Option
See Option Agreement.
Frequently Asked Questions about Option Agreements in Real Estate
What is an Option Agreement in real estate?
An Option Agreement is a formal contract between a property owner and a potential buyer or lessee. It grants the buyer exclusive rights—often in exchange for a non-refundable fee—to purchase or lease the property within a specified time while they complete due diligence or seek approvals.
Why would a developer use an Option Agreement?
It allows the developer to control the site without committing to a full purchase immediately. For example, Potomac Development Partners paid $200,000 for a 12-month exclusive option to buy a site for $10 million, using that time to secure permits and conduct environmental assessments.
What happens if the buyer doesn’t exercise the option?
If the buyer decides not to exercise the option, they typically forfeit the option fee but are under no further obligation. This structure limits the buyer’s risk while giving time to evaluate the property’s feasibility.
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