Purchase OptionThere are several variations of purchase options. The most commonly used forms of options include: • Fixed option, which allows the optionee to buy the property at a given price during the option period. • Step-up option stipulates that the property price increases by a pre-agreed amount (step) periodically during the option period. As such, this option form is used when the option period is long. It is also often used in renewable options with the step-up being effective upon renewal. • Full-credit option stipulates that the price of the option is fully credited against the purchase price if the optionee proceeds with the purchase of the property within the option period, or in other words if the option is exercised. • Declining-credit option stipulates that the percentage of the option price that is credited against the purchase price declines through time in order to provide an incentive to the optionee to exercise the purchase option sooner than later. Options are useful tools for investors because they allow them to control the ownership of a property with small cash outlay. They are often used by speculators to control properties they believe they will rise in value by the expiration of the option period, allowing them to realize a quick profit by purchasing the property at the option price and reselling it at the higher price or by simply selling the option with a premium to a third party.
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