Hi all, Have recently been offered a site in Caringbah south NSW for 1.4million. 15m frontage, 660 square metres, R2 zoning corner block. Also offered is a 12 month settlement period with a call option. 10k deposit is needed. The person who came to me with the offer is asking for 15k finders fee. Is this a reasonable finders fee? I thought it was a bit much. Is there anything I should be wary of with deals like this?
If it's something you want and are looking for, then it could make a lot of sense. I recommend you engage a good solicitor with solid experience in property options though.
Heaps to be wary of. seek specific legal advice on the terms of the option the terms of the contract and associated legal issues.
My concern with options is that you pay money for something and you do not own it. You own a right to the asset in the future and you hope the person on the other end will still have the asset and they are prepared to transfer it to you. Yuck. And if you do not act in a certain time period the asset/right is gone. What if you die and your executor is a bit slow? I do not know but I don't want to clean that up. Just imagine if the vendor was a criminal and sent a mate around to "nicely" let you know you are better off to let the option lapse. Yuck. Make sure you put a caveat or something on the title so the world can see your future interest. Something that might scare away another potential purchaser. Options scare me. And I would need a tonne of paperwork and a rock solid vendor before I handed over money for a future promise.
Yes, great points. If the OP was to go with an option that's a fair sum of money (25k) to lose if he (?) doesn't end up proceeding with it.
$10k is not much to lose in the scheme of things, but if the property had jumped say 10% during that time then $100,000 is potentially lost. There are plenty of legal cases involving options where the optionee had not followed the agreed on proceedure to notify that they wanted to exercise the option. One case I recall involved a restaurant in Darling Harbour. They had to exercise the option by delivering written instructions to the Optionor. They did it via email and it therefore wasn't valid. It resulted in an expensive court case in the supreme court and the optionee lost.
Hi Terry, It will be 25k including the finders fee. When you say if the property jumped in value by 10% then 100k is potentially lost, is this if I were not to go ahead with the option? The plan was to get DA approval for a duplex during the settlement period and then when the option was going to expire I would decide wether to build it myself or to sell with DA approval.
Hi Ross, So is there a way that vendor can back out of the deal once the contract is signed on the option? Or am i the only one that can choose to walk away, less my deposit of course. Also mentioned to Terry that I would be going for DA for a duplex and worst case I would be reselling the property with DA approval. Hoping to build once the settlement is done but that would be best case scenario. From my understanding I would be able to get DA during settlement and have the option of selling off to another buyer during this period without actually purchasing the property myself. Is this possible if the contract for the option is drafted right?
Technically no if the contract is drafted right. But if the vendor simply chooses to not transfer the property and breach the contract then you have the right to sue the vendor and either seek damages or force the transfer. Do you really want to do that? I have a horror story that I can share if you want to PM me.
You have to carefully review the contract you are being assigned. There are usually many ways that a vendor could terminate a contract. One common one is death.
Yes, you might get some capital growth, get the DA approved and then for whatever reason be unable to settled or assign the option.
Marcus Your 25k isnt where your spending stops. You will get drawings done and all other things needed then pay for DA approval out of your own pocket. Unless you can make a 100% return on the cash you invested e.g you invest 50k and then have 50k profit, I personally wouldn't really bother cause 12 months is a while. You also need to calculate if your option has been put on correctly at the right price. And make sure it's not a put & call option either cause they can force you to buy it if it is
Alternatively you can offer the guy a 20k finders fee and tell him you'll pay it dependant on if you get the DA approval. Pretty crap if you paid 15k for something you realise u can't get approval on
@Marcusdeebo Can you please share some updates on this? Just wondering whether you ended up sorting this out? Thank you!
So have agreed with the vendor to have a one month due diligence period where my architect will see if there's any major issues and this 1 month will come off the call option. Deposit and finders fee is only payed once the call option is signed. Once the due diligence period is over call option is activated by myself in writing. Solicitor specialised in these and has put a caveat on it. He also made sure no more debt can be put onto the existing mortgage. Also had to ask for approval to be able to apply for a DA during the call option period. After meeting with the solicitor and running through different scenarios the other day, I feel pretty confident with it all. Total cost to me will be 10k deposit 10k finders fee ( negotiated down from 15k) Drawings and application was around 14k Solicitor fee all up will be around 2k If DA goes through and I won't be able to build, hoping to sell the option DA approved for $1,550,000 to $1,600,000 mark in a years time. But thats best case scenario have to see how it all goes.
If the DA doesn't go through then is it just money down the drain or is there a fall back plan? Good luck and wishing you success. xx
Very confident DA will go through but if not should be able still sell the option at a profit. I think at the moment the property is valued $1,450,000 to $1,500,000. There is an auction in a couple of weeks 2 doors down from where I'm buying and it's a smaller block with a decent slope, so I'll be very interested to see how that goes. Agent is saying 1.4 price guide but he has underquoted me 200-250k on 2 previous auctions in the same area. Hopefully he has underquoted again.
