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What Is A Real Estate Option Contract?

Most people understand that a contract is required to buy or rent real estate, but there is a little-known third transaction called a real estate option contract. This contract allows a buyer to put a small amount of collateral, known as earnest money, down to purchase a piece of property in the future. A real estate option contract is different from a buyer’s perspective and a seller’s perspective.

The buyer’s perspective of a real estate option contract

A real estate option contract, from the buyer’s perspective, gives the ability to purchase a piece of property at some time in the future. There are several reasons for a buyer choose this real estate contract, including wanting to buy an adjacent piece of property that is already owned. Other buyers may be looking for lease-to-own properties.

A buyer is able to effectively put a piece of property on hold with a small amount of earnest money while they secure financing. A buyer can also improve their financial standing while they wait to purchase the property. If a buyer decides not to buy the property, they default on the amount of money already paid to the seller. Defaulting is one of the risks of a real estate option contract for both buyers and sellers.

The seller’s perspective of a real estate option contract

For a seller, a real estate option contract means that their property will be placed on hold once a non-refundable deposit is provided by the buyer. The seller does not have to return the earnest money if the buyer pulls out of the contract. One advantage for the seller to use a real estate option contract is that they can secure a buyer for a piece of property. Sellers are also able to get the non-refundable portion of the selling price up front. There are significant disadvantages to the seller, however, in the event the buyer cancels the contract. Properties that had been taken off the market to hold for a buyer would need to be placed back on the market. The real estate market is often unpredictable, so the property could have less of a chance of selling once it is placed back on the market.

The decision to enter into a real estate option contract is an important one that should be made with both parties fully understanding the stipulations. Real estate option contracts are complex documents that require serious thought and possible consequences for not following through.

If you would like more information about real estate option contracts, contact the experts at Elite Real Estate Group in Amarillo. Call us today at (806) 337-0883 or Contact Us by email to learn more about our services. You can also View Our Listings to see the properties we have available in the Texas Panhandle.

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