Facts: Mr. Smith gives Ms Jones a check for $5000 as option to purchase her land
ID: 1109526 • Letter: F
Question
Facts: Mr. Smith gives Ms Jones a check for $5000 as option to purchase her land located in Napa Valley - both parties sign the option to buy contract - Ms Jones accepts the check for $5000 as an option to buy her land. Ms Jones agreed to sell to Mr. Smith her 2 acre commercial lot for $300,000. Mr. Smith has 90 days to exercise his option to purchase Ms Jones property at her asking price of $300,000.
QUESTION: Assuming Mr. Smith decides to exercise his option to purchase the property from Ms. Jones during the 90 days - does that leave a balance owed to Ms. Jones of $295,000? Is the $5000 that Mr. Smith gave deducted from the agreed purchase price of $300.000.00? Explain your answer!
Explanation / Answer
No, the initital amount paid i.e. $5000 was the price to buy the option contract (call option) for the purchase of the land. This amount gave the right of choice to Mr. Smith to either buy the land or not to buy the land at a price of $300000 (within a span of 90 days) agreed upon previously.
Balance owed to Ms. Jones is still the same i.e. $300000.
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