Is This A Purchase And Sale Or Option Contract

I have to giggle a little, sometimes. We all are likely aware that there’s a number of large hedge funds and private equity firms buying property to get better yields for their investors on Wall Street or pool of backers. And while this is all fine and good, one practice I am seeing more if is no earnest money being put up until after the inspection period.

As I see this more and more it dawned on me that it isn't really a purchased and sale contract but rather an option contract with the desire to be exclusive as if it was a purchase and sale. Don't get me wrong, I love option contracts as they are very powerful due to their usefulness and flexibility. But if am putting a property on the MLS to sell, my take on it is if you're not willing to put up earnest money then it is really a purchase and sale? It’s a hard sell for us as investors and even more so for some private Sellers. While we realized that this might be a little bit more time intensive on their ends because they are in fact, putting out so many offers the reality is Sellers whether homeowners or investors oftentimes need that comfort of knowing that the Buyer does have some skin in the game. If that is not gonna be the case I just have to wonder how committed the Buyer is. We have sold properties to these types of Buyers and we've never run into this, but we are seeing it more and more. I understand sight unseen offers and can respect that when working in volume but not earnest money yet have a property off market? A little tougher to take that in. In our situation, we don’t accept it and if we did, we would retain the right to continue marketing the property and accepting backup offers aggressively during that period.

Also consider that the quality of your house will play a large part in this. If your property is in tip top shape and the market supports that value, you may feel you can be a little more flexible. If you know it needs work, you can almost be certain they will come back asking for a price reduction. I have seen funds do this time and time again even on very clean properties. Also keep in mind what they pay for contractors tends to be a little more than you may expect.

So is it good to sell to this type of Buyer? It can be! Just be aware of the caveats. Even though they are financial heavyweights to certainly be considered seriously, measure their level of commitment to your property before you get too excited about signing that full price cash offer that is at or above list price. The last thing anybody needs is for their house to have an extra pending on the listing unnecessarily to have to explain to Buyer number 2 or 3, etc and you’ll have had no skin in the game to show for it other than time wasted. Do your due diligence on your home thoroughly then choose and negotiate offers made to you wisely!