THE SEVEN KEY ELEMENTS OF A REAL ESTATE OPTION TRANSACTION

A real estate option transaction consists of the following seven key elements:

1. Optionee: Optionee is the party buying a real estate option. Once a real estate option is exercised, the optionee becomes the buyer.

2. Optionor: Optionor is the party selling a real estate option. Once a real estate option is exercised, the optionor becomes the seller.

3. Real estate option: When an optionee buys a real estate option, he or she buys an exclusive, unrestricted, and irrevocable right and option to purchase a property at a fixed purchase price within a specified option period.

4. Option consideration: Option consideration is the amount of money paid by an optionee to buy a real estate option from an optionor.

5. Option period: The option period is the specific period of time stated in the real estate option agreement in which the option is in effect.

6. Exercise of option: The exercising of a real estate option occurs when the optionee notifies the optionor, in writing, that he or she is going to exercise the real estate option and purchase the property under option.

7. Expiration of option: A real estate option expires when an optionee fails to exercise his or her real estate option within the option period stated in the real estate option agreement.

How a Real Estate Option Transaction Works

Here is a sequential outline of the mechanics of a real estate option transaction:
Step 1: The optionee pays a real estate option fee to the optionor.

Step 2: The optionor grants the optionee the exclusive, unrestricted, and irrevocable right and option to purchase a property at a fixed purchase price during the option period by executing a real estate option  agreement with the optionee.

Step 3: The optionee assigns or exercises his or her real estate option or lets it expire.

Step 4: Once exercised, a real estate option agreement turns into a bilateral agreement in which the optionee becomes the buyer and the optionor becomes the seller.

Step 5: The seller transfers the property’s title to the buyer at the closing.