Option Money


Option Money

In a rent-to-own agreement, the potential buyer pays the seller a one-time, usually non-refundable fee called "option money," or "option consideration." This gives the buyer the option to purchase the house in the future. It is important to note that some contracts (lease-option contracts) give the potential buyer the right but not the obligation to purchase when the lease expires; if he or she decides not to purchase the property at the end of the lease, the option simply expires. If the wording is "lease purchase," without the word option, the buyer could be legally obligated to purchase the property at the end of the lease. Clarifying the wording is one of many reasons buyers should have the contract vetted by a real estate attorney before agreeing to it.

The size of the option is negotiable. There's no standard rate but they typically ranges between 2.5% and 7% of the purchase price. In some contracts, all or some of the option money may be applied to the purchase price at closing.



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