Anyone ever put a house under contract with a 12 month closing date?

Question

I have a seller who I've been working with for months. He wants to sell me his house, but he doesn't want to close for a year. He's very realistic on the value, and is pricing it at about a 15% discount due to the long closing. He just wants a guaranteed sale, about a year from now, with a closing date of his choice, so he an his wife can retire and move into their second home.

It's a single family 3/1 that's been his (and his wife's) primary residence since 1995, well maintained, with some upgrades. It's in my target area, which is very much a seller's market and is appreciating at around 5% with strong recent comps.

It seems like a no-brainer to be. The only downside is tying up a few thousand in earnest money. But in return, I'd be locked in to a great deal with 12 months to plan an exit strategy. I'm not aware of any contractual limitations on the closing date (I'm in Florida) and can't see much downside risk.

I'm just curious whether anyone in the BP community has ever structured a similar deal, what the outcome was, and whether there are any pitfalls to watch out for.

Thanks!

Rick H. · Answer

Personally, I'd prefer to option the property.Due to the extended time period and changing circumstances (and the input from others' influence) there are too many reasons tgat may cause a seller to either not perform or to rationalize bouncing out of escrow. Also, my options involving giving seller reasonable consideration and I secure with a performance trust deed rather than merely using a recorded memorandum.

Dave Foster · Answer

Keep the EM as low as possible and have it held in escrow not released. The opportunity cost for that becomes your downside if it becomes a non-event. Leave a financing contingency in the contract to protect you from a loss of value situation. It also motivates him to keep the property value up so it will appraise correctly.

Bill Gulley · Answer

On option to buy may be done with dates in the future over a period of time, like April 1 through May 1, 2016, expiring on May 2. The price must be set as well. I've done several for different reasons, common for construction of new homes. If the property is to be occupied you need to address a final walk through, accepting normal wear and tear, under a sale contract.Other issues, insurance assignment in the event of a loss you can elect to perform or avoid the contract. Death of a seller passes on to the estate, you can still buy but may address delays to provide good title. I would have very little EMD at the contract time if any, an EMD can be provided say 90 days prior to settlement. Don't have the place appraised now, buyer's performance needs to be within 90 days of closing, the contract date should be fine. You can contract, wait, then put money down, move on financing as customary and close. Good luck :)

Travis Sperr · Answer

@Rick Harmon perfect suggestion - recording in this scenario protects you from him selling it out from under you. In most places you can record the contract, but you might just prepare a one page doc stating you have a contract on the property and to contact you in regards to a closing. the title search will show this if the property is being sold.I have put property under contract for 9 months - development deal, allows me to get permits before closing. The likelihood of prices going down are pretty low in most markets. In some ways it is an option - if the market tanks you are only out your EM, if it goes up or stays the same you are all good. Lowest EM possible.

Jeff Copeland · Answer

Thanks all. I've considered all of the above, just wanted to bounce it off BP and make sure I wasn't overlooking anything. I appreciate the responses.Rick H. - My initial instinct was an Option too. But he just wants it under contract with a set closing date in April 2016. An Option contract wouldn't necessarily specify a closing date, and if it did, then it may as well be an actual contract for sale/purchase, right?

Jeff Copeland · Answer

Bill Gulley - Thanks. I actually hadn't thought about doing an option with a "purchase window" that covers his desired closing date. That's a great idea.And the insurance and probate issues are certainly worth considering as well.Thanks!

Jeff Copeland · Answer

@Dave Foster - Great point about the financing contingency used as a hedge against depreciation, damage, and/or lack of maintenance. Thanks!

Bill Gulley · Answer

Good point Guy, all real estate is local.James, that's really what I would do, pay a fair price, let the seller use some of his funds to rent and move out whenever, clean and simple! If the owner had cold feet with a lease, make the sale contingent on the lease, that might ease his mind feeling more secure. :)

James Wise · Answer

Closing now and renting it to him seems like a pretty good plan.

Guy Gimenez · Answer

@Jeff CopelandAs long as the subject property is in Florida (and I presume it is), an option may be a great idea. But if you are dealing in straight option contracts in Texas, keep in mind the options can't exceed 180 days or they become executory in nature and fall under a whole different set of rules.