Texas Real Estate Sales Agent ExamContractsMedium
A land developer enters into an option contract to purchase 50 acres of undeveloped land. The developer pays an option fee of $10,000 for a 90-day option period. During this period, the developer discovers unforeseen environmental contamination that would make the project economically unfeasible. What is the developer's most likely course of action and financial outcome?
- AThe developer is obligated to purchase the land, but can negotiate a reduced price due to the contamination.
- BThe developer can terminate the option contract, forfeiting the $10,000 option fee, but with no further obligation.
- CThe developer can force the seller to remediate the contamination or sue for specific performance.
- DThe developer can terminate the option contract and demand the return of the $10,000 option fee due to the unforeseen contamination.
Show answer & explanationAnswer & explanation
Correct answer: B. The developer can terminate the option contract, forfeiting the $10,000 option fee, but with no further obligation.
An option contract grants the buyer the right, but not the obligation, to purchase the property within a specified time. If the buyer chooses not to exercise the option, they typically forfeit the non-refundable option fee, with no further liability.
Why the other options are wrong
- A. The developer is not obligated to purchase the land; that is the core feature of an option contract.
- C. An option contract does not obligate the seller to remediate or subject them to specific performance if the buyer chooses not to proceed.
- D. The option fee is generally non-refundable, especially if the buyer elects not to proceed, regardless of the reason for their decision.
Option Contract
A contract where a seller (optionor) grants a buyer (optionee) the exclusive right to purchase a property within a specified period for a determined price. The optionee pays an option fee for this right and is not obligated to purchase.
- Buyer has right, not obligation, to purchase
- Option fee is typically non-refundable
- Unilateral contract until option is exercised
Memory trick: The option fee opens the door, but you don't have to walk through.