Definition
A fee paid to the seller for the right to conduct inspections during the option period and terminate the contract for any reason. The fee is typically $100-$500 depending on property price.
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The option fee compensates the seller for taking the property off the market during the option period, during which the seller cannot accept backup offers. If the buyer terminates during the option period, the option fee is retained by the seller and the earnest money is returned to the buyer. The option fee is nonrefundable even if the deal closes.
Pro Tip
In competitive markets, offering a higher option fee can make your offer attractive while protecting your interests.
Example
A buyer pays a $300 option fee with their offer, securing the right to conduct a 10-day inspection period and terminate without penalty if issues are discovered; if they terminate, the $300 fee stays with the seller but their earnest money is returned.