Buying Commercial Property – Using Options

An option is just what it sounds like. You have the option to buy the property or not. The option will state the time period in which you can buy the land and at what price. If you have found some property that you like but have not been able to obtain the contingencies or escape clauses that you feel you need, then perhaps an option would be in order.

Let’s assume you have found a tract of land that you really like but the owner in not accommodating and will not finance the purchase, and you can not borrow the purchase money. But you want the tract for its resale value and feel that you can successfully market the entire tract, or the smaller parcels, over the next few months.

You could tell the seller that you desire the option to buy his land within say, a 6 or 12 month period, at a certain price. This would be after having negotiated the price of the property, of course. If the seller agrees to the terms of the option, he will tell you how much the option will cost you. He may state that for $1,000 you can buy the property anytime within six months at the price you have agreed upon. Or he may raise the price somewhat. One way or the other, the option is going to cost you something because the seller takes the property off the market and expects compensation. The price of the option is the price you pay to have the ability to accomplish the investigation, planning and advertising that you normally would do with a delayed closing.

If you determine from the advertising response that your planned subdividing of the tract will probably be successful as you have had a number of presales, you could exercise the option and close on the purchase. Or if you don’t feel that the development would be successful, let the option expire. Another choice you might have is to sell your option. Depending on how the purchase agreement is worded, you could possible sell your option to a third party for a profit. Always ensure the contract you sign states “your name or assigns”, IE, John Doe or Assigns.

By: Raymond Pedersen

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By: Raymond Pedersen