Buyer Johnson agrees to purchase a home for $280,000 with a $300 option fee and a 10-day option period. On Day 7, Johnson decides not to purchase the property because he found a better home. Johnson terminates within the option period. What is the disposition of the option fee and earnest money?
Correct Answer
C) Johnson forfeits the $300 option fee and receives back the earnest money
When a buyer properly terminates during the option period, the option fee is non-refundable and stays with the seller. However, the earnest money is returned to the buyer because the termination was within the buyer's contractual right under Paragraph 23.
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Related Topics & Key Terms
Key Terms:
Related Concepts
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.
Offer and acceptance is the process by which one party proposes specific terms for a contract and the other party agrees to those exact terms, creating mutual assent. This mutual agreement, also called a meeting of the minds, is an essential element of every valid contract.
An option contract gives one party the exclusive right, but not the obligation, to purchase or lease a property at a specified price within a specified time period. The buyer pays option consideration to keep the option open.
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