Many investors use real estate options when they decide to buy or sell a property.
It is essentially a delayed purchase, where the purchaser is granted the right to buy the property at a later time, usually for a fee.
Unlike standard contracts where the buyer and seller agree to transfer the property on completion, an options contract allows the buyer to purchase the property at a later date.
Options are usually time limited, and price specific. This means that you have the option to buy the property within a certain time period at a stated price.
There are different kinds of options. The most common cover two situations:
Leasing a property with the option to buy it is by far the most common and is essentially like renting a flat but being allowed to buy it if you wish.
A ‘pure’ option grants the option holder the right to buy the property in a particular time period without having to lease it.
An option fee is usually payable, but it depends. A Real Estate Option usually involves the potential buyer offering some consideration (money) in return for the option. Depending on the terms of the agreement, you may be entitled to the option only on certain conditions or for a certain fee.
If an owner of a property has granted someone an option to purchase the property, they generally cannot go and sell the property to another person within the option period. One of the more powerful terms of the Agreement includes the right for the option holder to stop any other transaction on the property. For example, if you hold an option to buy a property and the current owner decides to sell to another party, you can often stop the sale or at the least receive damages for the sale.
A Real Estate Option Agreement often allows for the option holder to transfer that interest to another party. What this means, is that you can sell your option to someone else just like it was any other property. Of course, the agreement must allow for this.
These can be powerful tools for both investors and sellers. All parties involved need to be sure they have drafted suitable agreements that will satisfy all required statutes and laws. Everyone using one needs to be sure of their positions, and the only way to do that is to make your contracts as precise and easy to read as you can.
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Related Article: Options in Commercial Leases
