Question

17. A buyer wants to buy a parcel of land but only if he can get the zoning changed. He is able to place a $10,000 deposit on the purchase agreement subject to obtaining a change in the zoning or purchase a 90-day option by paying a $10,000 option fee. Which of the following is true regarding the buyer's choices?

Answer 1

The buyer's risk exposure is higher with the $10,000 deposit on the purchase agreement than with the $10,000 option fee for a 90-day option.

Step-by-step explanation:

When considering the buyer's options, the $10,000 deposit on the purchase agreement poses a higher risk compared to the $10,000 option fee for a 90-day option. With the deposit on the purchase agreement, the buyer commits to the purchase subject to obtaining a change in zoning. If the zoning change doesn't materialize, the buyer might lose the deposit. However, the 90-day option provides the buyer the right to purchase the land within a specified period.

If the zoning change doesn't occur within that time frame or if the buyer decides not to proceed, they can walk away without completing the purchase, forfeiting only the option fee. Essentially, the option fee limits the buyer's risk exposure, offering more flexibility and a lower financial risk compared to the non-refundable deposit on the purchase agreement.