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Exercising an Option If the optionee exercises the option and purchases the property, the option payment is simply added to the amount paid for the property. This determines the buyer's tax basis for the acquired property. The seller considers the option payment part of the property's selling price.
When the tenant exercises the option, he/she immediately acquires an interest in the property. However, the lease stays in effect until the purchase agreement is signed.
For a contract to be valid and enforceable, something of consideration must exchange between the buyer and seller. The option fee cannot be nominal, but there's no specific guidance on reasonability. It's also worth noting that option fees are non-refundable.
4. How Do You Exercise an Option to Purchase? Once a buyer decides that he wishes to purchase the property, the buyer may exercise the Option to Purchase before the Option Period ends, according to the manner set out in the Option to Purchase.
If the buyer agrees to the terms within the designated time period, then a binding contract is created for the deal. The option expires at the end of the period stated in the contract, regardless of whether the buyer exercises the option.
An option contract has two elements: 1) the underlying contract which is not binding until accepted; and 2) the agreement to hold open to the optionee the opportunity to accept. In addition, an option contract requires consideration.
An option may also involve the right to purchase property. Option agreements are governed by contract law. They are legally enforceable as long as they follow the requirements for a valid contract. Contract laws vary by state and by subject matter of the contract.
Once a real estate option is exercised, the optionee becomes the buyer. The party selling a real estate option. Once a real estate option is exercised, the optioner becomes the seller.
Generally, an option agreement will last from 3-5 years, however this is dependent on whether both the buyer and seller agree on a different timespan. Some agreements include the right to extend the time frame, buyers can do so by paying an additional fee to the seller.
The five requirements for creating a valid contract are an offer, acceptance, consideration, competency and legal intent.