Here are 13 crucial terms that must be negotiated in every real estate option agreement:
1. Purchase price of the real estate option: Negotiate a real estate option fee that does not exceed 5 percent of the property's current market value.
2. Credit for cleaning up the property: Obtain a $500 cleaning credit, to be applied toward the option fee, for cleaning up the property.
3. Credit for the real estate option fee paid: Require that the full amount of the option fee be credited toward the purchase price when the option is exercised.
4. Length of the real estate option period: Negotiate a 6- to 12-month option.
5. Fixed purchase price of the property: Negotiate the fixed purchase price of the property to include the amount of the down payment to be paid and how the purchase is to be financed.
6. Right to extend the real estate option period: Obtain the right to extend the option period for two 3- to 6-month periods, to include the cost of each extension period.
7. Right to assign the real estate option agreement: Negotiate the right to assign or sell the real estate option agreement to a third party during the option period.
8. Option fee sole remedy for default: Negotiate that the option fee paid is the sole and exclusive remedy in case you exercise the real estate option but fail to purchase the property.
9. Refund of the option fee for eminent domain action: Negotiate that the optionee will receive a full refund of the option fee plus any accrued interest if the property is condemned by eminent domain during the option period.
10. Right to enter the property: Obtain the right to enter, clean, market, repair, and show the property to prospective buyers during the option period.
11. Right to a refund of the option fee for damage or destruction: Obtain the right to a full refund of the option fee plus accrued interest if the property is severely damaged or destroyed by fire, storms, or earthquakes during the option period.
12. Require title transfer documents be held in escrow: Require that a warranty or grant deed and purchase agreement with the notarized signature of the optionor be held in escrow by a reputable attorney or title or escrow company during the option period.
13. Right to record a memorandum of real estate option agreement: Negotiate the right to record a memorandum of real estate option agreement in the official public records.
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