Option Fee

In depth

An option fee is the consideration that creates a binding option contract. It can be a flat fee or a percentage of the purchase price, often 1 to 5 percent. The fee may or may not be credited toward the purchase price. Misconception: option fees are typically not refundable, even if the buyer chooses not to exercise. Practically, in lease-option transactions, the option fee compensates the seller for taking the property off the market and giving the buyer time to qualify or save. Buyers should verify that the option fee is in addition to (not instead of) the down payment requirement at exercise. Recording a memorandum of option protects the buyer's interest.