Key takeout
An optional agreement gives you the right to purchase the property, but fulfills your obligation. An optional fee will be paid to secure this right. Options agreements provide flexibility for buyers and sellers in real estate transactions.
Whether you’re hunting homes in the Austin market, exploring your home near the beach in San Diego, or buying property anywhere in the US, it’s important to understand certain real estate terms such as “optional agreements.” Simply put, an option contract is a contract that gives one party an obligation to grant the right to buy or sell assets at a certain price within a specific time frame. But that’s not all. This Redfin article will help you draw a deeper picture of your options agreement and are ready. Now, let’s get started.
What is a real estate option agreement?
In the context of real estate, an optional agreement gives a potential buyer (optional) the exclusive right to purchase the property from the seller (optional). This right is not an obligation. This means that buyers have the option to proceed with the purchase or leave. This is different from a standard purchase agreement in which both parties are bound by a transaction.
In exchange for this right, the buyer will pay a non-refundable optional fee. The Seller agrees not to sell the property to others during the option period.
Key components of options agreements
Several components form an optional contract:
Optionor and Optionee: Optionist is a seller and grants you the right to purchase. Optionee is the buyer and receives the right to purchase. Option Fees: Options usually pay a fee called consideration to protect the option. This fee is non-refundable and will compensate the Option Seller for removing the option from the market during the Option Period. Purchase Price: The contract specifies the price at which the property can be purchased if the option is exercised. Options Duration: This is the time frame where the option must determine whether to exercise the option.
Why use options agreements?
Options agreements provide flexibility and protection for both parties in real estate transactions.
For buyers: You can perform inspections, secure funds, and evaluate the property without committing to purchasing in advance. For Sellers: Secure potential buyers and offer rewards through non-refundable optional fees even if the transaction does not pass.
How do options contracts work?
Typically, how a process unfolds is:
Negotiation: The parties will negotiate optional terms such as fees, purchase price, and option period. Contract creation: A formal agreement is created and details all agreed terms. Payment of Fees: Buyer pays the Seller the Fees. Prices are typically between $100 and $500, depending on the market and price for the housing option period. Buyers have an agreed time frame to decide whether to exercise the option. Exercise or expiration date: If the option is exercised, sales will proceed. Otherwise, the option will expire and the seller will maintain the fee.
A practical example of options contracts
Buyers will find their favourite home in Houston, but would like to perform additional inspections before committing. Sign the option agreement with a fee of $250 and a 10-day option period. Meanwhile, the buyer will clarify the foundation’s concerns and decide not to move forward. Sellers will maintain $250, while buyers will avoid buying uncomfortable real estate.
Are options contracts used everywhere?
Option contracts are legal throughout the US, but are the most common in Texas and are often incorporated into standard real estate forms. In other states, this arrangement may be less familiar and may require custom agreements drafted by lawyers or real estate professionals.
Final Notes on Real Estate Options Contracts
Option contracts give both buyers and sellers to the breathing chambers in real estate transactions, but require clear terms and mutual trust. If you want time to buy a home and evaluate your decision without rushing to buy, an option agreement can be the right move.
Talk to a Redfin real estate agent to guide you through optional contacts and determine the best course of action for your transaction.
