Real Estate Law · Haute Lawyer Network
What Is a Purchase Option on Real Estate?
Last reviewed: June 2026
A real estate purchase option is a contract that gives the potential buyer the right — but not the obligation — to purchase a property at a specified price within a specified time period. In exchange for this right, the option holder typically pays an option premium to the property owner. If the option holder exercises the option, the purchase proceeds at the agreed price. If they do not exercise it, the option expires and the option premium is typically retained by the seller.
Options are used in real estate development — where a developer wants to secure the right to purchase land while conducting feasibility studies and securing entitlements — and in sale-leaseback arrangements, where a tenant has the option to purchase the property they lease. They are also used by investors who want to control property while raising capital or conducting due diligence.
Frequently Asked Questions
Is an option on real estate legally binding?
Yes. A signed option agreement with adequate consideration (the option premium) is a binding contract. The seller cannot sell the property to a third party during the option period.
What is the option price?
The price at which the option holder can purchase the property if they exercise the option. It is typically set at the current market value or at a negotiated premium or discount, depending on the parties' objectives.
What is the difference between an option and a right of first refusal?
An option gives the holder the right to purchase at any time during the option period at the agreed price. A right of first refusal gives the holder the right to match any third-party offer if the owner decides to sell.
Does an option have to be recorded?
Not legally required, but recording is strongly recommended to protect the option holder's interest against subsequent liens, encumbrances, or sales to third parties.
What happens if the property is sold to a third party in breach of an option agreement?
The option holder can sue for specific performance — compelling the transaction at the agreed terms — or damages representing the difference between the option price and the property's fair market value.
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