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The In's and Out's of an Option Contract
How An Option Contract Works
Here at AAAA Home Solutions, we specialize in creative finance transactions. Our main goal is to be problem solvers and come up with different solutions for sellers and agents to move a listing, creating a win-win transaction for all parties. Our strategies can be effective in a multitude of scenarios. Here you will find the details and benefits of how an option contract works.
Our option contract would be using one of these two methods linked below to come up with terms for the property, so it's best to read up on those to have a full understanding before going this route.
Click Here to Understand How Our Two Main Methods Work:
What is the Point of an Option Contract?
A lot of times we have already spoken with you(agent or a seller) regarding one of the two methods linked above. If we sent you here, there's another route that has to be taken to get the transaction done.
The MAIN point of an option contract is to give the agent/seller more chances to find an end buyer with the terms we have agreed upon.
Sometimes our agreed upon terms just don't work well for any exit strategy for investors and this is another way to find an end buyer. An HOA may even be the reason as it doesn't allow you to go with any other exit strategy such as AirBNB or Mid-Term Rentals due to a minimum lease requirement of 30 days or more typically(can be 6 months as well). This would require Long-Term Rental as the only way to rent it.
Example:
Your monthly payment is $2,500 and rents in the area go for $2,200. An HOA is in place, which won't allow another exit strategy for investors. At these numbers it would not cash-flow.
However, the option contract opens up another avenue!
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The option contract allows us to take the agreed upon terms and market those terms to self-employed individuals. Many cases self-employed individuals have the allotted funds to purchase a home. Lenders unfortunately don't always approve them for a loan though. These people need subject to or seller financing to purchase a home since they don't need to go "qualify" for a new loan.
Benefits of an Option Contract:
Non-Exclusive Agreement(You may still market the property yourself)
More chances to find an end buyer for your property
Benefit from our creative finance terms we agreed to(explanations linked above)
Steps to an Option Contract:
Understand how the linked above methods work.
All parties agree to a set of terms(Purchase price, cash at close to the seller, balloons, agent commission, who is paying commissions and closing costs, option period(days to market), etc.)
Now that the terms are set, we will market the property using various methods. Which may include facebook marketplace, facebook ads, other agents in the area that may have a buyer, title companies/loan officers in the area that may have a list of buyers that couldn't qualify traditionally, partnerships with other investors/wholesalers who may have a buyer and a few other ways.
An end buyer is found. We'd introduce you to the buyer to ensure you feel comfortable with them.
Qualify the buyer using an RMLO(Residential Mortgage Loan Originator). This is an important step to ensure we're not doing fraud. Reason being, there are nefarious individuals out there that like to get people into a home this way, collect their down payment knowing they're going to default and then the seller get's the house back to sell it again.
Upon the buying getting qualified, the option will be executed and a purchase contract will be signed between us and the seller.
We will then take that purchase contract and assign it to the end buyer, in which they will then be the owner of the contract to buy the home.
Everything will then be submitted to title/escrow and a transaction coordinator to ensure a smooth process to the finish line.
Closing day.
