California Real Estate Broker ExaminationContractsMedium
A buyer enters into an option contract to purchase a property. The option requires a payment of $5,000 to the seller for a 90-day period. During this period, the property value significantly increases. What is the buyer's right regarding the purchase of the property?
- AThe buyer is obligated to purchase the property at the end of the 90 days.
- BThe seller can revoke the option due to the increase in property value.
- CThe buyer can choose to purchase the property at the agreed-upon price, or let the option expire.
- DThe buyer can demand a lower price due to market fluctuations.
Show answer & explanationAnswer & explanation
Correct answer: C. The buyer can choose to purchase the property at the agreed-upon price, or let the option expire.
An option contract gives the optionee (buyer) the right, but not the obligation, to purchase the property at a specified price within a specified time. The optionor (seller) is obligated to sell if the optionee chooses to exercise the option, but the optionee is not obligated to buy.
Why the other options are wrong
- A. This is incorrect. An option contract creates a right, not an obligation, for the buyer to purchase.
- B. This is incorrect. The seller cannot revoke an option during its term if consideration was paid.
- D. This is incorrect. The option fixes the price, and the buyer cannot demand a change based on market fluctuations.
Option Contract
A contract that gives one party (the optionee) the right, but not the obligation, to purchase or lease a property within a specific timeframe at a predetermined price.
- Requires consideration (option fee) to be binding on the optionor.
- Optionor (seller) is bound; optionee (buyer) is not.
- If exercised, it becomes a binding purchase agreement.
Memory trick: An 'Option' is like holding a 'key' to a door, but you don't 'have' to open it.