Question

Which of the following statements is FALSE regarding the release price as it relates to a land development of a new housing community and the associated sales of lots (parcels)?

1. It is usually calculated to pay off the loan when the last lot is sold
2. It is usually calculated to pay off the loan before the last lot is sold
3. Increasing the release price usually lowers the lender’s risk
4. Increasing the release price is likely to lower the developer’s cash flow in the early years
   
   

Which of the following is generally FALSE regarding a soft money deposit on an option contract?

1. An option contract typically allows the developer to perform a preliminary market study and feasibility analysis
2. If the developer decides to purchase the property, the price of an option is applied towards the price of the property
3. The developer will typically need to convert the soft money deposit to a hard money nonrefundable deposit, if the developer wants to extend the option period
4. If the developer decides not to purchase the property, the landowner is not obligated to refund the soft money deposit

Answer 1

1) Answer is A. It is usually calculated to pay off the loan when the last lot is sold.

The reason behind is that release money is usually calculated to pay off the loan before the last lot is sold. As it is associated with the sale of lots, it has to be paid before the last lot is sold.

2)Answer is D. If the developer decides not to purchase the property, the landowner is not obligated to refund the soft money deposit.

The reason behind is that option is a right but not an obligation to buy a property. Soft money is the earnest money that has to be deposited with the seller when entering a contract. Soft money is usually refundable in nature.Therefore, the landowner is obliged to refund the soft money.