Optionee

Key Takeaways

• The optionee holds the right created by an option, and the optionor is the owner who granted it.
• An option binds only one side. The owner must sell on the agreed terms if the option is exercised, and the holder never has to buy.
• Option money buys the right itself. Whether it also applies to the purchase price depends entirely on what the option contract says.
• A recorded option clouds the owner's title, and under RCW 65.08.070 an unrecorded interest can lose to a later purchaser in good faith and for value whose conveyance is recorded first.

What It Means

The optionee is the party holding an option, which is the contract right to buy, lease, or otherwise take a property at a set price during a set window. The owner who grants that right is the optionor. Only the optionor is locked in. For the length of the option the owner must honor the agreed price if the holder says yes, and the holder is free to say nothing at all and let the window close.

That one sided structure is the entire point. A builder, an investor, or a business tenant often needs time before committing: time to price the work, clear a permit, or line up financing. Paying for an option converts that waiting period into a contract right instead of a hope.

The price of the option is separate from the price of the property. Option money is Consideration for the right, and it is at risk the moment the holder decides to walk. If the holder does exercise, the option converts into a binding sale and the parties move on to a Purchase And Sale Agreement or straight to closing on terms the option already fixed. A Lease Option runs the same logic inside a lease. Either way the paperwork decides the outcome, which is why an option belongs in a broker's contract review routine.

How It Works in Washington

Washington treats an option on real property as an interest in land rather than a casual promise. RCW 64.04.010 requires every conveyance of real estate, or any interest in it, and every contract creating or evidencing an encumbrance upon real estate, to be by deed. A Washington option is therefore a signed written instrument, not a verbal understanding.

The bigger practical issue is what the option does to the owner's title. RCW 65.08.060 defines a conveyance for recording purposes as every written instrument by which any estate or interest in real property is created, transferred, mortgaged, or assigned, or by which the title to any real property may be affected. A written option affects title, so it can be recorded, and a recorded option surfaces on the next title search as an Encumbrance that has to be resolved before the owner can transfer to anyone other than the holder. That is the cloud on title the course warns about.

Recording protects the optionee, and RCW 65.08.070 explains why. An unrecorded conveyance is void as against a subsequent purchaser or mortgagee in good faith and for valuable consideration from the same vendor whose conveyance is recorded first. An optionee who leaves the option in a desk drawer can lose the property to a buyer who never knew it existed. Commercial deals lean on options constantly, as our look at commercial lease structures shows.

Example

Sound Ridge Builders pays Grace Whitfield $12,000 for a 12 month option to buy her five acre Snohomish County parcel at $650,000. Sound Ridge is the optionee, Grace is the optionor, and the option states that the $12,000 applies to the price if Sound Ridge exercises. Sound Ridge records a memorandum of the option that same week.

In month seven the county approves the short plat. Sound Ridge delivers written notice of exercise, and the arrangement becomes a binding sale at $650,000 with $638,000 still due at closing. Grace has no say in it now, because she took the $12,000 for exactly that commitment.

Run the other ending. The county denies the plat in month four. Sound Ridge does nothing, the option expires at month 12, and its whole loss is the $12,000. Grace keeps the money and the land, but she also spent a year unable to sell to anyone else, because the recorded option sat on her title the entire time.

Common Mistakes and Exam Traps

• The suffixes follow the familiar pattern. The optionee receives the right and the optionor grants it, the same way a lessee receives and a lessor grants.
• An option is not a purchase and sale agreement. Both parties are bound in a purchase and sale agreement, while an option binds only the owner until the holder exercises.
• Option money is not earnest money. Earnest money secures a sale both sides have already agreed to make, while option money buys the right to decide later.
• A right of first refusal is not an option. A refusal right activates only when the owner decides to sell and receives an offer, while an option can be exercised whenever the holder chooses inside the window.