Did you notice in my last Blog that somewhere along the line I stopped being a real estate agent and started being a principal? As an agent, I’d have had a fiduciary with the homeowner to get the best price and terms. As a principal, I had no such fiduciary and was able to use any skills I might have had to get the lowest price and terms. My fiduciary with the buyer was to deliver the house at my contracted price, which earning $30,000 made me quite happy to do. But when the buyer turned the house down, I could buy it myself and do with it what I wanted.
Since I was no longer an agent, I was no longer bound by any of the laws of agency, and I was relieved of a serious conflict of interest that creates huge liability for any agent. Agents are forever being sued by one side or the other because of breach of agency or failure to disclose defects. Under the laws of agency, the agent owes 100% fealty to his or her principal. Under real estate and consumer laws, the agent must reveal all known defects and other matters that would impact on the buyer’s decision to buy or the price and terms, whether or not it damaged his principal. My contingent contract was essentially a 7-day purchase Option. By using an Option that disclosed that I was not acting as an agent for the seller, and that I was buying in expectation of profit rather than a listing agreement, I avoided any agency. By avoiding any agency, I also avoided the liability this imposed.
One more thing struck me about the use of the Option: A real estate license is only valid in the State where it is issued. On the other hand, an Option can be entered into by anyone, anywhere unless it is specifically prohibited by law to all persons. So, the technique of using an Option to control a property, then to sell the Option, or the property, for a profit could be used anywhere. And, those who don’t have real estate licenses can Option a house, list it as Optionee in MLS, and get a licensed salesman in that State to sell it for a profit.
Bottom Line: The Option opens up a world of possibilities to those who elect to use it wherever and whenever they see potential profit.
