What is a call option?

A call option simply refers to a clause in real estate agreements which gives the potential buyer (“grantee”) the right or option of compelling the property owner (“grantor”) to sell the property to the grantee at a price already agreed. It is the opposite of a put option.

The call option is usually inserted into written agreements between the buyer and the seller to protect the buyer while inquiries are being made on the property. It gives the grantee the guarantee that the property will not be snatched by other buyers and the time to conduct relevant searches on the property.

Inserting a call option into an agreement comes with an “option fee”. This is the consideration of money given to the grantor for closing the window for other interested buyers. A call option fee may be a percentage of the agreed purchase price. Also, a call option is usually set to be exercisable within a specific period of time. Once the time limit expires and there is no room for extension in the agreement or consent of the seller to extend, the call option may not be honored.

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