Short Sales and The Option Contract

Thursday, April 2nd, 2009 at 10:45 am

Short sales do not have to be complicated transactions if you are equipped with the proper tools and techniques. Back to back closings are the simplest and easiest way to close short sale deals in today’s shifting and unpredictable real estate market. Before attempting to use a back to back closing, you must make sure you have all of the necessary forms and documentation to remain in observance of the law. Without the correct forms you risk the transaction not closing on time, or even worse, not at all. The easy, legal way for this type of transaction is through the use of an option contract. This contract gives the real estate investor a vested legal interest in the property.. The option is subject to the approval of the short sale. The option contract gives you the advantage of selling the property for a profit without really buying it until you are confident that you have a qualified end-buyer. This is very useful, as you will retain control of the property within the period specified in the option contract. Just be sure that option contract provides adequate time for you to obtain an end-buyer for the property. Using an option contract is an almost foolproof way of earning a profit without using your own money.

With this process, two transactions are happening back to back. You buy the property from the seller and then, almost immediately, the buyer buys the property from you. This is the secret of combining the option contract with the short sale. Two transactions are happening, not simultaneously, but one after the other. The first transaction involves the original seller, who is probably an owner facing a possible foreclosure, selling to the investor - that is you. You, as the investor, have the option to buy the property as long as certain conditions are met. Upon the conclusion of the first transaction, you are free to sell the property to the end-buyer at an agreed upon price, resulting in the second transaction. The first transaction must be independent of the second. Both the buyer and seller must know you plan to short sale the property and sell it for a profit. This must be declared and made clear in the option contract. It is all transparent and legal when these and details are fully disclosed in the option contract.

The important point to note is that the option contract is working for you as a foreclosure real estate investor. The option contract allows you to sell the property even before you have bought the property. You will only be required to purchase it when you have identified a qualified end-buyer for the property. This makes your risk very close to zero.. That is the beauty of using an option contract in a short sale.

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