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  • Writer's pictureJason Stephenson

OPTION AGREEMENTS 101: The Good, The Bad and The Ugly.

Everything you need to know about option agreements and what to look out for.

If your property has been recently rezoned or is earmarked to, chances are you’re being contacted or door knocked by Real Estate agents, Developers and Buyers Agents. You may be getting outright offers to sell, or you may be offered to “put and call”. But what does this all mean? What should you do?

What are option agreements?

An option agreement is a contract put in place to allow a developer to purchase land within an agreed upon time frame for an agreed upon price. Usually a fee is paid upfront to secure the deal and the developer pays the rest at the end of the term. Option agreements come in three ways:

1. Put Option

This allows the land owner to “push” or “put” a sale to the purchaser (usually developer) for an agreed upon term. Let’s say you sign a 3 year “put” option agreement. At the end of the 3 year term, the landowner (if they choose) can force the purchaser to complete the sale and pay the balance of the agreed upon price.

That sounds great! Yes, it does, but this rarely is offered as the purchaser (developer) does not have the right to settle on the land. It is highly unlikely a developer would pay money to secure land under a put option as it relies on the landowner to trigger it. It takes the control away from the purchaser.

2. Call Option

This allows the purchaser (developer) to complete the sale at the end of the agreed upon timeframe. In the case that you sign a 3 year agreement for example, at the end of the 3 years the developer can trigger the settlement.

The call option is fairly common. The purchaser is the only party that can trigger settlement under the terms of the agreement, if the terms of the agreement are met. Under this agreement the landowner does not have the right to force the purchaser to settle. So, if the purchaser chooses not to settle then the transaction will not happen.

3. Put and Call Option

Put them both together and we have the “put and call” option. In this case at the end of the term or as agreed in the contract, there are triggers for landowners to make the purchaser settle, and triggers for the purchaser to make the owners settle. This is a good option as both parties have power to force the sale if the contract/ option terms are met.

So I think I’ve decided which option I would prefer to go with, is there anything else I should know? YES! Below we have created a “what to look for in an option agreement” cheat sheet (see graphic below) Enjoy!

BUT, if you would like more information, have any questions or would like us to go over your offers please get in touch.

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