Negotiating Option Terms
The amateurs always seem to come up with ways to negotiate that works better than negotiation techniques employed by the pros.
Let me tell you about J.
J.
He worked for the Mercer County school system near Seattle and wanted to buy a little piece of land on which to put a trailer out on the Hood Canal, some 70 miles away from where he lived.
He spent his weekends pouring over ads in the paper and finally found an ad for a property that seemed to meet his needs.
He contacted the owner and agreed to meet him at the lot on a typical Seattle rainy day.
He and the seller walked over the land for a couple of hours, then got down to brass tacks.
Once the price had been agreed upon, J.
J.
said, "I like the lot, and I like the price; now there's only one more problem: I don't have any money.
Is there any way that I could buy this lot on time?" The owner, frustrated at having invested his afternoon driving to the lot and showing figured there was nothing to lose with seeing what J.
J.
had in mind.
He led off by figuring how much he wanted in payments, and what interest rate he'd charge.
He also wanted a 30% down payment.
The first thing that came out of J.
J.
's mouth was pure gold: "How long would I have to make payments before I'd saved up enough for a down payment?" What this amounted to was a zero interest loan for as long as it took for the 30% down payment to be accumulated.
From the owner's standpoint, the lot was sold and until he'd received 30% of the price, all he had to do to get the payments started up was to sign a purchase contract.
From J.
J.
's standpoint, he had bought his dream lot with nothing down and no interest for several years.
If times changed and he was unable to complete his purchase, he'd have no lingering liability for payments.
He could simply walk away and abandon his contract with no further obligation to make payments.
J.
J.
's immortal words and his getting the owner really motivated to make a deal by trooping through wet, cold underbrush for several hours before asking his question are hard to beat when you want to buy anything with very little down and zero interest.
Try it the next time you prepare to buy anything from an owner.
Option negotiation is only limited by your own creativity and bargaining skills.
Here are some brain teasers to stimulate your negotiations: A.
Use a set interval of time with periodic contributions of increasing PRINCIPAL payments which count toward the purchase price.
This effectively will provide you with zero-rate financing until you exercise the Option.
i.
e.
$1000 for 1 years.
Then $2000 for another year.
Then $3000, etc.
B.
Increase the Option price by 5% with each 3 year extension.
Or by a set dollar amount.
i.
e.
on a $250,000 building add $10,000 per extra year.
This limits your risk to the original amount paid by sharing future profit.
C.
Use your own efforts to upgrade property through re-hab, up-grading, market and feasibility studies, engineering and plans, re-zoning, etc.
as Option consideration.
Assign all your results to the Optionor if you don't close.
D.
Use exercise of one Option as the consideration for another Option on a different piece of property - even between paper/property/leases/businesses.
E.
Use your expertise and connections in solving problems in real estate management, finance, construction, land development, to buy an Option.
F.
Instead of putting cash into escrow as Option consideration, pledge a C.
D, a Money Market check drawn on an interest bearing account, a tax certificate, a Note.
This way your money earns interest pending closing.
G.
'How long would I have to pay your before I saved up enough money for a down payment?' Use an installment contract to extend the length of time you control the property by having an installment purchase of the Option, which, when completed, would give you an Option for a given length of time plus negotiated extensions, which when exercised, would lead to a purchase contract with lots of contingencies built in to delay the actual date of closing.
This would give you time to either find financing or a buyer.
Let me tell you about J.
J.
He worked for the Mercer County school system near Seattle and wanted to buy a little piece of land on which to put a trailer out on the Hood Canal, some 70 miles away from where he lived.
He spent his weekends pouring over ads in the paper and finally found an ad for a property that seemed to meet his needs.
He contacted the owner and agreed to meet him at the lot on a typical Seattle rainy day.
He and the seller walked over the land for a couple of hours, then got down to brass tacks.
Once the price had been agreed upon, J.
J.
said, "I like the lot, and I like the price; now there's only one more problem: I don't have any money.
Is there any way that I could buy this lot on time?" The owner, frustrated at having invested his afternoon driving to the lot and showing figured there was nothing to lose with seeing what J.
J.
had in mind.
He led off by figuring how much he wanted in payments, and what interest rate he'd charge.
He also wanted a 30% down payment.
The first thing that came out of J.
J.
's mouth was pure gold: "How long would I have to make payments before I'd saved up enough for a down payment?" What this amounted to was a zero interest loan for as long as it took for the 30% down payment to be accumulated.
From the owner's standpoint, the lot was sold and until he'd received 30% of the price, all he had to do to get the payments started up was to sign a purchase contract.
From J.
J.
's standpoint, he had bought his dream lot with nothing down and no interest for several years.
If times changed and he was unable to complete his purchase, he'd have no lingering liability for payments.
He could simply walk away and abandon his contract with no further obligation to make payments.
J.
J.
's immortal words and his getting the owner really motivated to make a deal by trooping through wet, cold underbrush for several hours before asking his question are hard to beat when you want to buy anything with very little down and zero interest.
Try it the next time you prepare to buy anything from an owner.
Option negotiation is only limited by your own creativity and bargaining skills.
Here are some brain teasers to stimulate your negotiations: A.
Use a set interval of time with periodic contributions of increasing PRINCIPAL payments which count toward the purchase price.
This effectively will provide you with zero-rate financing until you exercise the Option.
i.
e.
$1000 for 1 years.
Then $2000 for another year.
Then $3000, etc.
B.
Increase the Option price by 5% with each 3 year extension.
Or by a set dollar amount.
i.
e.
on a $250,000 building add $10,000 per extra year.
This limits your risk to the original amount paid by sharing future profit.
C.
Use your own efforts to upgrade property through re-hab, up-grading, market and feasibility studies, engineering and plans, re-zoning, etc.
as Option consideration.
Assign all your results to the Optionor if you don't close.
D.
Use exercise of one Option as the consideration for another Option on a different piece of property - even between paper/property/leases/businesses.
E.
Use your expertise and connections in solving problems in real estate management, finance, construction, land development, to buy an Option.
F.
Instead of putting cash into escrow as Option consideration, pledge a C.
D, a Money Market check drawn on an interest bearing account, a tax certificate, a Note.
This way your money earns interest pending closing.
G.
'How long would I have to pay your before I saved up enough money for a down payment?' Use an installment contract to extend the length of time you control the property by having an installment purchase of the Option, which, when completed, would give you an Option for a given length of time plus negotiated extensions, which when exercised, would lead to a purchase contract with lots of contingencies built in to delay the actual date of closing.
This would give you time to either find financing or a buyer.