option contract Archives - Demetree School of Real Estate

What Is An Option Contract? (Part 2)

In my last post, I described what an option contract is. I promised that I would have more about what we need to know specifically for the Florida sales associate state exam in this post.

You are likely to see questions about option contract on the Florida real estate state exam.

First, an option contract is unilateral contract binding upon the optionor. The optionor is the seller. Using the story from my previous post, Demetree is the optionor because he gave the option to Disney, who is the optionee. The contract is unilateral because Disney doesn’t have to buy. However, if Disney wants to buy, Demetree has to sell.

We also need to know that an option contract requires consideration. Token consideration doesn’t count. In the previous post, Disney paid $25,000 for the option to purchase the property. That’s a decent amount of money. If Disney had paid $50, the contract would not have been enforceable because that is considered token consideration. Additionally, if the $25,000 had been refundable if Disney decided not to buy, then it is not consideration.

Lastly, real estate licensees are allowed to buy options on contracts but they must divest themselves of their role as licensees. In other words, the licensee needs to disclose that she is a licensee, but that is not acting as a licensee in this transaction. If they don’t divest themselves, and they don’t pay consideration, then it is basically a listing agreement. In this case, they would be entitled to a commission.

If you have any questions about option contracts or anything else on the Florida real estate state exam, give me a call. I’m happy to help. By the way, I answer my own phone. If you call 407-493-3974, you will reach me.

What Is An Option Contract?

There are 12 questions on the Florida real estate sales associate exam about contracts. Twelve questions! This is an important section! One of the things we need to know about contracts is what an option contract is. Today, not only do you get to learn what an option contract is, you get to learn a little bit of Orlando history from an Orlando native.

Back in the 1960s, there were three people who owned land in south Orange County. Jack Demetree owned 12,000 acres. Irlo Bronson owned 7,000 acres. And the Goldstein family owned 1,800 acres. A mysterious man came into town using a fake name. He was an attorney who represented a developer called Reedy Creek Ranch. You may have heard of the Reedy Creek Water District or Reedy Creek Fire Department. It’s Disney World.

Is this a map of south Orange County in the 50s and 60s? Or is this Karen’s drawing to teach option contracts?

So this attorney for Reedy Creek meets Demetree and says, “I want to buy your land.”

Demetree says, “Great. I want to sell this land.”

They agree on a price on $125 an acre. But Mr. Reedy Creek says, “Here’s the thing… if these other people won’t sell, I don’t want your property. I have to get all three pieces in order for my project to work. But, I don’t want to buy those two pieces and then have you raise the price on me. So here’s what I’m going to do…I’m going to give you $25,000 for you to take your property off the market for six months. You can’t sell it to anyone else. I want to have the option to buy it.

“In other words, if I come back in the next six months, you have to sell it to me for $125 an acre, and the $25,000 counts toward the purchase price. If I don’t come back in six months, you can keep the $25,000 as payment for your troubles. How does that sound?”

Well, we know how Demetree answered that question. We also know that Disney ultimately exercised their option.

That’s all there is to it. That’s what an option contract is. In my next post, I’ll write a few more details about an option contract that you need to know for the Florida real estate sales associate exam.

Please note that neither I, nor anyone in the Climer family, have any affiliation with Climer School of Real Estate. My father, Ron Climer, sold Climer School of Real Estate in 2014. You can find me at Demetree School of Real Estate. If you are looking for me, want to take a real estate class with me, or want to learn more Orlando history, call me at 407-493-3974.