Which statement best describes the purpose of option money in the scenario?

Which statement best describes the purpose of option money in the scenario?

• A. It increases the loan amount
• B. It is paid to the seller to secure a potential purchase option
• C. It reduces property taxes
• D. It covers closing costs

Answer: (B)

Option money is a fee paid to the seller to secure the buyer’s right to purchase the property within a specified time. This payment compensates the seller for granting an option, not for increasing the loan amount, reducing taxes, or covering typical closing costs. It’s separate from the loan and closing costs, and in many cases it’s nonrefundable if the option period expires. If the buyer later exercises the option, the option money may be credited toward the purchase price, depending on the contract terms.

Option money is a fee paid to the seller to secure the buyer’s right to purchase the property within a specified time. This payment compensates the seller for granting an option, not for increasing the loan amount, reducing taxes, or covering typical closing costs. It’s separate from the loan and closing costs, and in many cases it’s nonrefundable if the option period expires. If the buyer later exercises the option, the option money may be credited toward the purchase price, depending on the contract terms.