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  • Option Money vs. Earnest Money

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    Limuel Macasaet
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    Option money is a separate payment made for an option contract that does not count toward the purchase price and is non-refundable if the buyer does not complete the sale. Earnest money, also called "arras", is a partial payment of the purchase price given to the seller to show sincere intent to buy and bind the agreement, and is refundable if the sale does not occur. Option money can become earnest money if both parties agree for it to count toward the purchase price.

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    Option money is a separate payment made for an option contract that does not count toward the purchase price and is non-refundable if the buyer does not complete the sale. Earnest money, also called "arras", is a partial payment of the purchase price given to the seller to show sincere intent to buy and bind the agreement, and is refundable if the sale does not occur. Option money can become earnest money if both parties agree for it to count toward the purchase price.

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    14 views1 page

    Option Money vs. Earnest Money

    Uploaded by

    Limuel Macasaet
    Option money is a separate payment made for an option contract that does not count toward the purchase price and is non-refundable if the buyer does not complete the sale. Earnest money, also called "arras", is a partial payment of the purchase price given to the seller to show sincere intent to buy and bind the agreement, and is refundable if the sale does not occur. Option money can become earnest money if both parties agree for it to count toward the purchase price.

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    OPTION MONEY VS.

    EARNEST MONEY
    What is an option money?
    - The distinct consideration in case of an option contract. It does not form part of
    the purchase price hence, it cannot be recovered if the buyer did not continue with the
    sale.

    When is payment considered option money? 


    - Payment is considered option money when it is given as a separate and distinct
    consideration from the purchase price. Consideration in an option contract may be
    anything or undertaking of value.

    What is an earnest money or “arras”?


    - This is the money given to the seller by the prospective buyer to show that the
    latter is truly interested in buying the property, and its aim is to bind the bargain.

    What is the effect of giving an earnest money?


    - It forms part of the purchase price which may be deducted from the total price.
    It also serves as a proof of the perfection of the contract of sale. 
    Note: Option money may become earnest money if the parties so agree. 

    When is payment considered an earnest money?


    - When the payment constitutes as part of the purchase price. Hence, in case
    when the sale did not happen, it must be returned to the prospective buyer.

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