Quick Answer: What Is An Option Payment?

How does option purchase work?

An Option to Purchase (OTP) is a legal agreement between buyer and the seller to buy a residential property.

The buyer pays an option fee and is granted the rights to buy the property for the option period (three weeks) If the buyer does not purchase, the seller has the right to forfeit the option fees..

Is the option fee refundable?

If a buyer backs out after having already signed the Option to Purchase, the Option Fee is forfeited to the seller (same as above). If a seller backs out after having already signed the Option to Purchase, the seller has to refund the Option Fee to the buyer.

How long does a buyer have to deposit earnest money?

three daysThe earnest money deposit comes soon after the offer, or in competitive markets, might be attached to the offer itself. In a typical contract, the time frame for delivering the earnest money check is three days after the binding agreement date.

Does seller keep option money?

The quick answer is cash it and keep it. The Seller earns this money when the contract is executed. It is a payment from Buyer to Seller for the unrestricted right to terminate the contract during the Option Period. … Option Fee money is often confused with Earnest Money.

How many days should you exercise OTP?

21Step 3a: Buyers exercise the OTP if they wish to proceed with the purchase. The Option period is 21 calendar days (including Saturdays, Sundays and Public Holidays), from the date of granting the OTP (refer to Step 2). It expires at 4pm on the 21st calendar day.

Is an earnest money deposit refundable?

Will Earnest Money be Refunded if a Buyer Cancels? If a buyer cancels a sales contract during the option fee, then the earnest money will be returned to the buyer. However, if the buyer cancels the contract after the option period, the earnest money deposit is generally considered non-refundable.

What is an option deposit?

Option Deposit means any payment of a cash deposit or delivery of a letter of credit in conjunction with a contract committing a seller to deliver title to all or a portion of a land parcel or finished lots, on specified terms.

How much is the option fee?

Check out the New South Wales information page for an example. However, one cost you can’t avoid is the option fee. This fee can vary anywhere between 3-10% of the property’s market value, although it is negotiable with the vendor.

Can the seller back out during the option period?

You should really consult your agent or an attorney. There is no “option” period for a seller. … However, if the first contract is not a contingency contract then the seller is not able to “back out” of the contract unless the buyer defaults in someway (and there are various ways a buyer can, in fact, default).

Is an option to purchase binding?

An option to purchase real estate is a legally-binding contract that allows a prospective buyer to enter into an agreement with a seller, in which the buyer is given the exclusive option to purchase the property for a period of time and for a certain (sometimes variable) price.

What is a receipted contract?

RECEIPT, contracts. A receipt is an acknowledgment in writing that the party giving the same has received from the person therein named, the money or other thing therein specified.

What is the best way to deliver an option fee?

The earnest money should be delivered to the title company, while the option fee should be delivered directly to the seller. Both should be delivered within three days after the effective date of the contract.

Does Option money go towards down payment?

The option and earnest money must come from an acceptable source of funds (i.e. not a briefcase of cash). Both amounts will be applied towards the buyer’s down payment and closing costs at closing on the Closing Disclosure (CD).

Can a buyer back out after option period?

If the buyer simply changes their mind during the option period, all they lose is their option fee. If they change their mind later than that, they should lose their earnest money unless they find a valid excuse in the contract for terminating. There is nothing a seller can do keep a buyer from changing their mind.

What is the purpose of the option fee?

The purpose of the option fee is to provide a harried buyer with enough time to arrange safety and code inspections of the property that he or she intends to buy. It typically gives the buyer the right to cancel the pending transaction within a 10-day window.