Option Agreements

What is an Option Agreement?

Most earnest money contracts are actually option agreements to purchase land.  If the contract is carefully reviewed, more than likely there are many covenants which permit the buyer to terminate the contract without penalty.  For example, if the buyer is unable to qualify for a loan to purchase a home, the buyer may terminate the agreement if the designated time limits for notice to the seller have not elapsed and the buyer properly transmits notice of the contract termination to the seller.  Also, the TREC earnest money contract forms contain paragraphs clearly identified as "options."  If the buyer pays the seller the agreed option fee, the buyer reserves the right to terminate the TREC contract for any reason or no reason within the specified option period upon the tender of a timely notice to the seller.

What is an Option Agreement?

Or a prospective purchaser of land does not want the restrictions imposed under an earnest money contract in order to terminate a contract to purchase (risking specific performance demands by the seller, forcing the buyer to purchase the land), so the prospective purchaser enters into an option agreement with the seller.  The option agreement will specify, for example, the amount of the option fee; sales price; how long the seller is obligated to sell the land to the buyer (that is, how long must the seller take the seller’s property off the market); whether or not the option fee will be applied to the purchase price; and how the buyer may exercise the buyer’s right to purchase the land.

Option fees are normally earned by the seller immediately upon execution of the agreement.  That is, the buyer normally forfeits the option fee if the buyer declines to proceed on the purchase of the land.  Option agreements may be fairly complex, so it is always wise to engage the services of a Texas real estate attorney for advice and counsel.

I assist clients in drafting, reviewing, interpreting, modifying, and negotiating option agreements.