Real Estate Option

What is a real estate option?

Upon creation, a real estate option is a unilateral contract.  Furthermore, a unilateral contract is a contract in which only one party is bound to perform.  The optionor sells a real estate option to the optionee (buyer) in return for a fee.  Also, the option fee given by the buyer may or may not apply toward the purchase price.  The option provides the buyer (optionee) the right to purchase a property for a pre-determined price listed in the option for a set period.

Learn more about real estate contracts here.

How much does a real estate option cost?

Great question!  The price for the option is set by the seller (optionor).  However, the seller can only get what someone is willing to pay for the option.  So, although the seller sets the price, the value of the option is set in the market by what a buyer is willing to pay.

What is the benefit of a real estate option for the holder of the option?

If you hold a real estate option, it provides you the right to buy a property for a pre-determined price (set in the option), for a pre-determinedReal Estate Option period.  If you exercise the option, the seller is required under the contract to sell you the property listed in the option for the price listed in the option.  Upon exercising the option, it becomes a bilateral contract since the buyer is then obligated to perform as well.

Is the option holder required to exercise the option?

No, they are not.  What happens if the optionee doesn’t exercise the option?  Nothing, the option expires.

Is there anything else the option holder can do with the option, other than exercise it?

Yes, they could sell it to someone else.  So, the option holder has three options of what they can do with the option.  They can exercise it, sell it, or let it expire.

Why would someone sell a real estate option?

Simple, to make money.  Remember, the optionee paid a fee (option premium) to buy the option.

Why would someone buy a real estate option?

This is pretty straightforward as well.  If you want to make sure a property will not be sold to anyone else during a particular timeframe, you should buy a real estate option on it.  Also, this will guarantee that during the term of the option you are the only one who can buy the property.

What else can help me prepare to pass my real estate licensing exam on my first attempt?

Other tips to help you pass your real estate licensing exam on your first attempt:

Real Estate Test Taking Tips

How to Pass the Real Estate Exam

Real Estate Exam Math Made Easy

Also, check out our question of the day videos on our YouTube channel:

PassMasters Real Estate Exam Prep YouTube Channel