What does an option in real estate refer to?

An option in real estate refers to a right that allows a party, typically the buyer, to purchase or lease a property at a predetermined price within a specified timeframe. This agreement provides the buyer with the flexibility to decide later if they want to proceed with the transaction, which can be particularly advantageous in fluctuating market conditions or when the buyer needs more time to secure financing or conduct due diligence.

By holding an option, the buyer essentially reserves the right to make a decision without the immediate obligation to execute the transaction, making it a strategic tool in real estate deals. Options can be an effective way to control real estate interests without committing to a purchase right away, often protecting the buyer's interests while providing a form of consideration to the seller for granting the option.