What is an option contract in real estate?

Discover the ins and outs of real-estate jargon as we dive into what an option contract is in real estate, what it means, and how it can benefit buyers and sellers.

Within the world of real estate, there are a ton of unique ways to purchase property. Option contracts are among the most distinct strategies. This type of contract exists between a buyer and a seller (typically there’s no third-party involved) and requires a buyer to essentially put a piece of property on hold at a set rate until a seller decides if they want it or not.

But what exactly is an option contract in real estate, and, further, is it a good purchasing strategy? Keep reading to learn more.

The basics: What is an option contract in real estate?

In the simplest terms, a real-estate option contract is a uniquely designed agreement that’s strictly between the seller and the buyer. In this agreement, a seller offers an option to the buyer to purchase property at a fixed price within a limited time frame.

In other words, this option is a specific contract on a distinct piece of real estate that gives a buyer the exclusive right to purchase that specific property. The most interesting part of this arrangement? Once this option is in motion, the seller of the property can’t offer the property to anyone else until the agreed-upon time frame is up.

Even though the buyer has the option to purchase the property, under an option contract, they’re by no means obligated to do so. The seller does have to wait until the buyer either tells them no or the contractual time frame runs out. If the agreed-upon time period ends before the buyer makes the plunge, the seller can open up the option to other buyers.

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