Purchase agreement vs Option agreement

[Mike S.]

Hello BP! This is my first post, I have been reading and absorbing all of the great information on this forum. I am about to start a wholesaling company, with the intention to keep deals for my own portfolio in the medium to long term. My question is: when is it appropriate to put a house under contract with just a standard purchase contract, and when do you use an option agreement? What factors go into deciding which method to use?

Thanks for the help!

[Jerry Puckett]

Hi Mike,
Welcome to BP. You may want to try using the search box above and type in "Flex option". There are some good older posts dealing with the subject.

Option contracts for me are a fall back position if I can't quite get the price I'm looking for, yet I'm seeing some flexibility from the seller. These are folks that generally have a pretty good idea of what their property is worth and are willing to discount, but still don't entirely realize (or accept) the current market conditions.

At this point, I get their "rock bottom" price, and tell them no, I won't buy it, but I'll market it for the next thirty days, and allow them to keep shopping around for their own buyer.

I don't spend a lot of time on it, and I DO NOT pester my wholesale buyers. But I'll throw together a "postlet" and syndicate the add with links to my website. It will show up on zillow and some other places. Funny thing is there seems to be a lot of Realtors that pay attention to zillow, and I'll get calls from them looking for good deals for their retail buyers.

I did this four times last year. One of them got frustrated (and so more motivated) during the 30 day period and lowered his price to something I could work with. The other three, the option period passed quietly by. But on the last one, I got a call from a Realtor a week after the option had passed. The result is that the Realtor has a contract, and I will get what will amount to a bird dog fee, which is better than a sharp stick in the eye, and will pay for another month of marketing.