The definition of option explains the term as something that can be chosen in spite of having multiple other alternatives. It could be an option for food, which shows a preference for one meal over another. You can have the option to do something, and to chose whether to do it or not. Generally, many options are presented before us during our lifetime and we are faced with situations where we have to choose.
Option in real estate - definition and meaning
When it comes to real estate, option is the right of an individual or entity to sell or buy property for a specific price within a given time period. You will often find them as “option agreements” and while there are different option agreements out there, all of them follow the same principle of reserving the possibility of purchasing or selling to a person or a company.
For example, a buyer can reserve the right to purchase a property he might be interested in through an option agreement. In this situation, the option contract is called “real estate purchase option” and it gives exclusive rights to the buyer to purchase the property.
Once the option to buy a property is in place, the seller of that property cannot sell it to anyone else. The option has a predetermined purchase price that is valid for a certain period of time, which is usually 6 months up to a year. If the buyer is unable to purchase while the contract is still valid the seller receives the money used to buy the option.
Although traditionally, in real estate, when sellers list their homes for sale they can sell to whoever they want, but when an option contract is introduced things change. Now the right to sell is conditioned by the contract terms.
Another option in real estate is the lease option. This agreement is made between the landlord and tenant if the perspective of buying the property is considered by the tenant and the landlord agrees on it. This agreement allows the tenant to buy the property after a predetermined rental period. This agreement may be detrimental to the tenant if he is unable to buy after the rental period since the rent option costs, as well as premium rent costs, will go in the way of the landlord.
Popular Real Estate Terms
model depicting on paper what a structure physically looks like. The dimensions are draw on a proportionate basis to the real thing. An example is a scale of an existing or proposed office ...
Index of the costs to construct residential properties. ...
Unincorporated combination (roll-up) of limited partnerships in a real estate together as a group. It is usually more comprehensive, financially sound, and marketable than individual ...
Method of selling and obtains possession, but the seller retains the title. ...
Number of times a given amount of capital assets turn over to generate sales over a given period of time. ...
Building with large unpartitioned floors areas often used for storage. ...
Partial fulfillment. Pro tanto is normally used in relation to the partial satisfaction of a claim. For example, a pro tanto settlement in an eminent domain action will not prejudice any ...
A municipal or county local government board that resolves zoning disputes. ...
percentage of land that may be used productively to the total square footage of the land. For example, if total square footage is 40,000 but only 30,000 square feet may be built upon ...
Have a question or comment?
We're here to help.