The Definition of a Real Estate Option Agreement

In general legal terms, a real estate option agreement is a unilateral agreement, binding only on the optionor or seller, in which a promise—the exclusive, unrestricted, and irrevocable right and option to purchase—is exchanged for performance—the exercising of the option by the optionee or buyer. And the purchase of a real estate option does not impose any obligation on the optionee to exercise the option and purchase the property. However, once the optionee exercises the real estate option, the agreement becomes a bilateral contract binding on both parties, at which time the optionee becomes the buyer and the optionor, the seller. For example, in Florida, a real estate option agreement is distinguished from a purchase agreement in that no equitable interest passes to the optionee until after the real estate option is exercised. Once exercised, the real estate option agreement ripens into a bilateral purchase agreement.

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