California Real Estate Salesperson Exam Practice - Quesiton 19

Question

A cautious buyer paid $200 for a four-month option to purchase a property for $30,000. Under these circumstances, each of the following are true except:

Selections

A. Optionee has given adequate consideration

B. Optionee has created a legal interest in the property

C. Optionor's temporary surrender of right to sell is "valuable" consideration

D. The agreement imposes no obligation on the optionee to purchase the property

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Answer: B

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5 Keys Summary

• Optionee has not created a legal interest in the property because an option grants a contractual right to purchase, but it does not convey actual legal title or immediate ownership interests in the real property itself.

• During the option period, the optionee (buyer) typically has no right to possession or use of the property.

• The agreement imposes no obligation on the optionee to purchase the property, as an option is a unilateral contract that grants a right without the obligation to buy.

• The $200 paid constitutes adequate consideration because consideration for an option does not need to be a large amount; it must only be legally sufficient, and a nominal amount is acceptable.

• The optionor's temporary surrender of the right to sell is valuable consideration, as the seller is obligated to hold the option open and cannot sell the property to any other buyer during the designated period.

Explanations

A. Optionee has given adequate consideration: This statement is true. Consideration for an option contract can be as little as five cents. The $200 paid by the optionee is more than sufficient to constitute adequate consideration.

B. Optionee has created a legal interest in the property: This statement is false. During the option period, the optionee (buyer) does not have the right of use or possession of the property. An option grants a right to purchase, but it does not convey ownership interests or possessory rights in the property itself. The optionee holds a contractual right to decide whether to purchase, but not an actual legal title or immediate ownership interest in the real property.

C. Optionor's temporary surrender of right to sell is "valuable" consideration: This statement is true. In exchange for the consideration, the optionor (seller) is obligated to "hold the option open" and cannot sell the property to any other buyer during the designated period. This restriction on the optionor's ability to sell to others is a valuable part of the agreement for the optionee.

D. The agreement imposes no obligation on the optionee to purchase the property: This statement is true. An option grants a "right without the obligation" to lease or purchase a property. The optionee has "no legal responsibility to actually complete the purchase of the property at the end of the term".

Concepts Definitions

Option: A contract granting a right, without the obligation, to lease or purchase a property under specified terms during a specified period. It must be in writing to be valid.

Optionor: The party who gives or sells the option (typically the seller). The optionor is obligated to keep the offer open during the option period.

Optionee: The party who receives or acquires the option (typically the buyer).

Consideration: Something of value exchanged by each party to induce them to enter into a contract; it must be legally sufficient. For an option, this can be a small monetary payment.

Legal Interest in Property: An option typically does not grant the optionee possessory rights or legal title to the property during the option period; it provides a contractual right to acquire such an interest in the future if the option is exercised.