Massachusetts Real Estate License Practice Test

What does a tenant typically require to enter into an option agreement?

1. Complete ownership of the property

2. Upfront money as a deposit

3. A written lease agreement

4. An acknowledgment of the mortgage terms

The correct answer is: Upfront money as a deposit

In an option agreement, a tenant typically needs to provide upfront money as a deposit, which is referred to as an option fee. This fee is a key component of the agreement as it secures the tenant's right to purchase the property at a specified price within a designated timeframe. The payment not only demonstrates the tenant's serious intent to exercise the option but also compensates the property owner for taking the property off the market during the option period. This upfront money is usually non-refundable if the tenant decides not to proceed with the purchase, but it may be credited towards the purchase price if the option is exercised. Complete ownership of the property is not a requirement for entering an option agreement, as the tenant is simply seeking the right to purchase rather than owning the property outright. A written lease agreement, while potentially useful as part of the overall arrangement, is not strictly necessary to establish an option. An acknowledgment of the mortgage terms is more relevant to the seller’s responsibilities and less about the tenant’s needs to enter the agreement. Thus, the requirement for upfront money is fundamental in establishing the terms of an option agreement.