.com.au
Email MeIn the first instance, I dont know how this could be possible unless the developer agrees and supplementary agreements are signed.
Tell your friend to be very careful when dealing with the property that has an option on it. Options that have been drafted well are tight and have been upheld in court such that, people mostly do not bother with caveats (also due to other reasons such as caveat lapse if applications are not commenced within certain time in the Supreme Court, etc)..
I had a client that tried to get out of an option agreement against our advice and was sued in the Supreme Court.
She lost.I'd be recommending that the house could be sold (right to assign the property) however the option would remain in place (level of risk but speculative for an investor who is looking at a possible short-term winfall).
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