Options Options Options

[jsoe]

Hi all, any advice is appreciated.

We're thinking of playing "options" on this property for sale.
This house we're looking to buy has land component big enough and eligible (as per council zoning, etc.) for multiple dwellings development. No DA has been applied for.
We are thinking of negotiating with the seller for 12 months settlement while we try and get DA approval.

1. Is "option" the best option? I know a bit about it and really want to put that to play. We're willing to guarantee the sale so will most likely agree to put/call options. The aim is just to delay settlement to 12 months to get DA approval within that period.

2. Who should I go to to get options drafted and reviewed?

Thanks!

 

[Player]

Hi all, any advice is appreciated.

We're thinking of playing "options" on this property for sale.
This house we're looking to buy has land component big enough and eligible (as per council zoning, etc.) for multiple dwellings development. No DA has been applied for.
We are thinking of negotiating with the seller for 12 months settlement while we try and get DA approval.

1. Is "option" the best option? I know a bit about it and really want to put that to play. We're willing to guarantee the sale so will most likely agree to put/call options. The aim is just to delay settlement to 12 months to get DA approval within that period.

I'd be careful of that word guarantee. What if you don't get the DA in 12 months, or at all? I would have a longer time frame or the right to extend beyond 12 months for say, another six months.

I would make the whole option agreement contingent upon obtaining an effective (commercially viable) development approval and only then should the owner be entitled to exercise the call on you.


2. Who should I go to to get options drafted and reviewed?

You need a solicitor experienced at property law to draft the deed with advice from the lawyer to cover you as far as what clauses are required,. such as access, the right to assign and onsell, etc.

Thanks!

jsoe,

I am no expert, however others may like to contribute and also recommend a lawyer (assuming Sydney) who deals with these.

This post may also help a little:

http://www.somersoft.com/forums/showpost.php?p=561540&postcount=6

 

[brendio]

Do you want your offer to be conditional on getting the DA, or do you only want to delay settlement to help with cashflow? If you were thinking of doing put and call options, you are locking yourself into buying it anyway, so why not just have a normal contract but negotiate a long settlement and add a clause that the current owners will sign consent to you lodging the DA after the contract is signed but before settlement?

If you only want to buy if the DA is successful, you could negotiate a contract conditional of DA approval to your satisfaction.

The seller may not be happy with this arrangement, because if the DA falls through so does the sale, which is where you would use a call option so you still only have to buy if your DA is approved, but you pay the seller an option fee, which they get to keep as a consolation if the sale falls through.

Which option is best depends very much on the circumstances of the buyer and the selling and how the deal is negotiated. For example, you should be willing to pay more for a contract conditional on DA than one without. Are the sellers looking for a quick sale? Do they need the cash straight away or would they be willing to get the cash later but at a higher price? Does either party need the contract to be signed in a certain year for tax purposes? Find out what is important to the seller and you can give things that are important to them (but not so much to you) in return for things that are important to you.

 

[Chippo]

G'Day Jsoe,

I have an option contract already drafted

If you would like a copy PM me and I can email you

Cheers

Chippo

 

[Aaron Sice]

if you're purchasing, why bother with an option?

just negotiate a longer settlement and sort your DA out inside that timeframe.

 

[jsoe]

Do you want your offer to be conditional on getting the DA, or do you only want to delay settlement to help with cashflow? If you were thinking of doing put and call options, you are locking yourself into buying it anyway, so why not just have a normal contract but negotiate a long settlement and add a clause that the current owners will sign consent to you lodging the DA after the contract is signed but before settlement?

Thanks for the tips. Yes, initially, all I wanted was a long settlement up to 6 months while I'm selling my small studio to fund this purchase. Then I thought of the DA potential of this new place, and thinking of negotiating up to 12 months settlement. I guess I have to throw in a higher price to be fair. I'll have to talk to the agent and find out what this seller is looking for.

 

[jsoe]

if you're purchasing, why bother with an option?

just negotiate a longer settlement and sort your DA out inside that timeframe.

hi Aaron, You're right. this is my first time thinking ahead (not doing so well) a bit lost really.
If I was to just use the "option" and not actually go through with the purchase, I guess I'll have to pay the option fee which the seller gets to keep if the DA fails. It could be quite hard becuase the agent said he's got a lot of interest on the property already. May be long settlement + slightly hire price is my best way.

 

[Aaron Sice]

hi Aaron, You're right. this is my first time thinking ahead (not doing so well) a bit lost really.
If I was to just use the "option" and not actually go through with the purchase, I guess I'll have to pay the option fee which the seller gets to keep if the DA fails. It could be quite hard becuase the agent said he's got a lot of interest on the property already. May be long settlement + slightly hire price is my best way.

don't forget the DA is in their name, too....so that's another "deposit" lost as well.

 

[jsoe]

don't forget the DA is in their name, too....so that's another "deposit" lost as well.

Ok I see. But if we use an option, seller can't sell it to anyone else but me, right? and they can't change the selling price?

So you guys have obviously used Option before. Have you ever done it on a property advertised on domain or realestate.com.au? Or is it more likely to happen on privately approached sellers?

 

[Aaron Sice]

Ok I see. But if we use an option, seller can't sell it to anyone else but me, right? and they can't change the selling price?

So you guys have obviously used Option before. Have you ever done it on a property advertised on domain or realestate.com.au? Or is it more likely to happen on privately approached sellers?

private sellers, generally. larger, greenfields sites, or even as an alternative to JVs or Vendor Finance.

the seller can't sell it legally, but can still just sell it and let you take them to court. best option is a "purchaser's caveat" on the title, which a banks will lend on because YOU are the purchaser and will remove the caveat without the need to settle any third party debt, but because you have a 'registered interest" in the property, no other lender, other than yours, will lend on it...generally.

if you short-sell the option, you MUST MUST MUST MUST remember to change the name of the registered interest under the purchaser's caveat to the new option holder or their finance will hit a brick wall, and then they'll hunt you for damages.

 

[danle]

How do you go about finding buyers and sellers via property options? Where do you begin?

 

[marg4000]

Most people, when they decide to sell a property, do so because they want the money for some other purpose. So unless you are lucky enough to strike a seller who is happy with a long contract, you will have to sweeten the deal, usually by offering a premium price.

It can work the other way too. Our son bought a PPOR on a 5-6 month settlement at a very good price as the seller was building a new home and wanted to avoid the inconvenience of renting and two moves. As our son was keeping his first house as an IP it didn't matter to him to wait a bit longer to pick up a real bargain. It was a double win as both our son and his then partner (now wife) are kayakers and this house had very close and easy walking access to a river.

But unless you are very lucky with the seller you will have to make a long settlement attractive to them.
Marg

 

[BuildingBlocks]

Most people, when they decide to sell a property, do so because they want the money for some other purpose.

Try and work out their motivations before spending a dollar. They may have another house lined up and not be interested in anything other than a 6 week settlement.