A seller receives a $250 option fee from the buyer on Day 2 of the contract. On Day 8, the buyer terminates within the option period. The seller wants to keep both the option fee and the earnest money. Under the TREC contract, the seller:
Correct Answer
D) May keep the $250 option fee but must release the earnest money to the buyer
The seller keeps the option fee because it is non-refundable consideration for the option period. However, the seller must release the earnest money to the buyer because the buyer exercised a valid contractual right to terminate during the option period.
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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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