What is an Option Contract?

An option contract is characterized by the offeror's limited power of revocation. In this type of contract, the offeror grants the offeree the exclusive right to accept the offer within a specified timeframe. This means that the offeror cannot revoke the offer during that period, providing the offeree with certainty and security regarding their decision to accept or reject the offer.

The essence of an option contract lies in its use of consideration, usually in the form of a certain payment made by the offeree in exchange for the right to keep the offer open. This consideration distinguishes option contracts from informal agreements that do not provide the same level of protection to the offeree.

Understanding the role of consideration in option contracts is crucial, as it ensures that the contract is not simply a mere promise but rather a legally binding commitment. This aspect also differentiates option contracts from mere offers that can be revoked freely by the offeror at any time if no consideration is exchanged.

Moreover, the limitation on the offeror's ability to revoke creates a legally enforceable obligation, setting the foundation for many real estate transactions and other agreements where decisions may take time and require careful consideration. This is particularly important in real estate, where parties need to secure their interests while evaluating complex factors.