ContractsIntermediateCalifornia Exam

What is an 'option contract' in real estate?

AA contract giving a buyer the right, but not the obligation, to purchase property at a set price within a specified time periodCorrect

BA lease agreement that includes an automatic purchase clause, as typically drafted in a residential purchase agreement

CA contract allowing the seller to choose between multiple buyers, consistent with common contract law principles

DA contingency that gives the buyer the option to extend escrow, per standard contingency and disclosure practice

Why A contract giving a buyer the right, but not the obligation, to purchase property at a set price within a specified time period Is Correct

Answer A: A contract giving a buyer the right, but not the obligation, to purchase property at a set price within a specified time period

An option contract grants the optionee (typically the buyer) the right — but not the obligation — to purchase property at a predetermined price within a set period. The optionor (seller) is bound if the optionee exercises the option; the optionee has no obligation to purchase.

Exam Tip: Contracts

Contract questions frequently test the essential elements required for a valid contract. Remember: competent parties, mutual consent, lawful object, and sufficient consideration. Watch for void vs. voidable distinctions.

Key Contracts Terms in This Question

Contingency

A condition in a purchase contract that must be satisfied before the sale can proceed to closing.

Purchase Agreement

A legally binding contract between a buyer and seller that outlines the terms and conditions of a real estate sale.

Option Contract

A contract giving the buyer the right, but not the obligation, to purchase a property at a specified price within a specified time period.

Escrow

A neutral third-party arrangement where funds, documents, and instructions are held until all conditions of a real estate transaction are satisfied.

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Key Terms to Know

Option Contract

A contract giving the buyer the right, but not the obligation, to purchase a property at a specified price within a specified time period.

Contingency

A condition in a purchase contract that must be satisfied before the sale can proceed to closing.

Escrow

A neutral third-party arrangement where funds, documents, and instructions are held until all conditions of a real estate transaction are satisfied.

Earnest Money

A deposit made by the buyer when submitting a purchase offer, demonstrating serious intent and serving as consideration for the contract.

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