A homeowner in Fresno receives an offer to purchase his property. The prospective buyer pays the homeowner $5,000 in exchange for the homeowner's promise to keep the offer open and irrevocable for 30 days while the buyer arranges financing. Under California law, what type of agreement has been created?
Correct Answer
B) An option contract, making the offer irrevocable for the 30-day period
Under California law, an option contract is created when an offeree (here, the prospective buyer) pays separate consideration to the offeror (the homeowner/seller) in exchange for the offeror's promise to keep an offer open and irrevocable for a specified period. The $5,000 payment is the consideration that supports the option. Unlike a standard offer — which can be revoked at any time before acceptance under Civil Code §1586 — an option contract binds the seller to hold the offer open for the full 30 days.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Contract termination occurs when a contract is ended or discharged, releasing both parties from their obligations. A contract can be terminated through performance, mutual agreement, operation of law, or breach.
A counteroffer is a response to an original offer that changes one or more terms of the offer, effectively rejecting the original offer and creating a new offer. The party who makes the counteroffer becomes the new offeror.
Earnest money is a deposit made by the buyer at the time of the offer or shortly after to demonstrate good faith and serious intent to purchase the property. It is also called a good faith deposit.
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