Cohousing-L Mailing List: Re: option contracts

[Mac Thomson (ganesh]

> I am looking for information on option agreements made for purchasing
> property.  I need to know what the standard block of time to tie up the land
> would be - for example - 30  days or 6 months??  Also, what is the amount
> people have used as earnest money - money that they would lose if the option
> is not exercised.  
> 
> Leslie Maniccia
> Cascadia Cohousing

Leslie,

I just finished negotiating the purchase of about twice as much land as we'll 
need for our community for $630K (we'll divest ourselves of the portion that we 
can't afford).  We put down $20K in refundable earnest money with a closing 
date in 6 mos.  We also included in the contract the option to extend the 
contract twice for 100 days each time for additinal $10K earnest money deposits 
for each extension.  These extension earnest money deposits are nonrefundable, 
however, so if we don't close on the contract, we lose $10K or $20K, but we get 
our original $20K back.  If we do close on the land, all of the earnest money 
goes towards the $630K purchase price.

There is an important distinction between option money and earnest money.  If 
you buy an option on land, that gives you the right to buy the land for a 
specified period of time for a specified price.  The option money buys the 
option, not the land.  It does not go towards the purchase price as earnest 
money does.  I think that Chris Hanson's "Cohousing Handbook" covers this well.

We wanted 6 months until closing because of our particular approval process, 
which can be slow.  The extensions allow us the opportunity to buy additional 
time if we run into problems swith the approval.  Our contingency to get us out 
of the contract is worded so that we have great discretion in determing if the 
approval we get is satisfactory.  For example, if we get approval, but only if 
we do a million dollars in highway access improvements, we can get out of the 
contract with no loss if it's within 6 mos.  You need to tailor your contract 
to fit your particular needs.  A real estate attorney and/or developer that you 
trust is invaluable.

BTW, the terms that we got are even better than I hoped for because we have a 
motivated seller.  Also, I was willing to give on the price in order to get our 
terms.

-- 
           Mac Thomson                   San Juan Cohousing
           ganesh [at] rmi.net                Durango, Colorado

 "Courage is grace under pressure."
                           - Ernest Hemingway