What Are Property Options?
A property option is a contract of sale between the property seller and a property buyer. The option contract is different to a standard sale contract because it requires a longer settlement time (the option period) and usually offers a higher sale price.
While large option contracts are common in the development sector, residential owners seldom have heard of this flexible alternative to a traditional contract of sale. This can be win-win for both the buyer and the seller for several reasons outlined below.
What Are The Advantages Of Selling Under A Property Option Contract?
Property option contracts have an advantage over traditional sales contracts as the longer settlement periods can suit many sellers who want time to make moving plans, but also want to lock-in their existing property price against any market changes.
A direct option offer from a buyer to the seller can reduce time and costs to the seller by removing the need to go through the auction process, pay real-estate agents, marketing costs etc. However, If the property is currently covered by a real-estate agency for sale, their fee can still be written into a property option contract.
The property seller benefits from:
- A higher property price for you
- More time to make plans to move house
- A guaranteed sale price for the option period
- No estate agent /marketing fees
What Are The Advantages To Buying Under A Property Option Contract?
Options are usually secured by buyers who are looking to develop. Due to the lead-in times required to develop a property, time is more valuable than money to them, so negotiating a longer settlement time makes it worth the developer offering a higher-than-average price to secure the right property.
During this lead-in time under option (up to 18-24 months) the developer can secure their financing, conduct their due-diligence assessments and begin the development approval process through council. If in the rare event, something major occurs during the option period which would jeopardise the development, then the property option buyer can back out of the deal.
The option contract itself is an option to buy at or before the option period due date, but not an obligation if something drastic occurs during this period. Things which could scuttle the option are rare and are often discovered early on during the due diligence period (e.g. Heritage listing, endangered species etc).
A property buyer benefits from:
- A guaranteed purchase price during the option period
- Longer lead-in time to secure development approvals
- Lower interest payments on loans
- Lower project risk if major issues are discovered during the option period
In Summary
So what’s the verdict? If you’re not in a rush to sell, why not consider an option contract for your sale instead, if your property has development potential, you have just unlocked a whole new set of potential buyers apart from just those browsing through realestate.com.au. You can reach out to a developer such as Cartographer Development or a suitable estate agent to look at selling under option.
If you’re a developer, you can reduce your project risk by purchasing under option. If you are looking for specific types of sites to develop, reach out to Cartographer Development for a chat about how we can help secure sites for you, or ask your network if they can procure their sites under option for you.
