Has anyone been offered option to purchase by a developer?

claire_mc_2

My house has just gone on the market yesterday. We haven't had any viewings yet (some booked for next weekend) but already the estate agent has called to say they know some kind of developer who is interested. It's an end terrace house on a large corner plot, and he wants to build another small house on the end.

He has mentioned a 6 month option to purchase, which I had never heard of before. He would offer at least asking price, possibly more, would need to pay a sum of money up front, and he would try to get planning permission and would have 6 months to do so. If he wasn't able to get planning permission, or he decided to withdraw, he would lose the money he had paid up front.

There are pros and cons - pros, we get a premium for the house, and assuming he gets planning permission, which he should, as there are other similar builds in this area, the sale should be guaranteed to go through. Cons - it could take 6 months for the sale to go through so I'm worried it will make us less attractive to whoever we try to buy our next property from. On the other hand, we're then not relying on a buyer who can just change their mind with no penalty, and if prices fall next year, the developer will be committed to buy at the pre-agreed price.

Just wondered if anyone had experience of this and how it turned out. We have a good number of viewings next weekend, and today we've had a lady knock at the door, so hasn't even seen inside, saying she's definitely interested and wants to buy the house. If she were to offer asking price, I don't know if it would be better to accept her offer (FTB) or the developer's.

Chilli6

I can only say my personal opinion but if you get an asking offer, or maybe even multiple meaning you could get a bidding war - then I'd go for one of those.
For me the uncertainty of waiting on PP and then having to find a new buyer if it doesn't happen would put me off. 
You can't be sure how any sale will progress but you could hope to complete in less time than 6mths with any luck. 
No harm in allowing all interested parties to view and see what offers appear. Sounds like you're in a good position if multiple people are interested so early on 

md258

I have a friend who did a similar thing a year or 2 back- it worked for him and the developer ended up buying the property.

At the risk of stating the obvious, have you considered:
- What happens if you can't get a mortgage in 6 months time because your circumstances have changed.
- What happens if house prices fall and the developer gets PP but doesn't want to purchase at the option price
- Getting PP yourself and selling it for more

eddddy

I guess it depends how the numbers add up.

As a rule of thumb, a building plot is worth about a third of the value of the final built house.

So, for example,

• If your house is worth £200k (without it's garden)
• If the new additional house would sell for about £200k - then the building plot should be worth about £67k

So the price of your house plus building plot should be £267k

AdrianC

eddddy said:

As a rule of thumb, a building plot is worth about a third of the value of the final built house.

As a rule of thumb, that's so wildly generalised as to be utterly useless.

There are parts of the country where the cost to rebuild a property is more than the market value - in other words, the plot value is negative.

There are parts of the country where the cost to rebuild a property is trivial compared to the market value - in other words, the plot value may be the vast majority of the market value.

warby68

Agents often have 'arrangements' with local developers for introductions etc. Although the agent works for you technically, in such a case you can expect them to be working more for the developer (ongoing mutual relationship, kickbacks etc)
What it really means is you can't sell to anyone else for 6 months and there is no guarantee of a sale after 6 months. You may well incur legal expenses to overview the contract (although sometimes the developer stands this). I'd want 100% independent though. 
If you actually want to move house you won't be proceedable until the outcome of the option is known. You are unlikely to be an attractive buyer to others.
It works best if you're not bothered about moving and then you're just taking a punt that you get a premium for your house with little work on your part unless it comes off.

GDB2222

This all depends on how much the developer is paying for this option. Is he offering say 10% as the up front payment that you can keep whatever happens? Or, is the option money pretty small, perhaps sweetened with a good price for the property if he gets planning?  

GDB2222

By the way, we have just been approached by a developer who wanted a free option on a property that we have. Hardly a compelling proposition for us.

Boa21

A developer has an option on 3 houses that link onto our road, the owners can't sell for six months as the developer now has a charge on the deeds. Our road and the one behind are all lining up the objections as soon as planning goes in, not least of all citing the restrictive covenents on the land.
One lot has already been seen off in this way - 3 family homes replaced by 45 flats with no parking - no thanks!

davidmcn

This might be semantics, but for this sort of situation you'd be better with a conditional contract, where the developer is obliged to try to get planning and to complete the purchase if/when they get planning. I would generally regard an option agreement as being for longer term arrangements e.g. "I want to be able to buy your field if it ever stops being green belt", or where it's subject to other deals being agreed e.g. to buy other adjoining land.
As above, you can try asking for the developer to cover your legal costs (yes, this can be your own choice of solicitor, not whichever tame one they suggest).

GDB2222

davidmcn said:

This might be semantics, but for this sort of situation you'd be better with a conditional contract, where the developer is obliged to try to get planning and to complete the purchase if/when they get planning. I would generally regard an option agreement as being for longer term arrangements e.g. "I want to be able to buy your field if it ever stops being green belt", or where it's subject to other deals being agreed e.g. to buy other adjoining land.
As above, you can try asking for the developer to cover your legal costs (yes, this can be your own choice of solicitor, not whichever tame one they suggest).

It’s not very practical trying to enforce a contract like that, especially against a limited company. You could get into an extremely expensive legal wrangle about best endeavours, etc. 

If the developer is confident that he can get planning, there’s no reason why he should not pay a decent amount up front, and that’s the vendor's best assurance that the developer is serious.  Quite frankly, if he is not confident, why have anything to do with him?