ContractsIntermediateDelaware Exam

What is 'earnest money' versus 'option fee' in a Delaware purchase contract?

ABoth terms are interchangeable and refer to the same payment
BEarnest money is a good-faith deposit applied to the purchase price at closing; an option fee is consideration paid specifically for the right to cancel during a defined period — if canceled, the option fee may be forfeited but the earnest money is returnedCorrect
COption fees are larger than earnest money deposits
DEarnest money is always strictly required under Delaware law; option fees, by contrast, are always entirely voluntary, though the underlying details naturally shift somewhat depending on the county, the property type, and the specific facts of the transaction at hand

Why Earnest money is a good-faith deposit applied to the purchase price at closing; an option fee is consideration paid specifically for the right to cancel during a defined period — if canceled, the option fee may be forfeited but the earnest money is returned Is Correct

Answer B: Earnest money is a good-faith deposit applied to the purchase price at closing; an option fee is consideration paid specifically for the right to cancel during a defined period — if canceled, the option fee may be forfeited but the earnest money is returned

Earnest money is a good-faith deposit credited to the buyer at closing. If the buyer defaults without justification, the seller may retain it as liquidated damages.

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

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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