A developer pays a landowner $5,000 for the right to purchase a vacant lot at $200,000 within 12 months. If the developer decides not to buy, what happens to the $5,000?
Correct Answer
B) It is retained by the landowner as the option consideration
In an option contract, the option fee is typically nonrefundable consideration paid for the right to buy. If the developer does not exercise the option, the landowner keeps the fee.
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Related Topics & Key Terms
Key Terms:
Related Concepts
An inspection contingency gives the buyer the right to have the property professionally inspected within a specified time frame and to negotiate repairs or cancel the contract based on the findings.
Liquidated damages are a predetermined amount of money specified in the contract that the non-breaching party is entitled to receive if the other party breaches. In real estate, the earnest money deposit typically serves as liquidated damages.
Novation is the substitution of a new contract for an existing one, or the replacement of one party with a new party, with the consent of all parties involved. The original party is completely released from all obligations.
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