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.
Full Definition
An option contract gives the optionee (potential buyer) the right to purchase a property from the optionor (owner) at a predetermined price within a specified time frame. The optionee pays a non-refundable option fee for this right. If the optionee exercises the option, the parties proceed to closing. If they do not exercise the option before expiration, the seller keeps the option fee and retains ownership. Unlike a standard purchase contract, the buyer is never obligated to buy — only the seller is bound. Option contracts are commonly used by developers to control land before finalizing financing or permits.
Real-World Example
A developer pays a $10,000 option fee to a landowner for the right to purchase a 5-acre parcel for $500,000 within 12 months. The developer has the right but not the obligation to buy.
How Option Contract Appears on the Real Estate Exam
Common question types, tested concepts, and what to watch out for
In an option contract, only the seller is bound — the buyer has the right but not the obligation to purchase. The option fee is non-refundable. This is a common exam distinction from standard contracts.
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