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We are thinking of selling a property. We were approached by an investor who wanted us to sign an "Option To Purchase Real Estate" contract in order to market our home. While they say the contract is not binding, and I'm free to pursue other methods to sell the property, I"m a bit apprehensive as I haven't heard of this kind of arrangement. What kind of pitfalls are there with this arrangement. Are there any benefits to go down this route? 

Thanks, 

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This sounds like one of those schemes where the investor pays you a low price for the house, sell it for much higher (much greater than 6% that a realtor would take/split with buyer's realtor), and they pocket the difference while you/the buyer pay for all of the transaction costs.

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taylor0987 said:   This sounds like one of those schemes where the investor pays you a low price for the house, sell it for much higher (much greater than 6% that a realtor would take/split with buyer's realtor), and they pocket the difference while you/the buyer pay for all of the transaction costs.
  yeah, basically a wholesaler scheme. pretty common. i would just list the place.

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my understanding is that conventional financing doesn't allow for this kind of contract so the investor would not be able to market it to retail buyers

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More nefarious than wholesaling. Scammers will use questionable LLCs/fake names to acquire properties using this method, rent them out, and not pay the real owner.

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Likely a wholesaler. But why sign a contract if it's nonbinding? No doubt, there's something binding about it. Only do this if you think you will have trouble selling through standard means, like a dilapidated property.

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That's a wholesaler. I'd avoid them. I have found them to be all talk and little else.

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Thanks for the feedback. Doesn't sound like these guys bring much of a value for a normally marketable property.

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rufflesinc said:   ... the investor would not be able to market it to retail buyers
 

yes, that's why it's called "wholesaling"

https://en.wikipedia.org/wiki/Wholesaling

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An option contract should have an up front payment.

"I'll pay you $10,000 today for the right to buy your property for $500,000 within 180 days."

If they fail to close, you keep the money. They make money by flipping the property with only the initial $10,000 investment. You get paid to sit on the property.

If they aren't offering you anything up front, or if they don't have a clearly defined term, stay away. Option contracts can be legitimate, but they have also been used by scammers to tie up properties and cloud title. I imagined they had their own chapter in Trump University.

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supersnoop00 said:   An option contract should have an up front payment.

"I'll pay you $10,000 today for the right to buy your property for $500,000 within 180 days."

If they fail to close, you keep the money. They make money by flipping the property with only the initial $10,000 investment. You get paid to sit on the property.

If they aren't offering you anything up front, or if they don't have a clearly defined term, stay away.
 

not always. looks like in this case, the wholesaler is giving up the exclusive right to sell, in lieu of no up-front payment. sometimes this works if an owner has to make some repairs before selling - the wholesaler has some time to bring in another investor. there are other cases/circumstances where it's viable, but for a marketable property going on the market soon, it's usually a waste of time (at best) or an opportunity to get paid less $$$ (at worst) for an owner.

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It's a wholesaler fishing for a deal. If your property isn't at least moderately discounted, serious cash buyers won't be interested.

Since most wholesalers aren't licensed realtors, they're required to get a property under contract to have what is considered to be "equitable interest" in the deal to be able to legally market it. A Flex-Option is a standard contract they'll use.

I do wholesaling as part of my investing exit strategy, but only on properties that are discounted at least 20% below retail, and usually properties needing some kind of structural repairs that won't qualify for conventional financing. Once in a while a good retail type property pops up, but they are few and far between.

If your property qualifies for conventional financing, I would just list it with a Realtor and let them deal with selling it.

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