What is an option contract in real estate?

An option contract in real estate is defined as a contract that grants a buyer exclusive rights to purchase property within a specified time period. This means that the buyer has the option, but not the obligation, to complete the purchase at a predetermined price within that period. The seller is bound to honor that option if the buyer decides to exercise it, providing the buyer a degree of security in the transaction.

This type of contract is particularly useful in situations where a buyer may want time to arrange financing or conduct due diligence on the property without the risk of losing the opportunity to purchase it. In essence, the option contract facilitates a protective measure for buyers while also offering sellers a potential buyer for their property within a specified time frame.

Other options mentioned do not align with the definition of an option contract. For instance, a temporary agreement for leasing property pertains to lease agreements rather than purchase options. A standard form for listing properties for sale does not describe an agreement between the buyer and seller regarding purchasing rights. Lastly, a contract that allows a seller to back out of a sale would not provide the buyer any exclusivity and contradicts the foundational principle of an option contract, which is to give the buyer the right to purchase.