📄 What Is an Option Contract in Real Estate?

An Option Contract in real estate is a legally binding agreement that gives a buyer the exclusive right—but not the obligation—to purchase a property at an agreed-upon price within a specific time period. The buyer pays an option fee for this right, and the seller must honor the terms if the buyer chooses to exercise the option.

How an Option Contract Works

An option contract creates a one-sided commitment: the seller must sell under the agreed terms, but the buyer is not required to complete the purchase. Key parts of an option contract include:

  • Option fee — a non-refundable payment that secures the buyer’s exclusive right.
  • Option period — the timeframe during which the buyer may choose to buy.
  • Purchase price — locked in at the time the option is signed.
  • Exercising the option — how the buyer formally notifies the seller they will proceed.

During the option period, the seller cannot sell the property to anyone else.

Why Option Contracts Matter

Benefits for Buyers:

  • Locks in a purchase price while giving time for inspections or financing.
  • Helps investors secure deals with minimal risk.
  • Provides flexibility—buyer is not obligated to purchase.

Benefits for Sellers:

  • Provides a non-refundable option fee as compensation.
  • Attracts serious buyers and investors.
  • Creates a clear timeframe for decision-making.

Example of an Option Contract

Here’s how an option contract might appear in a real estate transaction:

  • Buyer pays a $2,000 option fee for the exclusive right to buy a home for $350,000.
  • The option period lasts 60 days.
  • If the buyer exercises the option, the seller must sell at the agreed price.
  • If the buyer doesn’t exercise the option, the seller keeps the fee.

This structure is common among investors and buyers who need more time to evaluate the property.

Why Option Contracts Matter for FSBO Sellers

FSBO sellers frequently encounter buyers—especially investors—who request option agreements. Understanding how they work helps sellers negotiate stronger terms.

  • Ensures the seller is compensated even if the buyer walks away.
  • Protects the seller by setting clear deadlines.
  • Prevents tying up the property for too long without commitment.
  • Helps sellers evaluate serious investor interest.

Listing with Flat Fee MLS through Brokerless attracts buyers familiar with option agreements.

Frequently Asked Questions

Is an option fee refundable?
Typically no. The option fee is non-refundable unless specified otherwise in the contract.

Can a seller back out of an option contract?
No. Once signed, the seller is legally bound during the option period.

Can option fees be applied to the purchase price?
Sometimes. It depends on the terms negotiated between buyer and seller.

Are option contracts the same as lease options?
No. Lease options combine renting with the right to buy; a pure option contract may not involve tenancy.