Question

In: Finance

An owner of a parcel of vacant land and a prospective buyer enter into a written...

An owner of a parcel of vacant land and a prospective buyer enter into a written contract. For a nonrefundable fee, the owner agrees to keep the prospective buyer's offer on a property open--for a mutually-acceptable period of time. If the prospective buyer decides to buy the vacant land, both parties have agreed to a purchase price. If the prospective buyer decides against purchasing the property, the owner will keep the nonrefundable fee received from the prospective buyer at the time the contract was signed. Which term most accurately describes the contractual agreement between these two parties?

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Expert Solution

Ans: The most accurate term that will describe the contractual agreement between both these parties is the option contract in real state.

Option Contract in Real estate:- It is a type of contract where the buyer and seller enter into a written agreement with a non-refundable fee given by the buyer to seller where the seller gives the option to buyer to buy the property within a specific time period at a predetermined rate but the buyer is not obliged to buy that property. By using this option the buyer usually lock down the property for a specific time period.

Usually, real estate investment is very expensive and one of the largest investments ,whether its a firm or an ordinary people and there are various other factors involved in the investment therefore before they make the decision to buy it fully it is important to analyze all the factors involved with the investment like return on the property, development during the investment, property taxes, commission given to the broker during the sale or purchase of the land, understand the valuation of the property. Therefore to minimize the risks associated with real estate investment the best option and more affordable way is through real estate options.


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