Put and call options, also known as options contracts, can be applied in the stock and commercial markets, as well as in the real estate market. Today, we’ll discuss the application of put and call options in the real estate market. Regarding real estate transactions, there are three types of option agreements:
- Call Option: Allows a potential buyer to compel the seller to sell the property at a specific price and terms in the future.
- Put Option: Allows the property owner to compel the buyer to purchase the property at a specific price and terms.
- Put & Call Option: Allows either party to compel the other to complete the sale of the property.
Who uses options to purchase real estate, and under what circumstances?
Developers are the most common users of options for land acquisition, and the reasons include:
- Locking in the price during the option period regardless of fluctuations in the real estate market.
- Conducting due diligence on the development land during the option period.
- Applying for development approvals and related financing during the option period.
- Delaying the payment of stamp duty until the option is exercised and the contract for the purchase of the property is signed. Generally, only the stamp duty on the option fee is payable initially, allowing the delay of stamp duty on the land.
- Providing more time to secure financing to complete the transaction.
If you have any questions, please feel free to contact Stephen Kwok. Over the years, Stephen has negotiated land purchases and sales for clients through put and call options, particularly for commercial real estate and development land, including option transactions in several large-scale purchases and sales while serving as a legal advisor in property funds.
