Posted by Lori Samson on June 05, 2000 at 01:35:29:
BR,
You can do it both ways. If you can get the seller to define how much cash (if any) he wants, you can then write it up as paying off the existing first mortgage and seller to recieve $------- cash at closing. That way you can recieve that little bit the mortgage may pay down. Most sellers have a number that they want and if you can assure them that’s what they will get they don’t care what you write.
The other way is to write the sales price that you agree upon less any rent credit and option fee you will have paid in.
Lori
On a tape Ron LeGrand states that on the front end of a sandwich L/O your purchase price should be loan balance at the time option is exercised. How is this accomplished? I see nowhere on the agreement where this is addressed. Anyone here use this criteria for your purchase price?
Posted by Scott (AK) on June 04, 2000 at 15:29:32:
Mr Seller, if you were to be able to sell your home for CASH today how much do you think you would net (put in your pocket) after the sale was complete.
Oh Scott, not much, that’s why we couldn’t afford a RE Agent.
So how much if you was able to sell FSBO
Maybe $3,000 or so
Ok, Mr Seller, how about if I guarantee you that same $3,000 when I buy the home. Since I am the one making the payments and creating any value from this point on, I would think that was being very fair. Don’t you?
Well that sounds fair.
What you have just done is allowed yourself to take advantage of any mortgage paydown over the life of your deal.
Write it up like this
PURCHASE PRICE: Seller is to net $3,000 when Buyer/Tenant exercises the option to purchase the property.
BR,
I always TRY to get the seller to accept the loan balance as my option price. Some sellers will, some sellers will not.
But, when they will, I simply write it as follows;
"PRICE AND TERMS: The Tenant/Buyer agrees to pay for said property the sum of The Total Mortgage Balance at close of escrowless any sums for which the Tenant/Buyer is entitled to claim reimbursement or offset in accordance with this agreement; the net sum to be paid in cash, certified check, or cashiers check at closing.
And, if the seller wants some cash above the mortgage balance, then I write in The Total Mortgage Balance at close of escrow, plus $xx.xx dollars***
This is a good thing for you, because as you make payments to the lender, your purchase price goes down.
Then again, if the Seller is willing to let it go at “mortgage blance”, I usually try for the deed anyway.
Posted by B.L.Renfrow on June 04, 2000 at 08:00:34:
I am not familiar with LeGrand’s contracts, but I routinely do this on my sandwich L/Os. I just use wording similar to David’s under the purchase price paragraph in the contract. Of course, if the seller has substantial equity you may have to sweeten the pot, but most sellers on my sandwich deals just want out from under the obligation and aren’t looking to make a profit at closing.
I havent seen Ron’s Agreement, but I would say that it probably should be worded something simply to the effect.
Seller ________ agrees to sell and buyer ____________ has the right to buy this property located at, yada, yada, Main st. with the legal, Yada, yada, for the amount of the existing loan balance currently payable to xyz mortgage and with an approximate balance of $xxx,xxx.
Anyway, something to that effect, should get you started.
Re: This is what we use in our contracts - Posted by Lori Samson
Posted by Lori Samson on June 03, 2000 at 23:28:41:
I use a paragraph that looks like this:
PURCHASE OPTION: For the non-refundable Option fee of $__, I the Landlord grants tenant the option to purchase the Premises, provided Tenant is not in default under this Agreement, for the purchase price of $, subject to the following terms and conditions.
(for example sake say the tenant/buyer put down 5000 and your sales price is $96,000)
Total Purchase Price $96,000
Amount of Option Fee $5,000
Amount to be Financed $91,000
Financing is the Tenant/buyer’s sole responsibility at whatever terms are available when financing applications are submitted.
David suggested wording of “for the amount of the existing loan balance currently payable.” I’m thinking that this could be confused for the current loan balance as of the day of ACCEPTING the option agreement, as opposed to the day of EXERCISING the option agreement some years down the road.
I’ve seen language be added to the Special Stipulations (or Additional Terms) that says:
Purchase Price shall be equal to the then current principal balance at the time of exercising this option agreement.
Posted by B.L.Renfrow on June 04, 2000 at 11:05:44:
Here you go (I am not an attorney either, but here’s what I use, with my attorney’s blessing):
“Purchase price shall be the balance of the Seller’s first mortgage note with XYZ Lender on subject property on the day of closing…”
In my opinion, this wording is preferred over specifying purchase price on the day the option is exercised, since significant time could elapse between notificiation of intent to exercise and the actual closing date.
See what I mean Lori, Ron’s agreement doesn’t address this at all. It provides a place to enter the option price just like any other agreement I’ve seen, yet on the tape he says the option price should be the loan balance ‘at the time the option is exercised’. My question was/is “is there anyone who actually does it this way as opposed to agreeing to an option price up front”?