David Saks: Clauses : The Option Clause

David Saks - Real Estate Broker - The Real Estate Mart of Tennessee, Inc. - 4040 North Watkins-Suite #4 - Memphis, Tennessee 38127 - Phone (901) 357-4663

Clauses : The Option Clause


Basically, when a contract is wrtten for real estate two types of contracts are used.

1. The Specific Performance Type

2. A Receipt and Option Type

An 'earnest money' clause can define which is which.

When earnest money is put up we consider this a good faith deposit which is a pretty good indication that the buyer has honorable intentions of purchasing the property.

But let's say, as an example, that the buyer decidesto change his or her mind. The buyer has decided that they don't want the property. The buyer has decided not to go through with the deal.

Now, this is where any items in the contract that have to deal with the earnest money and any conditions associated with it surface. Clauses and conditions surrounding the earnest money are ready for review.

There might be something in the contract, a clause for example, that says that "the seller may keep the earnest money deposit and that the seller may also proceed to take any legal action necessary to force the "specific performance" of the contract, or the seller may sue for "liquidated damages".

Liquidated damages, or ascertained damages, are damages whose amount the parties agree upon during the formation of a contract for the injured party to collect as compensation if the contract is breached.

But let's say for example, that you include an option clause that will limit the seller to only the amount of your earnest money if you fail to perform as the buyer. With an option clause like this the seller can't force you to buy or sue you. But you lose your earnest money, and that's a lot better than losing your shirt, isn't it ?

Now remember, there are some weasel clause that will let you back out of the loan without losing anything.

Any thoughts ?

 Next : The Rollover Clause

David Saks

Time&Temp Memphis

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Comment balloon 0 commentsDavid Saks • August 24 2008 12:07AM


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