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
The term’s abstract of title definition is the recorded summary of a property’s history. Abstracts of title can be used to determine former and present ownerships of any ...
Obligation taken on by a person who did not obtain it originally, but agrees to honor the terms of the existing obligation as a condition for the transaction. By assuming the loan rather ...
If you are involved with real estate, chances are you've come across the term "convey" or conveyance. But what does convey mean in real estate? This term is crucial whether you're buying, ...
Rent that a comparable property would mandate in a given real estate rental market. Market rent is a competitive rate based on rents other comparable properties receive. For example, in a ...
unfinished access space below the first floor having less height than a full story. An individual must crawl through the crawl hole to gain access. Any interior passage of limited ...
Thin layer or slate of baked clay, linoleum, or some other material that is used for covering floors, roofs, or as an ornament in a building. ...
Before getting a loan to buy a property, you must know the definition of foreclosure. A foreclosure is the process of making a loan due immediately. Technically, a loan becomes due way ...
The total expenditures required to make a locality suitable for the designated purpose. An example is how much it would cost to build a shopping center on a lot. ...
Area that is located between a rural and urban area. ...
Have a question or comment?
We're here to help.