What is Overage?
Overage, also known as profit share, is a type of agreement between a buyer and seller of a property that provides for a portion of the future profits of the property to be shared with the seller. In other words, it is a way for a seller to get more money for their property, even after the sale is completed. It is an attractive option for sellers who may not have the funds to provide a large lump sum payment at the time of sale.
How Does Overage Work?
When a property is sold with an overage agreement in place, the buyer and seller will agree on a certain amount that will be paid to the seller. This amount is generally a percentage of any increased value of the property that results from certain activities such as development or redevelopment. The amount to be paid is usually determined at the time of sale and the details of the overage agreement are included in the contract.
Examples of Overage
There are a number of situations where overage may be used. Below are some examples of when overage agreements may be used:
- When a property is sold with the potential for future development or redevelopment
- When a property is sold with the potential for increased value due to changes in the market
- When a property is sold with the potential for increased value due to changes in the area
- When a property is sold with the potential for increased value due to changes in the zoning laws
Benefits of Overage
Overage agreements provide advantages to both buyers and sellers. For buyers, they may be able to purchase a property at a lower cost as the seller will usually agree to a lower sale price in exchange for the potential of receiving an additional payment in the future. For sellers, they may be able to receive additional money for their property, even after the sale is complete.
Conclusion
Overage is a great option for both buyers and sellers of properties who may not have the funds to provide a large lump sum payment at the time of sale. It can provide sellers with additional money for their property, while allowing buyers to purchase a property at a lower cost.