Section 5 Unit 5 lessons (1-4) Quizzes

Can you define an option contract?

An offer to purchase a specific piece of real estate but without the obligation to buy it

Is it required for an option contract to be valid and enforceable? The contract must specify the date that the optionee will purchase the property.

NO

Review each statement about option contracts related to leases and determine if it's true or false. It's illegal to attach an option contract to a lease.

FALSE (It is not illegal)

Review each statement about option contracts related to leases and determine if it's true or false. An option contract attached to a lease gives the lessee the option to purchase the property at some point in the future.

TRUE

What are the two contractual promises of an option contract?

The optionor will not sell the property to anyone else during the option period. The optionor will sell the property to the optionee, if the optionee so chooses, under the contract terms and conditions.

Review each statement about option contracts related to leases and determine if it's true or false. With an option attached to a lease, a landlord can increase the option amount if a better offer comes in.

FALSE (landlord cannot increase amount)

A newlywed couple comes to you asking for help with an option contract. What do you do?

Advise them to seek the advice of a real estate attorney.

At what point does an option contract become binding for both parties?

Once the optionee exercises the option

Is it required for an option contract to be valid and enforceable? The agreement must be in writing and signed by the seller.

YES

Is it required for an option contract to be valid and enforceable? The amount of consideration the optionee is paying the optionor must be stated in the contract.

YES

Is it required for an option contract to be valid and enforceable? The contract must state the length of the option period.

YES

This option is often used by prospective purchasers who can't purchase immediately but intend to soon, and would like to buy the property they're renting.

Lease with option to buy

With this option, the holder can decide when and whether to exercise the right to the property.

Lease with option to buy

With this option, the holder must wait until an event occurs (another offer is made on the property by a third party) and then must decide whether to exercise the option, or let the property go.

Right of first refusal

Review each statement about option contracts related to leases and determine if it's true or false. An option contract that's attached to a lease is known as a lease option, or a lease with an option to buy.

TRUE

The right of first refusal process involves a specific order of events. Do you know what the order of events is? Which one of these is the LAST step in the process?

The holder of the right of first refusal must match the new party's offer, or allow the property to be sold/leased to the third party.

Is it required for an option contract to be valid and enforceable? The property's sales price or the way in which the price will be determined must be stated in the contract.

YES

Margo Kent wants to make an offer on a specific piece of property owned by Grant Lee, but she doesn't want to be forced to buy. Grant is okay with this, so the two enter into an option contract. Margo is the __1__, and Grant is the __2__. Grant is fully aware that an option contract is a __3__ and that only __4__ is bound to carry out the contractual obligations unless the buyer decides to exercise the option to buy. However, he also knows that if Margo decides not to purchase his property, he gets to keep the __5__ and is free to sell the property to someone else. In fact, payment of the fee is Margo's only obligation, and she can fulfill it with a gift card, if Grant agrees to it.

optionor - 2 optionee - 1 the seller - 4 unilateral contract - 3 option fee - 5