The Short Sale Option Contract, ok here’s a tool that can really make you some serious jack. The problem is that if you are dealing with one of the 90%+ of Realtors who don’t have a clue, you’re probably going to have a hard time. They won’t understand it and immediately will rely on the incompetent Realtor mantra of “it’s illegal”. It happens all the time.
However if you are lucky enough to stumble upon an agent who has the smallest degree of competency and will work with you, then you my friend, have found the pot of gold at the end of the rainbow!
A short sale option contract allows you to invest with little if any risk. You can secure an interest in a property without having to put any serious money on the table. With the option contract, you acquire the option to buy the property in the future.
You don’t have to acquire it like you would in a contract, you just merely have the option if you so desire. As an investor, you do not have to worry about the deposit since you can ask the end-buyer (person you will be selling to) to also pay a non-refundable deposit equivalent to the amount stated in the option contract.
This deposit goes towards the closing costs in the final HUD. If the deal does not close, you keep the deposit. Therefore, you will not be risking any money out of your pocket.
Where does this end Buyer come from? Well if you are in the real estate investing game then you had better be building yourself a list of prospective buyers to sell to. It’s not hard, there are tons of people looking for great deals in this market.
In fact there’s about to be more. Every story I read about the real estate market hitting bottom means more people getting back into the market. The media drove people out and the media will drive them back. Start building your list…like yesterday!
You will be looking to sell your deal to an end-buyer immediately after you acquire your equitable interest on the property.
Is this legal? Absolutely and options have been a viable way for real estate developers and serious investors to make money for hundreds of years. Do you think someone who wants to build a multi-gazillion dollar development downtown goes in and buys all the land for the mega center he wants to build? Of course not, it takes permits and plans and studies…etc It may take years to achieve approval for the developmental plan. What happens if the approval doesn’t come?
So most developers use option contracts. This has been a very smart way to do business in real estate. Unfortunately they don’t teach option contracts in the week long real estate course taught at Agents ‘R Us.
So most have no idea what you are talking about and recoil with ignorance when approached with it. In fact you’ll have a tougher time getting an agent to understand an option than you will finding a buyer. It’s really sad isn’t it?
In today’s market it is an easy way to pocket tens of thousands of dollars on a Short Sale deal. Here’s the steps to get a deal done with an option contract:
1. Find a deal
2. Submit an Option Contract instead of a contract
3. Pay for your option with a small sum…remember this is a payment, not a deposit. You are BUYING the option
4. Immediately record the Option as you want to secure your interest in the property
5. If you don’t already have a buyer then begin marketing for one BEFORE your option expires (options have a specified life span…fortunately you determine the lifespan…but it’s a lifespan that will expire if you don’t get the deal done)
6. Get your transactional funding in place. Gone are the days of using the end buyer’s funds to close…I don’t know of a single title company that still does this. You are actually going to have to close. (don’t worry about seasoning…the end buyer’s title commitment will show you as an exception on the title as the option holder)
7. Close the deal and get your wire transfer confirmed
8. Go Find another deal..and keep marketing for buyers!
This is a real easy way to make $50,000.00-$100,000.00 per month. The transaction is toatally transparent. Everyone involved will know exactly what is going on. There is FULL disclosure and it is a long, well established way of doing business.
The seller will know your intentions of profit, the agents will know what you are doing and all lenders involved will know and recognize the type of transaction that is being executed.
Despite what you may hear, stand firm and understand that these types of transaction are completely above board and legal with complete and full disclosure.
After you have closed your first deal using an option contract you will wonder how you ever did business in real estate without it. Using an option contract is a foolproof and basically risk-free method of making money in real estate.
If you’d like to learn more about short sales and how to execute short sales in a step by step manner. Then you may want to enroll in our Short Sales By The Numbers Video Course.
I love it! Great advice as always.
Barry:
Where is the option contract for my review? When I click on the hyperlink it brings me back to this page. Since I’m a subscriber to the course, I’ve checked there and can’t locate it as well.
Thanks,
Tony
Hi Tony,
The Option Contract wasn’t included in the Short Sale Video Course but after getting a bunch of emails from members after this article, I will be posting it this week in the Short Sale course documents.
Question, if I purchase an option does it give the right to market the property as my own including MLS listings or anything similar?
Hey Noel, owning an option before it expires gives you control over the poperty, provided the option is written properly. As for entering it on the MLS, local board rules would apply, but in our area it’s the same as any other lising as long as it is disclosed. I’ve even seen people putting props on the MLS based upon assignments.
Now if it’s already listed you will obviously need the previous agent to terminate the listing..which I can imagine would be a whole lot of fun!
Where is the Option Contract for review?
Thanks.
Can anyone with any experience negotiating these short sale option contracts with the lenders tell me what % of lenders will work with an option contract . I’ve been told many lenders want the ultimate buyer only, no 3rd parties
thanks Jay
After reading your “The Short Sale Option Contract” I could agree with you that most transactions that have full disclosure to all parties involved in and with the contract may be legal. As a Broker what I see from the people who want to use this instrument with short sales are afraid to tell everyone what they are doing. My question is always why. Maybe it is the old saying that the closer to free money the shadier the deal is. (I say that).
The other thing you do not discuss when talking about the real estate developers using options all the time is that they are not usually (in fact almost never, but always with full disclosure) asking someone to take a shorted amount of money in order for their option to work. If it is not illegal why are you afraid to tell the lender you are shorting that you have someone else willing to pay more than you are. Is it because you are offering nothing to the transaction other than skimming cash? At least the developer is adding value to the transaction and I totally believe in anyone being able to make profit. In addition I do not see the disclosure that the “investor” who can not flip the option contract within 24 hours of closing a negotiated short sale will not perform on the second contract with a final buyer (look up the definition of material fact). The dilemma for anyone who does hold a state real estate license is that it is illegal to withhold material facts. You may check your local code for the definition of material facts.
Short Sales are a good method to sell property and sometimes they are the best route for sellers but not always. Locally and nationally the failure rate of written short sales is 70% – 90%. Licensed agents as well as ordinary citizens such as investors should take careful measure to not practice law without a license; this could include giving advice on the best route for a distressed seller to take. I suspect we will see many law suits in the future with sellers who have been taken advantage of.
There is the one other problem for the new buyer, that is FHA will not loan money on a flipped property for 90 days and I am now seeing many lenders refusing to lend on any flips within six months. Without financing there simply are very few buyers. “Investors” who want free and get rich quick deals most times I have found do not fully disclose. I understand that you are in the business of teaching people how to do just that.
Hey…Patrick thanks for reinforcing my view of many real estate agents. It’s amazing that you even know how to tie your shoes.
Here’s a question for ya…from your mighty stature as a legal folly…have you ever closed a short sale or do you merely choose to pontificate from your sphincter?
I’m pretty sure you communicate quite well utlizing the latter method. But hey, that’s fine..please by allmeans continue. I love it when realtors actually speak to give the consumer even less reason to pay some hack 6%.
Hey…Good Luck and keep waiting for the market to return to normal…whatever that means.
Agents like you may not like the reality of business but we are indeed here to make as much profit as possible. Perhaps that isn’t taught in Coldwell Banker training.
In a decade of doing shorts, we have NEVER had a problem, have always made a profit and have had banks write letters thanking us for helping them out.
Maybe if more realtors would get their heads out of their collective asses and learn how to actually execute short sales then the number of short sale failures you quote wouldn’t be so high.
Instead of quoting bullshit numbers why not address the problem. Realtors , for the most part, are clueless as to how to get them done. Meanwhile I, and my clients, enjoy being on the side of the fence wherein the 30% or so as you say succeed.
Personally I could care less about the 70% that fail. They’re not my deals!
I guess we are just lucky that you got bored and decided to get out of real estate and concentrate on internet marketing leaving real estate to the idiots you seem to believe Realtors are which may or may not include your wife. Good luck with as you put it; making some “serious jack”.
PS Thank you for providing interesting training material for our agents.
Hey Patty boy….the only thing you are lucky with is that I am:
1. Not competing in your market
2. I am past blasting agents for the fun of it
3. My wife’s cooking is calling me to a more important appointment
What I said is we got tired and bored with moronic agents like yourself. Real estate is pretty good to us and as you seem to know someone close to me is one who knows how to get it done.
If you are training your agents…they’re in for a bunch of trouble. Since you guys have been around since the dawn of time, that maybe you would understand a bit about technology, the way the market has evolved and what being involved in the business means today.
Obviously, Capitalism isn’t on the menu for your agents. Pity ..pity..pity…and yes…I am NEVER going to be ashamed at making a profit….you do see the header image of this blog don’t you?
What do you think about securing and assignable option and flipping/selling that option to and end use buyer?
Good news. Two lenders have come to the conclusion this week that they will not draw loan docs for final buyers on option flips until the flipper has either; taken title to the property (this could cause a two to three day delay of closing with the final buyer) or the preliminary title report be in the flipper’s name not the original seller’s name with a recorded exception for the option. Unfortunately the ethical title companies will not issue this report until the flipper has closed on the property (once again because the flipper does not own fee simple title to the property and has no right to transfer title therefore can not insure it). Once the buyer gets a preliminary title report most States can require a three day period for the buyer to review the report. What now?
Anyone who actually profits from real estate and wants to know how this is not a problem just email me.
It’s solved in two easy words, legally and ethically. (Despite what Patrick thinks there are very good title companies and attorneys who know how these deals are supposed to be closed)
Pat was this a riddle or do you, as a long time Realtor, not know how to get these deals done?
Thanks Barry for not calling me names this time. As I stated in my first comment there is a very good place for short sales as long as there is full disclosure. I am sure that you follow this rule so you will not get into trouble and lose your empire. Unfortunately many people who take classes and subscribe to a guru on getting rich in real estate just do not follow the rules. I refer to these as “seminar people” I and my company has an extremely good track record of closing our short sales with the right buyers and the right sellers. I have several specialist agents who have a 92% closure rate. This does not take away from the fact that as a whole there is a 80% failure rate (at least in Boise I do not know about Florida) I also have several flippers in my office weekly explaining why their system works and is legal and how they spoke to the Real Estate Commission and have their blessings. My questions are always the same. “Are you willing to disclose to everyone what we will be doing, if so we will be happy to work with you?” The answer I get is always the same. “It is no ones business to know what I am doing. Don’t you just want to make the commission?” I even had one come back a second time after one year and 47 secured options from distress homeowner with just 3 closings with the new and improved seminar he just took and now he knows what to do now. Unfortunately he would not work with us again when we said fine with full disclosure and he said he would not. I also teach a class each week on how agents can be better at what they do. Inevitably each week our subject matter comes back to short sales and distressed property. It is very frustrating when Realtors try to do good ethical work while still making profits and run across the “investor/flipper” who is trying to get rich quick and take advantage of anyone in their way. So I will continue to do my research and help Realtors, buyers, sellers, legitimate investors and ethical flippers be successful with their real estate. By the way I don’t only have one decade doing this (yes we had short sales 20 years ago) I have three decades being successful doing this. Thanks for reiterating the “legally and ethically. It is heart breaking to see the disappointment and the let-down when the young family who thought that they were buying their dream home finds out that everything was not disclosed to them even the fact that the seller (3rd party) will not finish the transaction because their ability to get the short sale negotiated wasn’t there.
I hear this from Realtors all of the time and it is just ridiculous…what do you mean when you say “when Realtors try to do good ethical work while still making profits and run across the “investor/flipper” who is trying to get rich quick and take advantage of anyone in their way”?
Of course my objective of making a profit is the most important thing to me. I would assume it would be the most important aspect of any investor’s business.
I have to differ and of course most agents don’t like what I have to say. There is NO REASON whatsoever why the failoure rate of 80% is as it is in your market or any market other than the fact that agents simply refuse to learn how to properly execute short sales. I run into it all the time and could write volumes about it…wait a second..I have!
It’s a tired argument and one that has been validated time and time again. I wish you well in your endeavors and I thank you for the debate. Please visit and comment again.
Barry,
It is no use brother! It NEVER IS! Realtors like Pat are always taking the minority and trying to make it the majority. I do find it hard to believe that any investor would respond with a “no” when asked to fully disclose. Pat is blowing smoke. I would bet that Pat tried his hand in some kind if get rich scheme where he lost thousands, lost his home, his significant other, his dog, his cat and his mind. Now, he is taking it out on everyone else.
Hi ben…I’m not going to step out and say that Patrick is a total failure…but what I will say is we are all in business to make a profit. Seems to me more Realtors should understand this and work to facilitate that insteaqd of impeding it.
Many realtors wield what they think is the sword of disclosure and ethics then cower behind the statement that they can’t practice law or that their “looking out for the best interes of their client”.
That is such a lame argument as more than likely, from Patrick’s own words, most of them end up failing and the homeowner ends up losing the home.
Can’t wait to see the fallout from lawsuits when foreclosed homeowners begin suing real estate agents for misrepresentation and gross negligence because they had no idea as to how to get the deal done to help them avoid foreclosure.
Protecting your client is getting the deal done! Do you hear me??? What good is it if you “protected the interests of your client” and they end up with a foreclosure on their record because you didn’t know how to get the deal done.
It’s shameful. I am not saying Patrick is like that but as he says in his comment he is finding that 80% of short sales fail. And don’t give me the crap about it being the bank’s fault.
We were running at 100% for the longest time and even now have only lost 2 friggin deals. Why? because it is our intent to close and make the “serious jack” that Patrick mimics as if there is something wrong with making “serious jack”.
People wake up, before we lose our direction…making “serious jack” is what it’s all about in business…not posturing and playing make believe like many realtors do. Get the friggin deal done! Bottom line!
Barry your absolutely right about opions and as for realtors they all need to learn short sales because the owner pays the price in the end because of there ignorance
Barry,
I found this post (#1 I might add) when looking for reference material. There are some great points in here!
Some of our state laws hamstrings this just a bit, but for the most part it’s great material.
I do think it’s important for the agent to read the entire document and not be scared off by the fact it’s not the norm.
When properly done, this really has helped out some Seller’s in distressed.
There’s plenty to learn on both sides.
Thanks Matt. How have you been have not touched base with you in some time. Good to hear from you! Tanks for your comment.