You've Got Options
In life in general, it’s good to have options. In real estate, it’s good to have options too. But there may be an option that you haven’t heard or thought much about when it comes to real estate. And that option is…..OPTIONS!
I know, that was a terrible joke.
So what is an Option Contract? To be fair, it’s pretty straightforward. An option contract is essentially a pre-arranged purchase contract where the seller (grantor) and buyer (grantee) agree to transact a piece of property for specific terms, by a specific date. In return the seller receives an agreed to amount of money upfront. In some cases this amount may be applied to the agreed purchase price. The important thing to note about this consideration is that it is not refundable, and is not earnest money, which will be included in the actual sale agreement. If the buyer decides not to exercise their option, they will not receive the money that they paid for the option back.
Once the buyer has the Option Contract, it is up to them to exercise the contract. This means that before the expiration of the Option Contract, they must notify the seller of their intent to exercise the option, and then successfully close the purchase.
It is recommended that the Option Contract be recorded with the county in which the property is located, in order to give constructive notice to the public. The benefit to doing this is to avoid potential title issues later. It is also recommended that each of the principals utilize a lawyer, if they have any questions pertaining to the Option Contract. A particular area of concern would be regarding any current or future liens the seller may have on the property, as these may affect the option holders ability to acquire title.
So who should use an Option Contract? Since an option is essentially a way to put a property on lay-away, anyone that might need some extra time to close a purchase might find using an Option Contract helpful. Utilizing an option Contract as a way to provide time to lease out your current residence and secure financing to exercise the option is also a strategic use of an Option Contract. As a seller, an option might be a good way to obtain some cash upfront for allowing a buyer some time to complete a purchase. However, it’s important to take into account the amount of time that an Option Contract will hold a property off the market, especially if you’re property is increasing in value.
If you are buying or selling property here in Portland, Oregon, and are needing to use an Option Contract, or want to discuss your plans in further detail, we would love to hear from you.