Is it possible to write a future purchase price as "current price + appreciation"?

Question

Hi;

I remember reading somewhere that you could write the purchase price on a "subject to" deal as "principle balance on close date" if you plan on taking over the seller's house and all equity.

I'm not interested in subject to deals (yet) but this got me thinking about how to write a future purchase price for an option. Could I simply write the purchase price as "current + appreciation at the end of the option term" and define the appreciation as the Q1 2014 average appreciation percent for our city from next year's LA times?

Bill Gulley · Answer

You need a stated value. I'd suggest in the kind of deals you'll be doing you stay with a stated value. But, FYI, you can make other arrangements along with a stated value, but it isn't worth the brain damage attempting to index it or involve multiple appraisals that are agreed to be averaged, the cost of doing so exceeds the value in smaller deals, such may apply where larger commercial long term leases may be involved for example, in a purchase-sale-repurchase over time, or in a completed development where the sale can be made at different phases.

A more simple example is with new construction at a set price with adjustments for additional amenities added as constructed, sale price plus. Easier to stick to a stated value. :)

J Scott · Answer

I'm not a lawyer, but I believe I remember from a real estate contracts class that the purchase price must be stated in a way that is calculatable (probably not a real word) based on known information (or something like that).

Since appreciation can't be known, I would venture to guess that writing this into a real estate contract would make the contract not valid.

Joel Owens · Answer

You can write anything into a contract. Doesn't make it valid, legal, or enforceable in a court of law.

These are important points. When you have a contract you want to make sure you have a strong and legal and enforceable position to stand on. If not it doesn't really matter what is in the contract. Items deemed to vague or tied into a complex scenario might be deemed unenforceable by a judge and that part of the contract is thrown out.

No legal advice.