Texas Real Estate Sales Agent ExamContractsMedium
A buyer enters into an option contract to purchase a commercial property for $500,000. The option fee is $5,000, and the option period is 60 days. If the buyer decides to exercise the option, how much credit will they typically receive towards the purchase price at closing?
- AThe option fee plus any earnest money paid, credited to the purchase price.
- B$0, as option fees are non-refundable and not applied to the purchase price.
- C$2,500, as half of the option fee is usually credited.
- D$5,000, which is typically credited to the purchase price.
Show answer & explanationAnswer & explanation
Correct answer: D. $5,000, which is typically credited to the purchase price.
In Texas, while option fees are generally non-refundable if the option is not exercised, if the buyer chooses to exercise the option, the option fee is typically credited to the purchase price at closing. The TREC promulgated forms reflect this practice.
Why the other options are wrong
- A. The question specifically asks about the option fee; earnest money is a separate consideration.
- B. While non-refundable if not exercised, option fees are typically credited if the option IS exercised.
- C. There is no standard practice or rule to credit only half of the option fee.
Option Fee (Texas)
A non-refundable fee paid by the buyer (optionee) to the seller (optionor) for the exclusive right to terminate a contract within a specified option period. If the buyer proceeds with the purchase, the fee is typically credited to the purchase price.
- Paid directly to the seller.
- Must be delivered within 3 days of the effective date of the contract.
- Gives the buyer unrestricted right to terminate during the option period.
- Credited to the purchase price if the option is exercised.
Memory trick: O.P.T.I.O.N. - Option fee, Period, Termination, If exercised, Often credited, Non-refundable (if not exercised).