An option contract, generally speaking, is an offer that is included in and attendant to another contract, most commonly an obligation to keep an offer open for a specified period of time.  During that time period, the offeror of the property that is the subject matter of the contract may not revoke his or her offer.  Option contracts are valid because they are required to be supported by some separate, additional consideration than that which is offered for the subject matter of the primary contract.

A real estate option contract, also called an option to purchase real property, is an agreement between the seller of a parcel of real property and a potential buyer of that property.  Under a real estate option contract, the owner of the property agrees to allow the potential buyer the exclusive right to purchase the property within a specified time and at a specified purchase price.  The potential buyer is not obligated to purchase the property, but has the option to do so at said specific price within the established time.  During that time, the seller of the property may not, under the contract, offer the property for sale to any other person or entity.

           
A typical option contract specifies that the potential buyer has the exclusive option to purchase the property in question, and requires the potential buyer to pay what is called an "option deposit," which is an agreed-upon amount of money that serves as consideration and secures the option for the seller of the property.  In the event that the potential buyer does exercise his or her option to buy the property under the specified terms and conditions, the option deposit is commonly applied towards the purchase price of the property.  On the other hand, if the potential buyer chooses not to take advantage of the option, the seller is usually entitled to keep the option deposit.

           
A real estate option contract also includes the time period during which the potential buyer may exercise the option, and the method by which the option is to be exercised-for example, by giving written notice to the seller at his or her address by hand-delivery, or by certified or registered mail.  The date on which the seller receives notice that the potential buyer is choosing to exercise his or her option and follow through with the purchase of the property is known as the "effective date."

           
Real estate option contracts specify the identities and contact information, including addresses, of the parties involved.  These contracts also include the purchase price payable by the potential buyer if he or she chooses to exercise the option to buy the real estate, as well as a specific description of the real property that is the subject matter of the option contract: the street address and legal description. 

           
Furthermore, a real estate option contract will usually include information regarding the applicable inspection period.  During the inspection period, the potential buyer may cancel the option contract, with notice to the seller of the property, in the event that the potential buyer discovers any problems with the property that are reasonable reasons for not following through with the purchase of the property. 

During the inspection period, the seller of the property must grant to the potential buyer reasonable access for home inspection, environmental testing, and similar purposes.  If, within the time specified for the inspection period, the potential buyer does discover anything that warrants a cancellation of the real estate option contract, both parties are relieved of any further obligations under the contract, and the potential buyer is entitled to receive his or her option deposit back from the seller of the property.

A real estate option contract will also usually include the terms of the primary contract for sale of the property, in order to inform the potential buyer of the representations made by the seller of the property in the event that the potential buyer chooses to exercise his or her option.  For example, the contract may specify that the seller in fact has clear title to the property which he or she is legally able to transfer to the potential buyer.

Contact an attorney on all legal questions or issues. A real estate agent is not qualified to give legal advice or tax advice and is not licensed to give legal advice or tax advice.
GBrey