Option
Definition and meaning of Option in real estate.
An option is a contract that grants a prospective buyer the exclusive right to purchase a property at a set price within a specified timeframe, without obligating them to complete the purchase. To secure this right, the buyer pays the seller a non-refundable fee called option money.
In more detail
This agreement holds the property off the market, preventing the seller from accepting other offers while the buyer conducts inspections, secures financing, or obtains necessary permits. If the buyer decides to purchase the property before the option period expires, the option fee is often applied toward the purchase price.
If the buyer chooses not to proceed, they forfeit the option fee, but they are released from any further obligations. This tool is frequently used by real estate developers who need time to evaluate land viability before committing to a full purchase.
Key facts
| Category | Buying & Selling |
|---|---|
| Required fee | Non-refundable option money |
| Obligation | Buyer has the choice to buy, but the seller must sell if requested |
| Typical timing | Thirty days to several years depending on the deal structure |
A real estate developer pays a landowner a typical option fee of several thousand dollars for the exclusive right to buy a parcel of land at a set price at any point over the next twelve months.
Frequently asked questions
What happens to the option fee if I decide not to buy the property?
If you do not exercise your option to buy within the agreed timeframe, the option fee is kept by the seller as compensation for holding the property off the market.
Is an option contract the same as a standard purchase agreement?
No, a purchase agreement obligates both parties to close the deal, whereas an option contract only obligates the seller to sell if the buyer chooses to exercise their right.
Related terms
Sources & references
See our sources and editorial standards.