What characterizes an option agreement?

• A. Immediate performance is required
• B. No consideration is required
• C. Separate consideration is given to keep the offer open
• D. It is identical to a standing offer

Answer: (C)

An option agreement is a contract that gives someone the exclusive right to buy a property within a fixed period and at a set price, in exchange for separate consideration. The key feature is that the option creates a separate agreement that binds the owner to keep the offer open for the defined term, which is accomplished by the optionee providing consideration (often called option money). Because of this, the owner cannot revoke the offer during the option period, while the optionee then has the choice to exercise the option or let it expire.

This differs from a simple offer or a standing offer, where there isn’t necessarily separate consideration to keep the offer open, and immediate performance isn’t required unless the option is exercised. So the essential point is that separate consideration is given to keep the offer open, defining an option agreement.