Reporting Option Consideration
Okay, here’s the deal. I have been working with a tenant/buyer who has his eyes on a condo for him and his son. Father is in the midst of a divorce and needs to find a home for him and his teenaged son.
I have a seller I got through the For Rent By Owner on the internet. I called the owner, shared the story about our father/son situation and asked if he would consider selling the condo. I told him the dad, a lawyer, was adamant that he live in the same community where his son attends high school, and that he (dad) did not want to make a landlord rich with $1200/mo. rent. He will buy instead.
There was a moment of silence as the homeowner thought about the situation and said, "lets' talk about it". The home owner agreed to sell the 2 bedroom 1 bath condo for $252,500.00. After running comps on the condo's sold in his complex, his asking price was fair. He has a mortgage with PITI of $1000.00. Current tenant is paying $1300.00 per month. Current tenant will be leaving at end of April.
I will set the buy price for the tenant.buyer @ 4% above the FMV which will be $265,600 in 2 years, with a $10,000 option consideration. The rent will remain at $1,300.00 per month.
I know that the $10K is a non refundable fee that is credited to the purchase price or down payment. I am unclear as to how the $10K is credited to the T/B. What form do I complete that addresses this? Who gets copies of the form(s)? How is the $10K recorded so that at the end of 2 years, the money is credited to the T/B. Is the $10K held in escrow or in my bank account? Please tell me my bank account is the happy holder of this money. Is the money eventually. If the seller wants some of the option money how and when is that distributed?
I ask these questions so I can answer the seller and buyer about the option consideration from a position of integrity and professionalism. Walking me through this is greatly appreciated. I think there are some steps that may have been left out of this post, through my ignorance. Please fill in the gaps.
With respect,