What is an option contract?

An option contract specifically refers to an agreement that gives one party the right, but not the obligation, to buy or sell a property at a predetermined price within a specified timeframe. This type of arrangement is often used in real estate to give a potential buyer the exclusive opportunity to purchase the property while allowing the seller to retain ownership until the option is exercised.

By distinguishing itself from other types of contracts, such as a binding agreement to purchase or a lease contract, the option contract focuses solely on the right to make a future transaction under specific terms. It allows for flexibility and can be a strategic tool for real estate investors or buyers looking to secure a property while they assess their options.

In comparison, the other options address different legal concepts that do not match the definition of an option contract. For example, a binding agreement to purchase indicates a commitment rather than a right, while a contract to lease pertains to rental agreements, and a document granting a loan involves financing, neither of which align with the concept of an option.