Simultaneous Closings Vs Option to Purchase|
by Tony Severino
With all the short sales going on today Lisa and I have been getting a lot of calls about simultaneous closings and Options and I think there is some confusion on these two selling techniques.
I am going to break these down for you, while this may be over simplified for this purpose, just so everyone can clear up the mess.
A simultaneous closing is actually two closings one between you and the seller and then one between you and your buyer.
You will be on the chain of title as an owner, and you may or may not have to bring funds to the closing table. When we perform a simultaneous closing we use one attorney who is very familiar with the process.
This will also be subject to Short term Capital Gains tax. Please seek a professional opinion.
The buyer’s bank will be notified of the simultaneous closing by the title company and the buyer’s bank may kill the deal. The reason for this is the banks perception that the end buyer may be paying too much for the property, whether it is valid or not, the bank has the responsibility to their shareholders to use caution with the loans they provide. There are a few lenders who will be ok with a simultaneous closing, but I would bet most in today’s market most will kill the deal and your paycheck.
Most title companies will not do a simultaneous closing for you in today’s market unless the end buyer is bringing all cash or hard money and not using a bank loan. The reasons for this are several, but all the mortgage fraud that was present in the past created a big part of the reasons for the title companies to shy away. There are currently two title companies we use to do our simultaneous closings and to be candid we can do a simultaneous closing with them is because we have a working relationship with both the title company and the attorney. Without a referral, if you walked in off the street and wanted to do a simultaneous closing without any history with them, you will probably be rejected.
An Option to Purchase is a much simpler way to do these transactions. With an Option to Purchase you have a purchase and sales agreement with your seller, the buyers name and sales price are not filled out since you don’t know this information yet.
There is also an Option Agreement between you and the seller for the price you agree on.
Let me make this simple for you. You agree to buy a property for $250,000.00; you tie this up with the option agreement. You also have your seller sign a Purchase and Sales Agreement with the buyer’s name and purchase amount blank. I have had sellers question me on this, and I simply say I don’t have the buyer yet, when we do they will be in that slot. We have not had anyone walk away yet, but keep in mind, if this is an issue, then they will probably be a bigger pain in the neck later. Let them go.
Now we find a buyer at $300,000.00. We have the buyer sign the Purchase and Sales Agreement for $300K and now the buyer and your seller are in business together. You submit the Option Agreement and the Purchase and Sales Agreement to your title company and then collect your $50,000.00.
You will be paid on the HUD-1 as a lien and not show up on the chain of title. A much simpler way to do business…...and this is ordinary income and not subject to short term capital gains tax, but again seek the advice of the professional accountant.
Tony is a was trained by the best in the business, Ron Legrand. He and his wife Lisa Severino started a business from nothing and created one of the largest Real Estate Business in the Chicago area.
As a mentor to students Tony Severino helps the students take the seminar training and bring it to life, and thereby a nice size paycheck!
You can learn more about him at www.TonySeverino.com or call the office at 219-932-3000.