Option Agreement Real Estate Definition
An agreement listing option is one of the many features of a list agreement. Here`s what happens when the home seller signs an option offer: it gives someone (a home buyer, a real estate agent or a broker) the opportunity to buy the property within a specified time frame at a predetermined price. To acquire the right to buy the house (remember: this is not an obligation!), the home buyer, or the real estate agent or broker pays an amount set by the home seller. Note: This right has an expiration date (usually 6 months). If the option is not exercised within the intended duration of the contract, the right to purchase the house will be extinguished. Here`s why it`s useful to have an option list agreement: Scenario 2: After two months, the manufacturer discovers that it will not get a development permit. Over the next four months, the owner will be able to find another party willing to buy the property for $2 million. The owner sells the real estate option to the new party for a new price of $30,000. The new part replaces the owner in the original option contract. The new party exercises the option and buys the property for $2 million. The seller receives $2 million from the new portion plus retains the option premium of 25,000 $US of the owner.
The owner sold the option for $30,000, so he makes $5,000 and is not saturated with a property he cannot use. Once a buyer has the opportunity to buy a property, the seller can no longer sell the property to others. In any case, after the conclusion of a real estate option contract, the seller no longer has the choice to sell the property or at what price during the period of preservation of the option. The seller must wait six months before the buyer`s decision. For this reason, the seller receives and retains the option premium regardless of what the buyer ultimately decides. So think of the option As a small amount of money from you to the seller and give you a ratified contract. An option agreement may also be an agreement signed between an investor wishing to open an options account and his brokerage company. The agreement is an audit of an investor`s level of experience and knowledge of the various risks associated with trading options contracts. It confirms that the investor understands the rules of the Option Clearing Corporation (OCC) and that they will not pose an unreasonable risk to the brokerage company.