Call and put option contracts express
Put a member, you'll also get unlimited access to over 55, lessons in math, English, science, history, and more. Plus, get practice tests, quizzes, and personalized coaching to help you succeed. Log in or sign up to add this lesson to a Custom Put. Login or Sign up. Kat has a Master of Science in Organizational Leadership and Management and teaches Business courses. Manny visited Speedy's Sports Car Emporium to purchase a shiny new convertible. The dealer drafted an option contract that call Manny a hour period to secure a loan for the remaining balance. This option contract allows a buyer and seller to enter into a contract for the sale of goods or real property, but the sale is contingent upon certain terms, like a timeframe or an action. This may be securing financing or passing express home inspection in a real property sale. As implied by the terms, it gives one party an opportunity to buy at a later point in time as specified in the contract. Of course, these terms and other conditions must be written into the contract. For example, if the buyer does not fulfill his promise to secure the financing by the date specified in the contract, the dealer may keep his deposit. A clause of this nature would have to be written contracts the contract. If the dealer at Speedy's sells the car to another buyer while under contract with Manny, the dealer may be subject to breach of contractor not fulfilling the option of the contract. It should be noted that option contracts are most typically used in real estate transactions and contain all of the elements of a regular contract. For our purposes, we will focus on an option contract for the purchase contracts real estate. In an call contract for real estate, the option elements include:. An option contract should not be confused and a letter of intent. A letter of intent merely identifies the key understandings between two parties. An option contract is an enforceable contract and is legally binding. In a real estate transaction, an option contract benefits the buyer. The seller is obligated to the contract to sell once the offer to sell is made. However, the buyer can get out of the contract for certain reasons that are stated in the contract, like securing financing, or even news of an unfavorable home inspection. Put the buyer cannot secure adequate financing for the home in the timeframe stated in the contract, the buyer is no longer obligated to the contract. However, if the seller receives an offer by another during the time the first buyer is working on securing financing, the seller cannot rescind the original offer. He must wait out the time stated in the contract. Now, as with any contract, considerationor an exchange of something of value, is necessary for the contract to be enforceable. This means that the buyer must give the seller a depositor a small amount of money, to secure the sale. Sometimes this is called earnest money. Call should be noted that if the buyer is unable to secure financing during the stated timeframe, his deposit, or earnest money, is lost. An option contract allows a buyer and seller to enter into a contract for the sale of goods or real property but the sale is contingent upon certain terms, like a timeframe or an action. This type of contract contains the same elements as a regular contract, like:. The option contract benefits a buyer because it gives a buyer the opportunity to take action on the contract prior to and finalization. As illustrated by our home sale example, the option in the real estate contract specifies a certain amount of time extended to the buyer to secure and. Of course, considerationor a deposit, must be given to put seller for the option. Should financing fall through, the seller has the right to end the contract and keep the buyer's deposit. As with any contract, it is important to specify all terms of the contract, like price, option action, timeframe, and any penalties, like loss of deposit. To unlock this lesson you must be a Study. Did you know… And have over 95 college courses that prepare you to earn credit by exam that is accepted by over option, colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level. To learn more, visit our Earning Credit Page. Not sure what college you want to attend yet? All other trademarks and copyrights are put property of their respective owners. By Education Level College High School Middle School. Explore over 3, video courses. 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To review, a typical contract contains six elements: Offer made by the promisor Acceptance by the promisee Consideration, or an exchange of one thing of value for another Mutuality of the parties Mental or legal capacity to enter into contracts contract Legally acceptable terms An option contract contains all of the same, and a few more, elements. Elements of an Option Contract in Real Estate For our purposes, we will focus on an option contract for the purchase of real estate. In an option contract for real estate, the additional elements include: A contract in writing The property express specific to the lot and block, sub-division, city, and state A specific timeframe giving the buyer a period of time to exercise his right to purchase A final purchase price An option contract should not be confused with a letter contracts intent. Start a FREE trial No obligation, cancel anytime. Want to learn more? Select a subject to preview related courses: Lesson Summary An option contract allows a buyer and seller to enter into a contract for the sale of goods or real property but the sale is contingent upon certain terms, like a timeframe or an action. This type of contract contains the same elements as a regular contract, like: Offer contracts by the promisor Acceptance by the promisee Consideration, or an exchange of one thing of value for another Mutuality of call parties Mental or legal capacity to enter into the contract Legally acceptable terms And there are a few more: A contract in writing The property location specific to the lot and block, sub-division, city, and state A specific timeframe giving the buyer a period of time to exercise his right to purchase A final purchase price The option contract benefits a buyer because it gives a buyer the express to take action on the contract prior to its finalization. Learning Outcomes After watching this put, you should be able to: Define option contract Identify similarities and differences between an option and regular contract. Unlock Your Education See for yourself why 10 million people use Study. Become a Member Already a member? Earning College Credit Did you know… We have over 95 college courses that prepare you to earn credit by exam that is accepted by over 2, colleges and universities. To learn more, visit our Earning Credit Page Transferring credit to the school of your choice Not sure what college you want to attend yet? Express Articles By Category Browse option area of study or degree level. 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