option to purchase value

I asked a question about how to calculate sale price on lease options recently. Not quite the same issue but you might find something useful in it. I had some pretty helpful responses from a few people and they were quick to correct me when what I proposed sounded unreasonable.

https://www.propertyinvesting.com/topic/4998273-lease-options-increasing-sale-price-for-long-option-period/

What conditions is the developer seeking in the contract? When do they expire? What deposit is it paying? If you can’t get it to agree to the option setup then at least you could tighten up the conditions and get a large enough deposit to make sure that it does not have the ability to simply walk away in 8 months time because it changes its mind.

It does sound a bit one sided. If you draft the conditions properly then there’s no reason you can’t give him all the time he needs while also making sure that he is not just a tire kicker. You risk a fair bit if you hold the property for him for 8 months and then he walks away from it. It’s reasonable for you to ask that he actually put some skin in the game. $500 is a tiny deposit on a property of that value and can not give you any confidence that the developer even intends to see the contract through.

You say he can go unconditional at any time. What conditions are there?

A lot can turn on the actual wording of the conditions, so you should see a lawyer to make sure you are protected. What state are you in?

Regarding the option, there would be a non-refundable option fee payable upfront or in ongoing increments (eg weekly). On residential purchases I understand it’s often calculated to add up to a 10% or 20% deposit by the time the purchaser exercises the option. It would probably be more money than the developer intends to part with at the moment by the sounds of it. I’m still a rookie when it comes to lease options so there will be better people here for you to ask about what to charge him if you do want to go that way. @property-trader Jason Moore was pretty helpful when I asked about them the other week.

It’s up to you what you’re willing to accept. Depends a bit on the market you’re in. If this is the only purchaser you’re likely to see for the next 2 years then maybe you’re happy to do whatever he requests. Personally it still sounds really one sided and I’d be negotiating some different terms.

If he actually wants you to take the house off the market for him then he should be prepared to put up more than $500 in the beginning. If he’s concerned about whether or not he’ll get DA approval, fair enough, but he should be required to do everything in his power to get that approval, and should only get his deposit back if after doing all of that the Council does not grant approval. Leaving it too open could allow him to change his mind then just not bother to complete the application process with council and then get out of the contract that way. That would not be fair on you and would cost you a lot of money.

You may wish to include a shorter period clause (that’s what we call it in Tas, may have a different name wherever you are). We usually set it at two days which means if you give him notice, he has two days to go unconditional or else you can terminate the contract. That means you can continue marketing the property to other purchasers, and if a better purchaser comes along you can tell him to either commit or hit the road.

As there are a few unique circumstances here I suggest contacting your lawyer before making the in principle agreement. People can get grumpy if you make a verbal agreement, then speak to your lawyer and learn something else, then have to come back and reopen negotiations.