Purchase Option Contract vs Real Estate Purchase Contract

[Jessica Gourdine]

Do you use both of these contracts together or just one rather than the other?

[Brian P.]

I use one or the other but both are in my toolbox. I like the idea of in some deals buying time with an option but no obligation to buy, especially with a property or title I want to dig deeper in. If I want to put it in cement then I exercise the option with a purchase contract. I am a guy that hates some surprises, so love options to avoid the wrong kind and being committed if it seems like maybe something is not kosher.

[Jessica Gourdine]

Thanks for the response @Brian P. What exactly do you mean by "exercise the option with a purchase contract."? Do you sign the option agreement first and then when you're ready to go forward, sign the purchase contract?

[Wayne Brooks]

The purchase agreement needs to be attached to the option agreement, so that the parties know what the option is for, as the terms of the purchase have to be defined at the time of the option.

[Brian P.]

Jessica

I always include the purchase terms in my option to control sellers that don't want to sell when they get a better offer, and seek ways to kill the option. I just used the option only when I first started for a cash price and seller was to deliver property with clear title, and free from any encumbrances.

So I exercise that attached agreement, but if I have found problems I create an amendment to it with the new stuff and if the changes are deal breakers I just keep the option going until it expires, who knows I may find a buyer who wants to take a shot.

Now in a lot of my options I include a clause that upon payment of a certain amount I can extend the option date by so much time. and in one case I did that after I was lucky enough to sit at the table next to the wife of a guy that was desperate to buy that property. She was telling her friend that he was buying the properties on each side and was at that moment writing up a contract with the seller to buy his property when my option expired the next week.

To bad she didn't know what I looked like. My wife and I drove over after lunch and gave the seller the extension fee to extend my option for 1 year. Two days later a phone call from a guy willing to take the option off my hands for a few bucks profit and allow me to get my money back on that turkey. The way he presented it he was trying for sainthood. I let him know sainthood doesn't come cheap, my wife loved her new car.

[Bill Gulley]

Oh boy, it's getting deep. :)

Use one contract, using two may mean you have contradicting agreements. You can always delete default matters in a purchase contract and add that there is to be no default as part of the consideration, but probably best to decide which direction you need to go. Sale contracts may have limited periods to be effective by statute or custom too, an option is usually for a longer stated term. :)

[Jessica Gourdine]

;-D

So, would I be better served using a purchase agreement contract and adding the elements of the option contract into it?

[Brian P.]

The other way around, option with attached purchase agreement covering the terms of the purchase to be in effect when you exercise the option, if you do. Or to keep it simple the other terms I used in my early days above.

[Leonard L.]

In my view, this is a state specific issue. You have to first define what is an option, what is a purchase contract, something not addressed anywhere yet in this thread. Different people mean different things when they use these terms.

Here in California, I always use an option as a seller, and a purchase contract as a buyer. The reason is that if a buyer does not perform timely under an option agreement, the law is very strict that he loses all further rights. So that is why I like it when I am a seller.

But as a buyer I like the additional rights afforded in California to the holder of a purchase contract. People talk about the right to buy but not the obligation. Well in CA, like many states, a properly signed liquidated damages clause is a pretty sure fire liability limitation for the buyer. Yet, if you don't perform as a buyer to the letter (eg, a few days late, and no "time is of the essence" clause) a purchase contract might keep you in the deal where an option contract might not.

[Brian P.]

It is the old story, it all depends what you want to do. In California I used options as a buyer because once I exercised the option the purchase contract became the controlling document thus accomplishing what you seem to be referring to.

So up to that point I had no legal obligation to buy and after that point I had the purchase agreement to work off of which you seem to want to go to directly from the start.

And as a bonus if I had paid large option money the purchase agreement made that option money earnest money and it became refundable because it was now earnest money and subject to the contract, where the option money would be long gone. But since most of my option amounts are peanuts I don't bother to exercise if I want to walk.

[Penelope Storm]

While we're on the subject of option contracts, when a seller agrees to sign your option contract is that property taken off the market by the realtor automatically? Or are the realtors still allowed to market for back up offers?

[Account Closed]

Originally posted by @Penelope Storm:

While we're on the subject of option contracts, when a seller agrees to sign your option contract is that property taken off the market by the realtor automatically? Or are the realtors still allowed to market for back up offers?

The seller signed a listing agreement.  Most listing agreements are for a specified time, so it's unlikely the property will come off the market if the seller signs an option.  The agent wants to get paid and an option agreement doesn't mean there is a buyer and doesn't mean they will get paid.  That being said, continuing the listing agreement is negotiable between the seller and the agent.

[Larmon Cummings Jr]

Very good information here, and I have learned a lot. I came to this thread because I was asking many of the same questions here, and a lot has been clarified. Thanks a lot to all of you for the input.