Option Money: Often Mishandled, Deceptively Complicated

While Option Money seems to be simple, it is often mishandled, subjecting Realtors to potential liability as they put their clients’ interests at risk. The role each Realtor plays depends on which party he/she represents, but Realtors on both sides of the transaction have important duties to their client. Violating said duties could easily be grounds for a breach of a fiduciary duty or a negligence suit.

Option Money is funds paid by the Buyer to the Seller, purchasing a right, for a set period of time, to have the unrestricted right to walk away from the contract. The Option Money must be delivered to 1) Seller 2) Seller’s Agent; or 3) Seller’s Agent’s Broker within 3 calendar (NOT business) days. The Option Money can only be receipted by the three individuals previously named. Keep in mind that if Option Money is receipted past the 3 days, it has thereby been accepted. However, it is not in the seller’s best interest for this to occur, so it is likely that receipting money past the deadline would be a violation of the duty owed to the Seller by his/her Realtor.

Responsibilities of Agents are as follows:

Buyer’s Agent:

1) It is the Buyer’s Agent’s (or Buyer’s) responsibility to deliver Option Money to the seller and should fall on no other third party, including the Title Company.

2) The Option Period is not required per the contract, but rather, is a purchased right.

3) If the Buyer’s Agent fails to timely deliver Option Money, either personally, or because a third party fails to deliver it, the agent may be subject to possible liability, including, but not limited to, negligence.

4) The Option Period is such an important right for the Buyer to have. Why leave the delivery to chance or put it in the hands of another individual? Would you want to explain to your Buyer why he/she does not have an option period and is bound to the contract, even though he/she gave you the funds?

Seller’s Agent:

1) The Seller’s Agent must receipt the Option Money, but owes no duty to the Buyer to help facilitate delivery.

2) Participating in delivery of the Option Money can arguably be working against the interest of the Seller, which would be a violation of the duty owed to the Seller– acting in the Seller’s best interest.

3) The Seller’s Agent, under no circumstances, should receipt Option Money after the third day, for any reason. This is a violation of the duty owed to the Seller. It is not in the best interest of the Seller to give the Buyer an out of the contract that he/she would otherwise not be allowed.

Out of town buyers or sellers?

If either party is out of town, make arrangements for the funds to arrive ahead of time. Otherwise, it is safest to 1) wire Option Money funds or 2) overnight Option Money funds. While both require an additional fee, it is well worth the Buyer’s guaranteed right to walk away from the contract. Under no circumstances should the Option Money be put in the mail or left unattended. If it is not in the Seller’s (or Seller’s Agent’s/Broker’s) hand by the third day, he/she is under no obligation to receipt it and, quite frankly, should not do so. Even if the Seller promises to do so, and the Buyer mails it, leaves it under a mat, etc. the Seller is still under no obligation to receipt it. Evidence that the Seller’s Agent promised to allow you to mail it or leave it unattended is irrelevant.

Broker Policies Vary

Check with your Broker to see what policies he/she has on Option Money.