From the Legal Hotline: What Happens to the Option Fee for Buyers in Backup Positions?

We often get asked about the option fee with a “back-up” contract. If buyers submit a backup offer and pay sellers an option fee, do the buyers get their option fee back if they never become the first contract? The answer is no. The sellers keep the option fee even when the first contract doesn’t fall through. By paying the option fee with a backup contract, the buyers pay for the right to terminate the contract even during the backup period. The buyers are not entitled to a refund of the option fee simply because they chose not to exercise the termination option. David Jones, associate counsel