Final answer:
An option agreement is a tool that allows developers to establish control over a site with a minimal upfront cost compared to an immediate purchase, providing time for due diligence and securing finances.
Step-by-step explanation:
An important tool for a developer to establish site control without the full cost of immediate purchase is an option agreement. This type of agreement grants the developer the exclusive right, but not the obligation, to purchase a property within a specified timeframe.
Typically, a developer will pay a non-refundable fee for this right, which is usually significantly less than the full purchase price of the property. The option agreement allows the developer time to conduct due diligence, secure financing, and obtain necessary permits and approvals before deciding to proceed with the full purchase.
Having site control through an option agreement is beneficial because it minimizes upfront capital outlay and reduces financial risk while a project's feasibility is assessed. If the developer decides to move forward with the purchase, the option fee is often credited towards the purchase price.
However, if the developer chooses not to purchase the property after the option period, the fee is forfeited to the property owner as compensation for keeping the property off the market during the option period.