Pursuant to the contract where there is an option to purchase until _________________

Buyer chooses to cancel, rescind, terminate contract effective immediately and chooses to lose option fee of $1. 

Buyer                                            Date 

______________________________________ 

Your buyer can use this notification for you, and you can use another one as well for your seller. (Feel free to copy this information to develop your own document/notice.)  

2.  Is it ever necessary to make modifications to a signed option with a seller?  Under what circumstances would this occur?  Are the changes hand written on the original contract or do I trash it and write a new one?When I go back to sellers to lower the price it can be done either with an addendum, or a new contract. I have always preferred to write up an entirely new contract, while there is nothing wrong with using an addendum. 

3.  If my option is unsuccessful and expires without being sold, how would I know if the seller sold it afterwards to one of my contacts within the twelve month period that he is not legally allowed to?
You probably won’t. I feel, however, that noting item 10 to the seller after signing, coupled with the threat of a lawsuit verbally, are sufficient enough to deter that from happening. 

4.  Have you ever come across a seller who expects a large deposit from you ($500 to $1000) when signing an option because that is the traditional way they may be used to?  If so, how do you handle it?
It’s strange, but after nearly 30 years of implementing the $1 DOWN®, since 1981, I haven’t encountered that situation. Most sellers think they’re getting nothing, until I hold out a dollar. They ask, “What’s this?” Then I say, “The one dollar makes it binding and enforceable!” 

Real estate agents, on the other hand, settle for $100, which is fully refundable with a weasel clause. 

5.  When using the Standard Purchase and Sales Agreement contract how much money is appropriate to put down?  Should the amount change depending on whether I am planning on buying it versus planning on assigning it?
We use the $1 DOWN® contract and put down $1 as earnest money deposit with sellers. We use the Standard Purchase and Sales Agreement contract with our buyers. Our buyers put down $500-1000 as earnest money deposits. (I don’t take less than $500.) 

When writing up a deal with the option when we want to buy it, it’s still $1. When writing up a deal on the Standard Purchase and Sales Agreement we will force ourselves to abide by the $100-$1000 earnest money deposits, which are standard for the industry. It doesn’t matter if I intend to buy it, or not.  

6.  How do you handle a buyer who signed a contract with you, but is not able to buy, or decides against it (regardless of whether or not he has contingencies)?  What is the legal process that needs to take place to void the contract?
My buyer will fax me a copy of a statement stating that he doesn’t want to buy the property, thereby signing and dating. You can use a BUYER’S NOTICE OF TERMINATION OF CONTRACT, or have him put it in his own words that he has no intention of closing, and sign and date it as well. 

Afterward, I need to decide where the earnest money deposit goes. 

·         If he has a weasel clause, he gets it back from my personal checking account.

o   Never give cash. My cancelled check is my receipt.

o   Make sure enough time has passed for his check to have cleared!

§  If you write a check too soon, $1,000 for example, and his check bounces, you’d lose $1,000!

·         When there’s no weasel clause, I thereby keep the deposit. 

7.  Am I correct that we are supposed to set up deals where the seller does not have to bring money to the closing table, yet he signs an option that states he is responsible for closing costs.  How is this so?
As a general rule, there is enough equity for both the seller to cover all of his closing costs and for my profit. We help the seller arrive at that number, and then make our option for that amount so that the seller need bring nothing to the closing. 

This has never happen to me, but I know after speaking with you by telephone that it’s happened to you. What you should have done is simply increased the number on your option to accommodate the seller’s closing costs. My rule of thumb is to just add $1000. It will generally be close enough. Just make adjustments where necessary. 

For your information, though, I have had closings where the seller brings money to the closing.  

8.  At what time in the process of a deal, starting with getting an option with a seller and signing a contract with a buyer, are closing costs discussed?  Should I point out to the seller as he signs the option that he is responsible for these costs or is it assumed?  Will a seller ever need to know estimated closing costs in advance before the deal is made and if so, how do I handle to process?
Before you make your offer, you need to find out what the seller’s balance is. If there is no loan, you’re in great shape. If there is a balance of $200,000, then you may need to make some basic calculations on taxes, title insurance, and closing costs before making your offer. However, if the property is worth $300,000 and your option is for $240,000, you need not waste any time on calculations. The $40,000 due the seller will cover all expenses. 

As for closing costs, one of the big ones is back taxes. Most sellers are savvy enough to know that they must bring those up to date. As for everyone and everything else, it is frugal to explain and outline the future closing when discussing the option price. 

 9.  Are there ever circumstances where the buyer pays any or all of the closing costs?  If so, please explain.
I have actually done this before. It doesn’t happen very often though. This occurs when the seller has a balance of $100,000, for example, and you’re option is for $100,000. This is when you are taking a greedy approach and you want every dime of the equity. For the most part, you could make the option for $103,000 and leave some crumbs for the seller. 

10.  Before signing with a buyer, should I wait for his spouse, or business partner, to be present or can we do two separate signings?
Since I am a male, I will not sign with the wife first without speaking with, and getting the husband’s permission, on the phone beforehand. I would rather wait and meet them later. Sometimes, however, it is easier to meet with her today and meet with him tonight. 

I will not hesitate to sign with the husband now, and have him make arrangements with his wife for later. 

As for partners, I let him make the decision on who signs when.  

11.  Is it ever necessary for my seller to sign my buyer's contract or am I the only other person to sign? If so, please explain why.
No, it is not necessary. However, there have been many occasions where the buyer and seller and I have been all together, and I have had the seller sign with me as sellers on the buyer’s contract. 

12.  What is the best approach when I am about to sign an option: present to the seller that I am undecided as to whether I will purchase or unload the property or act as though I will definitely buy the property myself?  If I am not upfront with the seller, how will I explain the reason for 90 days on my option?
I like to tell sellers that I don’t want the property for my portfolio because it doesn’t fit my criteria. I state that I will call my investor friends and dump it on them. This way I can make a few bucks for myself and help my buddies out as well. This sets up my sellers for future showings. As you know, I want to see the properties only once. I don’t do any showings; I value my time. 

·         If it is vacant, the seller hangs a combination lock-box. That combination is given so the buyers can show it to themselves.

·         If it is owner-occupied, the seller shows it.

·         If it is tenant-occupied, the seller provides notice of the showing and can be there, or not. 

13.  What should I say if a seller asks me how much I charge for the transaction or how much my commission will be?
I don’t charge for the transaction. I don’t make commissions. I will have an ownership interest in the property and I’ll make whatever equity that I can get away with. 

14.  Is an earnest money deposit the same thing as a down payment?  When the money is returned to the buyer upon successfully closing a deal is it generally applied somewhere in the transaction (for example- closing costs) or does he pocket it?
No. The earnest money deposit only binds the contract, with $500, for example. The purchase price can be $300,000 with 10% down. That 10% of $30,000 would be paid at closing by the buyer. The $500 earnest money deposit goes towards the purchase price and is deducted from what the buyer is required to bring to the closing. 

(Upon closing, the earnest money deposit will be brought by us in the form of a certified bank check. It will be shown on the HUD-1 Settlement Statement. It will be subtracted from his required down payment.) 

15.  When I advertise multiple options should each property be marked up at least $5000 or could I mark each property up only a few thousand and plan on the sum of the total sales to be sufficient?
I like to add an extra margin (like $20-50,000) where I can reduce the price during negotiations, when necessary. I do like your abstract idea of you’re not being greedy and you’re thought processes about packages. This is an advanced concept. Finally, you can apply that Master’s Degree to my simple investing techniques! 

16.  Is it okay for a buyer to figure out that I have an option on the property he is interested in when initially he thought I was a co-owner?  Is this an awkward situation to be in and how do I professionally explain myself?
I don’t see this as a problem. Generally, he will not find out what my participation is until the closing. So don’t waste time worrying unnecessarily. Once you get to the closing, you don’t need to explain anything. He’ll be grateful that you didn’t buy it, to fix up and retail, for yourself.  

17.  Am I responsible to hook up my potential buyers with a mortgage broker to get a pre-approved purchase amount or do I send them away to figure it out on their own?
We’re not responsible to help the buyer do anything. The loan is entirely his/her problem. However, when he/she closes I get paid. So, I will voluntarily do whatever I can to facilitate the closing. It is in my best interest. 

18. If I have 3 options from one seller should my option fee differ depending on whether I sell them all to one buyer versus selling each one individually to different buyers?
It really depends on the equity position on each property. It is alright if you make $10,000 from each, or $10,000 from the entire package. However you write it up, coupled with the potential equity, is what you’ll make. 

19.  If there are code violations on a property is the seller usually expected to fix them before the sale or is it entirely situational where some buyers may choose to buy as is and fix the violations themselves?It has been my experience that there are only two scenarios: 

·         The seller will have done nothing and expects to dump them on the buyer.

·         The violations are being taken care of now, and they’ll be completed in a couple of days. 

Find out which it is and disclose to your buyer the harsh reality in the contract. 

20.  Are credit checks only necessary to complete if I am financing a note or do I complete a credit check on a buyer that my seller is going to finance a note to?  Who pays for the credit check and how do I have a credit check done?
It’s not uncommon for the buyer to obtain his own credit report online and make copies for you and the seller. Also, you can meet the buyer at one of the credit bureaus and obtain it in your presence, thereby handing you a copy. You’ll have one for yourself and make a copy for the seller. 

21.  When sharing an option or partnering with someone should I sign an agreement or is a verbal agreement okay?  If written, where does the agreement get inserted into the contact?
It’s alright to get an option on an option. Just write it up the way you want the split to transpire. I don’t like verbal agreements. For real estate contracts to be legal, binding, and enforceable, they must be in writing. 

22.  If I am unsure of a buyer and want to get a back-up option (well really it's a standard purchase and sales agreement right?), do I tell the buyer that they are second in line?  Does there need to be a statement on the contract that it is a back-up?
Absolutely, the second in line will state such in his/her contract. Just use common words that everyone can understand. Put it in sentence form. Make sure you state that they are the 1^st back-up contract; you might want more than one. On the next one, you can state: 2^nd back-up contract.  

As for me, I don’t write up back-up contracts. I simply make a list to call if, and when, it falls out of contract. 

23.  How do I make money by buying someone else's option or option to buy-back if I pay them their option fee?  Won't my fee be about the same as what their fee was?  Where is the spread?
Let’s say that someone else has an option for $200,000 and he can’t sell it. You get an option for $205,000 from him, and then you sell it to a new buyer for $215,000. He makes $5,000, while you make $10,000! 

24.  Regarding your note submission worksheet:

a)    What does CFD stand for?

b)   What does credit worthiness of payor (A,B,C,D) mean?

c)    Under Payor History, what is a personal guarantee?

d)   I am confused about what the Defaulted Note section is referring to?  Is it    regarding the payor and notes that he has defaulted, or is it addressing notes on that particular property?

e)    A seller of a note does not necessarily own the property correct?  The deed would be in the owner's name and the seller simply holds the note.  If this is true, what does it mean, "How long has seller owned property?" when maybe they don't own it? 

a)    CFD: Contract For Deed

b)   “A” is a credit score of 720 and above, and sometimes 740, depending on the economy.

“B” is 680 and above, subject to change.

“C” and “D” are marginal and bad credit ratings. Virtually no lenders will grant loans. That is why we have mortgage brokers granting high interest loans lending to high risk borrowers.

c)    It could be a company name on the deed where someone signed personally. It could also be where a co-signer is helping with credit worthiness.

d)   This refers to all notes on this property only.

e)    Your note buyer will want to know how long the seller owned it, as well as how long the buyer has owned it. They want to learn about the seasoning and bogus equity, if any. 

25.  How do I verify that a LSC and/or a Purchase Money Mortgage were allowed to be created and that it is assumable?
You can either read it, or have someone else read it, like a closing agent, read it for you. 

26.  If a buyer wants an inspection do I need to get them in touch with the right people or have them set it up on their own accord without my involvement?  If they do want an inspection, should a contract be written prior to the inspection or after it is completed?
Your buyer’s inspection should be spelled out as one of his/her contingencies. However, if he/she would like an inspection that is not in the contract, I still make accommodations when necessary. The seller will make himself available for the inspection. I don’t want to be involved. The seller has property condition information, where I have none. 

When there is/are financing and property inspection contingencies, it is frugal to have buyers waive contingencies in writing after they have been satisfied. 

27.  Does it matter if I use the generic Standard Purchase and Sales Agreement contract, or should it be state specific?
You can use a contract that real estate agents’ use in your area, when/if you are allowed. It really doesn’t matter, though, as a general rule. 

A generic contract can be used in all 50 states. A real estate contract from Ohio can be used in Texas, but I wouldn’t advise it. Buyers like familiarity. Use either the generic, or the one from your state, of Pennsylvania for example. 

28.  Typically, how soon will a cash-out deal close once the title agent receives the documentation?
My title agency can close in 2 days, appointments permitting. 

29.  What makes a property considered commercial versus residential?  Is a building that has greater than 4 units considered commercial?Zoning dictates residential vs. commercial. I’ve seen single houses on busy streets being zoned commercial. I can, however, own a 720 unit residential apartment complex.

Insofar as lending is concerned, though, 5 units and above are commercial loans, which has nothing to do with zoning.  

30.  When a buyer purchases a house that already has tenants living there, does the new owner have to honor the lease the tenants had with the previous owners, or can they make their own lease and give 30-days notice?  Also, if the new owner wants to live in the house, and not rent it, how does he deal with the existing tenants?
The bottom line is that the new owner must abide by the existing lease. The terms of termination of that lease will dictate how and when you can make them move. For example, if there are 6 months left, as long as the rent is paid on time, they’ll remain. After 5 months, you should be able to give 30-days notice to not renew the lease and they’ll move at the end of 6 months. This is, of course, as long as the lease so states. 

If the lease has expired, you can give a 30-day notice, on or before the first, that the rent will be raised, or that the lease has been terminated. 

For example:

Today is July 15.

Give/Post notice today (Why wait until July 31?) that the lease will be terminated as of August 31, 2XXX.

Specify to be out and return keys on, or before, August 31,2XXX. 

31.  How do I go about my negotiation when seller financing is a possibility (but I am unsure whether they want to or are willing yet)?  Do I offer a price and then discuss whether he wants cash or will finance?  Or do I find out whether he is willing to finance first before I offer a price?
I gather most of the information required over the telephone by using my Leads Questionnaire. Before I make my offer, I ask if there is any possibility of seller financing. 

32.  When my seller is agreeable to finance we set the terms and conditions up with my future buyer in mind, but are the terms set up between him and me only or does the buyer have a part in this process as well?
You and the seller set it all up on your option. Later, you, alone, set up the terms with the buyer, including you’re profit, be it cash, note, or both. 

33.  Is it possible to get an option on a property that is listed with a real estate agent?  Under what circumstances would this be likely to occur?  It doesn't seem reasonable because he would need to make commission as well as me needing to make an option fee when assigned, not to mention my option would be tying up the property for a period of time that I'm sure the agent wouldn't appreciate (this question is referring to a scenario from page 40 of chapter 2 in the $1 DOWN® course).
About 1 in 20 of my deals is like this. The real estate agents usually have real dogs of properties and they are at the bottom of the barrel. They’re not going to sell and their listings are going to expire. So, out of desperation, they’ll call me. 

They believe that by calling me that I will either buy it, or dump it on one of my buddies. They write it up on their contract. With 2 strokes of the pen, I turn it into an option to purchase contract. All I need is a weasel clause and his successors or assigns after where I sign my name, and I’ve got an option. 

The agent will know that I want it for myself, or I don’t want it. He will be setting up the showings, he should know now. You’re right, it’s easiest this way. 

When I write it up with a buyer for more money, I get the difference. I’m not the buyer. I’m not the seller. I’m a blip on the HUD-1 Settlement Statement as one of the seller’s expenses as an option fee. The agent still gets paid. 

34.  Seeing that I am new in the real estate business, how can I effectively find out the value of properties without an assessment?  Is there software of some sort and what role does the MLS have in this?
To keep it simple, I ask what the seller values the property at, and I run with that. If it’s overpriced, then the buyers will tell me I’m crazy and offer a lower price. I’ll go back to the seller and ask the price be reduced to accommodate a ready, willing, and able buyer. If so, I’ll write it up as a fresh, new deal. Then, I will go write it up with the buyer. Don’t get bogged down with values. 

35.  How does a property receive a code violation?  Do city inspectors randomly inspect housing or do they routinely check?  What is the method and do owners know when they are coming or not?  How do I access violations on a given property without going to the owner?Typically, a tenant will not pay rent and he will get an eviction notice from the owner. To retaliate, the tenant will call city-code, believing they won’t have to move by doing this. The inspector will write up the violations, the tenant will be evicted, and the owner will make repairs, or sell it. 

However, if a building is an eyesore from the outside when an inspector drives by, it is possible, and likely, that he will write up violations on the exterior. Also, neighbors and landlords alike will call when nearby properties affect/devalue theirs. 

36.  Will I ever be in a position where I will need information from a seller's lender?  And, if so, why?
As for the $1 DOWN® Program, you will not need the seller’s mortgage info. The closing agent will need it for assumptions, though, but the seller will provide it to them. 

For short-sales, it is required for you to speak/negotiate with the banks. You will need the seller to fill out and sign the mortgage information on an Authorization To Release Information form. 

37.  Does a residential property disclosure have to be state specific, or can it be generic?
It must be state specific. These are laws passed by the state. It is required in 47 states at this time.  

38.  Don't sellers AND buyers typically have closing costs for a traditional real estate transaction?
Yes, but most are generally paid by the seller. Minimal costs go to buyers when they pay cash. Buyers may have to pay for the transfer tax and filing of his new deed, for example. 

H. Roger Neal™