Contracts
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 returned✓ Correct
COption fees are larger than earnest money deposits
DEarnest money is required by Delaware law; option fees are voluntary
Explanation
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. An option fee is consideration for the right to cancel during the option/due diligence period — in some contracts, the option fee is non-refundable (forfeited if the buyer cancels) but the earnest money is returned if properly terminated. Structure varies by contract.
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