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When two parties negotiate the sale of a particular property, they will traditionally agree on a price and the transaction will be completed within a certain amount of time. Yet this is far from being the only way to buy real estate, and there may be reasons why one or both of the parties would go down a different road. In this case, for example, they may decide to set up a 'put' or a 'call' option, which have certain implications and which will invariably push the closing date on into the future. If you're thinking about buying a specific property but have other considerations to sort out before you can proceed, could you set up a call option?
Careful Consideration
It's important to understand the difference between a put and a call option and the implications involved whenever these options materialise.
Call Option
The call option is favourable to the buyer and can be granted by the seller of the property. While giving you a legal position in relation to the property, it can allow you to conduct other research or seek specific approvals that will allow you to develop the land for certain reasons. It may also allow you to set up financing through a more complicated source before you exercise the call option and close on the property.
In this case, the buyer and seller would agree on terms, including the price, and this would then be set for the duration of the option. This could be beneficial to the buyer, and especially if the market were on an upward trend and the value of the property could well increase.
Put Option
On the other hand, the seller may want to set up a put option. In this case, they would have the legal right to force you, as the buyer, to purchase a property at a certain point in the future. Often, a put and a call option run side-by-side and they do, of course, have legal implications for both parties.
Exercising Rights
As a buyer, you will be able to exercise your rights under your call option within a set period of time. So if a specific period expires and you've not exercised your call option to require the seller to move forward, your rights under the agreement expire. The seller could nevertheless exercise their particular put option, which may require you to buy the property anyway.
Exploration
If both parties decline to exercise their options, then both parties will lose any rights, and they are free to go their separate ways.
Setting It Up
You need to fully understand your obligations if you want to exercise this kind of option. Your conveyancer will be able to explain it in more detail and talk with the seller or their representative to set it up.
For more information, contact a conveyancing service toady.
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