Download My Option Agreement…
Man, you guys sure love to swipe our stuff!
I mean, based on the gratitude galore we got from sharing one of our favorite motivated seller postcards recently, it seems pretty clear that the old “Swipe and Deploy” is something we should keep rolling with.
So let’s do another one…
Today’s handy-dandy resource is one of the core essentials every investor should have in your tool-belt–the Option to Purchase Agreement, or “option contract” as it's often called.
But I gots to tell ya — just having this form in your bag of tricks isn't enough… You’ve got to understand it's purpose and how to effectively wield it. Which is exactly why I made you this little video about it.
The essentials on option contracts
In this video you'll learn:
⇢ What an option agreement really is (and what it's not)
⇢ Who exactly is obligated (and who is not)
⇢ Common uses and best practices for deploying this in your day to day business
⇢ Why I don't typically recommend “lease options” as a buying strategy
⇢ Stuff like “equitable interest”, “principal interest” and your “bundle of rights”
⇢ What you can and can't do with an option
⇢ How to fill it out, step by step
If you don't care to know all that, then just feel free to download the form and add it to your arsenal (see below). But for those who want to learn the ropes on how to use this thing, this video will help you wrap your mind around what this is and how to best use it.
Press play…
Video Transcription:
Hey, what's up guys? JP Moses here. AwesomeREI.com—real estate investing for awesome people.
Today, I want to share with you a document that is critical in our real estate business. It is the right tool to pull out at the right time when a purchase contract just doesn't quite make sense. It's the option agreement.
You need it in your business, and I'm going to give you mine—the one that we use in our business—with a small disclaimer that you need to run it by an attorney and make sure it's kosher for your area.
Now, why am I doing this?
#1: These documents are important, and I want to share them with you. We like to let you swipe and deploy our stuff. It's part of our culture here at AwesomeREI. So we're gonna let you swipe and deploy this option agreement and your business.
#2: You need to understand how and why to use it and when to use it.
So, what I want to do first is walk you through what an option contract is:
- Why do you need it?
- When do you use it?
- How do you use it?
And then we're gonna walk through the document itself—I'm actually gonna show you how to fill it out. Now if you want to get the document, you're going to need to go to this post on our website, scroll down and leave a comment on the page. After you leave the comment you will get our document—a little give and take.
So you've got to go there and you gotta engage with us. Just leave us a comment. Details are on the page. After you leave a comment, you'll get access to my Option Agreement. You can swipe it, deploy it, and use it in your own real estate investing business to your heart's content.
Okay, let's jump in and take a look at my Option Agreement or The Real Estate Auction Contract.
Before I run through the document and it's very simple agreement, I'll show you exactly how to fill it out and tell you what I think are the best practices for doing so.
First, I'm going to run through what an option is. I don't want to assume anything. I know some of us are already interactively using options and maybe this is just going to be another form in your arsenal…
Others are coming right into this thinking, ‘I don't even know what the difference is between an option and a contract. What the heck is this so that I know how to use it?!’ So I'm going to cover that so you're armed and equipped to be able to swipe and deploy this little goody.
But first I gotta give you the standard disclaimer—it's always true, and I always try to remember to say it:
I am not an attorney. Even more importantly than that, I'm not your attorney.
Please consult your own legal counsel before you apply this. Just consider it for entertainment purposes until you consult your own attorney. Do your own due diligence. This is your business. Treat it like a business. What I'm going to describe may or may not work exactly the same way for you. Do what you need to do and get your docs checked out.
Okay, so the Real Estate Option Contract defined…
A real estate option agreement is a written contract between two parties—
the optionor, which is the seller of the property, and the optionee, which is typically the buyer or the potential buyer—in which one party buys the right to have the first chance of purchasing a piece of property at a specific price at some point in the future.
Now there's a reason that the right is in italics. I'm emphasizing you are not buying the property, necessarily. You're buying the right to buy the property. Therefore, it is your option. Get it?
So point #1: It’s the buyer's option not obligation to buy.
The seller, however, in a standard option contract like the one you're about to see, does have an obligation to reserve the property for you. And that is something called a Unilateral Agreement.
For those of you who've been through any kind of Realtor training or contract law class, you've heard of a Bilateral Agreement and a Unilateral Agreement. Bilateral means it is obligating to both parties the optionor the optionee in this case, or the buyer and the seller.
Side Note: If you ever get confused, just remember that the optionor is the give-or of the option, and the optionee is the receivee, the person receiving the option.
Okay, an option agreement typically is a Unilateral Agreement, meaning only one person, only the optionor—the giver of the option—is obligated to reserve that property under the terms of that option agreement for you.
For X amount of time, you don't have to buy—you have the option to buy during the term of the option agreement. Also, standard contract law applies even though this is not a purchase agreement or a purchase contract, it is still a contract.
So any of the standard stuff in a contract like a contract expiration date, for example. In Tennessee, a contract has to have an expiration date in order for it to be valid. If it doesn't, then it's not a valid contract. Legal consideration has to be exchanged for a contract to be viable. So keep that in mind—standard contract law applies to the option contract.
Also the option can be extended, it can be assigned, and it can be amended unless expressly prohibited.
Okay, if you're wholesaling, a lot of people will write their name as the buyer and then write “and/or assigns” afterward, which a lot of folks seem to think is what gives them the right to possibly assign that contract over to somebody else…
I'm not going to get into what assigning is if you don't know, but really by default, any contract is already assignable. It's extendable, it's amendable by default unless it expressly prohibits it. So keep that in mind
And as I said already: consult your attorney with whatever contracts you decide to incorporate into your real estate investing endeavors.
And, I would suggest you take a contract law class. I did that when I became licensed. And I've been through seasons. I'm not currently licensed. I was licensed for a number of years and there's pros and cons. That's a whole different conversation in and of itself…
But I remember when I first got licensed back in 2004, and one of the classes I took was a contract law class taught by a real estate attorney at the local Board of Realtors. It was two and a half hours, one long afternoon, and I learned a lot about what a legal and binding agreement makes. I recommend it. It's not exciting, but it's a good investment of a couple of hours and you don't have to be.
A lot of people don't know this, but you don't have to actually be a Realtor in order to take classes at your local Board of Realtors. You can just pay a fee. Usually it's a little higher fee than the members of the board, but you can just pay a fee and attend one of those classes. So look into that. That's my recommendation.
Common uses of an Option Agreement. Well, getting equitable interest with little or no risk. Now, an equitable interest is legal interest in a property, and it's something that you need in order to be able to market a property for sale before you actually buy it. I know this may sound a little technical. But this is important.
When I went to the Realtor school, this is the way it was explained to me: Property ownership is not one thing.
It's best to not think of property ownership as just one big right that you have. Instead, you should think of property ownership as a bundle of rights, kind of a bundle of sticks…
Imagine that you're holding a bundle of sticks under your arm. Maybe there's two dozen sticks under your arm. And each stick is a different aspect of property ownership. One stick might be mineral rights, one stick might be rights of easements—there's different aspects to property ownership and, cumulatively, the bundle of sticks—the bundle of aspects of ownership form this thing that we call property ownership.
Now I'm talking specifically to wholesalers here, you know the deal: You want to put a property under contract of some sort and you want to flip that thing before you even close on it.
You can't legally do that unless you have one of those sticks from that owner’s bundle. And the way you get one of those sticks in your possession is to get a contract or an option on the property, secure that, and then you now have equitable interest.
So it gives you the ability to get that equitable interest with really little or no risk to yourself. It's less risk than if you had a Purchase Agreement in place and you can market it for resale. As I said, you are a principal in the transaction. That's why you have that right. So it is a lower risk than a Purchase and Sale Agreement.
A lot of times, you'll hear the option used in conjunction with a lease called a lease option. And typically, a best practice for a lease option is: You have a lease and separately have an Option Agreement. I think it's a great way to sell property in a lot of cases.
It's kind of a rent-to-own type scenario where you can rent a property to somebody, give them a two-year option, and then maybe give them some rent credits that count toward their down payment.
And “owner financing substitute” or “owner financing light” is maybe one way to think about it. It's not a method that I particularly recommend for buying, because I think you don't have enough control in the transaction, unless it's a very short-term lease option. (I wouldn't recommend a long-term lease options for investors, but that's just me.) And I do think it is a solid exit strategy—lease options, specifically.
One great approach to using an option is:
- Find a good deal
- Tie it up with an option (and I mean tied up ethically). Get your equitable interest in return for having an option agreement in place, but always be honest when you put an option on a property—don't make the owner believe that you're going to be closing with certainty, that you’re going to be buying this property. Just be honest and say:
“You know, I'm not sure if this is going to be a deal or not. I have a network of investors I work with, and I’ve got to talk to a number of them and see if any of them are interested in partnering with me on this. So give me an Option Agreement so that'll give me time and the equitable interest that I need to be able to shop this around to my partners and see who's interested.”
I think that's a real honest, ethical way to go about it.
Side Tip: If your seller is nervous about letting you tie up the property with an Option Agreement, one of the things that you can do to skirt around that is to incorporate a secondary offer cancellation with a right of first refusal clause. Basically, that's a clause that in so many words is going to say:
“Mr. Optionor/seller property owner guy, let's do it this way. Give me the Option Agreement so that I have the equitable interest I need, but if somebody brings you another offer and it's better than my offer, then I will give you the option to cancel the Option Agreement. I'll give you the choice to cancel our Option Agreement as long as I get a right of first refusal to match that person's price.
So if I got an option for $100,000 on your property and somebody comes along and offers $101,000, you can't just take their offer. You have to come to me and say, ‘Hey, I haven't been marketing the property, but somebody brought me an offer for $101,000,’ and then I have to either match that and close or we can just part ways. Match their new offer or release them.”
It really can be a great way to help mitigate the seller's risk in those situations. This gives the seller the peace of mind that they need, and it gives you the equitable interest that you need to be able to go out and make a killer deal.
So having said that, let's jump in and I'm just going to blast through this agreement. It's very short and concise. It's not going to take long to go through.
So here we are with our Option to Purchase Agreement. Now I should say this is a standard option. It's a simple plain English option. This Option Agreement is made between the following parties, and of course, you're going to fill in the giver of the option. You're going to fill in their full name and after that, they’ll be ‘referred to as the optionor of the property. And under that is the optionee, that's the receiver of the option.
Next it reads: The following items are applicable to this agreement:
- The optionor agrees to grant an option to purchase to the optionee, the land and improvements known as XXX, which is where you put the full street address with city, state and ZIP.
- Optionor agrees that he/she will not attempt to enter into any other negotiations or returns for the sale of this property with any other party while this agreements in effect. If optionor receives any other independent offers on this property option, you will be notified immediately. (This is not quite the clause I was telling you about that gives the right of first refusal, but it’s close. It lets them know that you don't want them to going out marketing the property, but if somebody brings an offer, you’ve got to be notified immediately.)
And a lot of times, I can just verbally tell them that at that point I'll either match their offer or release them. And then sometimes, I'll actually put that part in writing if I feel like I need to.
- Upon agreement, the option would begin on the date of XXX and end on the date of XXX.
Meaning, you might sign this agreement today, but the option might not take effect until tomorrow for whatever reason. Basically, you need to have a definite starting and ending date for your option period… a couple of years, couple months, whatever seems to make sense on your transaction. So that's going to be your beginning date and the end date of your option.
- Purchase price will be XXX, and payable by certified funds at settlement.
Now let me say this—even though you're putting some of the details that you would put in a contract into this option, if you decide to come back and exercise your option to purchase, then you actually still have to put a Purchase Agreement in place.
So this is like a holding document in a sense. It's not a replacement for a Purchase and Sale Agreement later on. And it basically says, if you do go to contract, XXX is the amount of the property ($100,000 or whatever that you decide) to secure the option.
- Optionor grants optionee access to the above property for showing to prospective buyers,
contractors or appraisers.
Of course that's important! If you put an option on a piece of property, you’ve got to have access to the property.
- Optionor must maintain proper insurance on the before mentioned property.
Clearly it's important that they keep their insurance in place. I don't want them to think that I'm insuring it. They still own the property, so they should keep it insured.
- If the optionee purchases the property, the optionor will pay all closing costs.
Now this is obviously slanted in my favor, and usually what I'll do is I'll strike through that as an act of goodwill and say, “You know what? Let's just say that we'll split the closing costs or I'll pay the closing costs.”
It makes me look good to scratch through that one and say “optionee will pay all closing costs” or scratch through this word and write “optioned” and just let them know I'm willing to do that.
- Optionor grants this option for the consideration of $10 and other valuable consideration.
This is just basically a formality. This is the consideration that you're going to be putting down now depending on the deal and what you're negotiating and how savvy your seller is. You may have to put a thousand dollars option consideration down. This is what you risk.
Whatever you put down is what you have at risk. It's not an earnest money deposit, meaning, if you don't exercise your option, you don't get this back. This is a fee that you are paying for the privilege of holding an option on this property for xX amount of time.
Now $10 typically works with mom-and-pop sellers when you say, “I don't know if I have a deal here or not. I need to talk to people about whether or not they're going to be able to partner with me on this. Give me an option so I have the ability to go do that.”
Then I say, “$10 is a formality,” and I hand them a $10 bill. If you're dealing with some guy who owns a crap-ton of land like a few acres at the bottom of a planned interstate exit, then you're gonna have to put some down for a more serious option consideration.
It's not a deal killer, you’ve just got to see if it makes sense for the deal.
Fun Fact: I learned that there's other things besides money that can be legal consideration for an agreement like this. In fact, in Tennessee, love and affection can be considered legal consideration. I'm not sure how you document that, but it is legal.
The last thing you're gonna want to do, of course, is have the optionor or the owner, and you, sign and date the contract. And typically, rather than just having their names in cursive, I'll write out in manuscript underneath the cell phone numbers for each person.
And really that's it. What I love about this agreement is it's simple, it's plain English, it's all in one page. It's very unintimidating and not filled with legalease. So I like it for that reason too.
Now there's other option agreements out there. There's one you can get from your Board of Realtors that's probably 10 pages long and full of all kinds of bloat. So you could just use that standard Option Agreement and just scratch out what you don't like and add in what you do like and make it what you want it to be.
But ours is a simple one that you can use. And I hope this has been helpful to you.
If you have any questions at all, anything, please leave a comment. I love answering these questions, so leave us a comment with any questions or comments or remarks.
If you've had experience using an option and you have any comments that you want to throw in on your experiences, please do that as well. Thanks guys, JP out.
How to download my Option Agreement
First off, I’d like to ask a small favor:
Would you please “Like” our Facebook page if you haven’t done so already?
We actually posted the video above on our Awesome REI Facebook page, so if that’s how you got here, and you already “Liked” us there – well thanks for being awesome!
Otherwise, before swiping my Option Contract for your own arsenal, I’d be thankful as a monkey with a peanut machine if you’d kindly hit the “Like” button on our little Facebook widget thingy. Doing this will most definitely make you awesomer and probably better looking too.
Next, do this…
Ok, so how do you get your little paws on my Option Agreement? Easy peasy. Just leave a comment below sharing ONE THING you'd like us to give you in a future “Swipe & Deploy” post, and then Chuck Norris will hand it to you.
Nope, not kidding.
We all love to score a good tool or resource like this, right? Be it a form, contract, marketing piece, script or “what-have-you”… Something that’s already been time-tested and proven to work.
So here’s how this goes:
Step 1. Engage with us by sharing (in the comments below) at least ONE THING you’d personally really love to see us give away in the future as a “Swipe and Deploy” like this. We’ll take every single suggestion into consideration.
Step 2. Once your comment’s posted – viola! Chuck Norris congratulates you with a free download of my Option Contract.
So what are you waiting for?
Let’s do this. Leave your comment below. And don’t forget to be awesome.
Thank you for always sharing it really helps have an awesome day
THANKS for the info
thanks for all the great help
Great content!
Another piece to add to my arsenal!
I’m still learning all the basics, seeing up an office, getting organized, your info has helped me tremendously!
I just need your FB link and YouTube links that would be fantastic.
Thanks for being so Awesome!!!
Some detailed information on escrowing terms of PSA and Option agreement where by most essential documents are preaddressed and prepared and ready, basic on escrow instructions. How far can we go with such a process.
I am new so I am looking for any ideas that will help me.
Thanks for the great content as always, I’m a huge fan of Awesome REI !
Thank you for always sharing your knowledge 🙂
How about a repair estimate formula. This is my biggest struggle. I think if I could get a handle on estimating repairs I would be able to get better deals.
Hey I’m already a member capital syndicate and z-code
I’d like to be able to convert my rent to own leads to deals.
I’m New here and there tons of info on this blog Thanks! P. Nadeau
Very interesting methodologies for doing REI. How does one handle information overload from RE Gurus?
Priceless training. You guys are awesome!
I would like to see an agreement for renting out rooms in a house with the owner of the house to handle the tenants and rental of the bedrooms. Here in Atlanta many transient professional’s are renting bedrooms instead of apartments for 3-6 months while they get settled into their new job and sell their house in other locations. I know you can lease a house and rent out the bedrooms. However, Im thinking more like a property management relationship.
I love the training. You are awesome.
I Love how you keep me growing and interested with so much knowledgeable information
Thank you for another AWESOME resource!!!
Great content and appreciate getting the awesome option contract that you and your team actually use!
Awesome stuff! keep the information coming
IAM New To This! I Already Love It Now I Need The Contracts 1 and 2 thanks alot.
love all the stuff you fill my head with.
I’ve never used an option agreement and you made 10 lightbulbs go off in my head!! THANK YOU!!!
great content!!
All the good stuff is here. Thanks
your deep dive on option agreements was extremely informative and helpful. look forward to more relevant and educational information.
I ahve enjoyed learning with you guys it has been an journey but a rewarding one. Keep up the good work.
Hey I really appreciate the explanation video here is my request can you do a video about selling an assignment contract through a land contract as a trustee.. Thanks!!!
Always greatly appreciate the value you guys bring to this space. Appreciate the docs as well of course. Stay awesome
Simple and easy makes sense to validate a deal. Thanks.
I would like to know more about notes and if we can fund notes that would be awesome. And thanks for this option agreement I’ll be waiting for my free download thank you.
Tons of info that works if you use it.
Maybe a “free membership” to one of your many Partners. I’m a newbie lol, but can’t wait to learn this process. 🙂
More sample contracts would be great to have in our arsenal!
Great Stuff
great information
you guys are the best
Thank you for this valuable resource.
Thanks for sharing so much great information!!
Thanks for another great video JP! I really like the fact that you explain the different important terms this contract agreement contains. I also like the fact that as you mentioned there is no “bloat” in the agreement which I’m sure the optionor will appreciate its brevity. Lastly, I feel getting the first right of refusal clause is really important.
I need to see exactly how this works and step by step how I can make it happen!
Re enforcement to really get sellers to move fast
Thanks for the info.
the videos are great. I love the easy explaination
So appreciate your wealth of information. Looking forward to my first deal.
As usual, very BRILLIANT and simple. Thanks JP.
Going through my first option deal and i feel ready.
So we are always being told Reading is Fundamental…. yeah right who are they talking to. LOL
I have emailed and looked for several items I needed today to prep for a deal, and all the time its been right here. The only thing I can think of right now being so new is maybe more scripts???
Thanks once again yea I’d like to see a lease back agreement!
Thank you
I would like to see the actual Needs List that has been talked about so much.
The best product on the market!
Thanks, great info and great presentation!
Thanks for all the “Extras” I am actually beginning to visualize myself doing some of these contracts and making money at it. You have really thought through everything a beginner needs to being his business. I’m looking forward to finding a section on learning how to build a website for this business.
Scripts and assignment contract please.
@Herbert – you’ll get them after leaving a comment. Please check your inbox.
I am new to this and appreciate all the Awesome information…
Been following my fellow Chuck Town boy Patrick for years, I KNOW he never disappoints!
I’m new to this. So Thanx for the info.
This is Awesome thank you!
I’m just getting started with TCC and everything I am seeing on here is helpful. So thank you.
Great explanation.
Awesome share thanks JP
As usual, your content is superior! Thank you!
Thank you for your generosity – knowledge and documents. Would you share more on Subject To purchases?
Nice graphics with step up content. Your format of communicating is very enticing.
Some more ideas on options, please
I would like to see you give away of more golden Nuggets on seller financing. That’s one of the most under rated strategies in real estate. Great work
i love the simplicity
A phone script when calling a potential seller
Thanks for sharing, very informative.
I learned a lot for it
Ron
Your contract is very helpful in 2020. Keep up the good content & flipping.
Cool!!! Thanks for the paperwork.
This is awesome. Anything you provide in the future will be great.
Thank you JP. This blog was very informative. I just started my PMB business & I’m wondering would you recommend using an option agreement?
I had a client who had a deal, I connected her with a lender and she paid the application fee after completing the loan app. It was a misunderstanding about her paying out of pocket for appraisal so she wasn’t expecting the amount that was presented. I apologized and explained to her that the appraisal fee is out of the lender’s control and mine, also the lender was not making any money off of the appraisal fee. My client stated she understood, however, she still walked away from the deal. My client called me later to tell me she received call from another that she was approved and she went with their offer because it was better…If I had an option agreement with her would that possibly helped me not lose the deal if I had a chance to go back to the lender I connected her with to see if they could offer her a better terms?
Always good content. Thank you…
Thank you for the option contract. That is AWESOME. I don’t know what else to ask for but scripts that have been tested and proven to work are always good.
Great content. I would like a motivated seller script.
I’d like to see an independent contractor agreement for a loan broker as I am considering hiring and training a few for my business. You guys offer great value for all content you provide a huge thank you for that
Blessings ….You’re awesome for this!
I can’t wait to hear more about this option. Kinda sounds like a lease option.
information is always great thank Patrick and JP
I am so happy I stumbled across your website. It has some of the best information I have seen in long time. Thank you.
I’d love to see an accompanying Assignment contract to the Option contract. Thank you for sharing your forms!
I’m really confused about this whole thing. I’ve been trying all day to find the downloads but haven’t been successful, is there something I’m missing? All I see is videos, no marketing tools or any of that. Are we suppose to figure the whole thing out. Just concerned. I’ve watched all the videos.
@Stephanie- after leaving a comment you should receive the option agreement. Please check
your inbox and spam folder.
Interesting Option training. Well done just hate the ‘honky Tonk’ in the background all through it!
Thank you for helping me be learn to purchase
properties and become Awesome.
I know you must be careful with the legalities of using Options, so I appreciate this presentation.
I have done lease options myself in the past, but doing it from this end is new to me. I love that you guys are offering this to us. I am not sure what else to ask for because I haven’t explored the entire thing yet, Great job!
The explanation of the options contract is by far the most simplistically described version I have yet to encounter. Bravo!
Thank you for sharing this! I suppose any of the contracts or key deal terms you frequently use would be useful to some/all of us. Looking forward to more!
Id like to see a deal done in real time… i think this is pretty cool way to make some side money. id like to know more.
Thank you for all the help , SO NICE OF you sharing COMMON KNOWLEDGE. Where such information ever found except here ?
nice contribution esp first right refusal
Great examples … Really, really appreciate this!
Awesome and simple Option Contract.
Thanks.
Thank you for the great material! Thank you for responding so quickly to my email! I cant say what I would like to see in the future from you guys yet because I’m still learning the system but so far the information is great and very useful!
I Love the fact that you were honest and realistic. You did not use a pressure sales method to explaining the steps. I can appreciate and value that approach.
Newbie here..thanks for the information
Always looking for suggestions on a cold call marketing system such as pre-foreclosure. Skip tracing, script etc.
IM JUST GETTING INTO SWING OF THINGS AND LEARNING NEW WAYS TO ADAPT YOUR SYSTEM TO THE EVERY CHANGING REAL STATE WORLD . I THINK YOU GUYS HAVE GIVEN ENOUGH TO NEW COMERS BUT I LOVE ALL YOUR TRIANING CLINTON.
This information is GREAT! I would like to see an actual deal analysis performed.
I enjoy reading your content and learning new ways of implementing new systems into my business. Keep Producing quality content..Thanks
Thank you for all the help , appreciate you sharing!
I am new to this however I am thankful for the AWESOME help. I will have suggestions as I go through this program and process.