How much should an option fee be?

Asked by: Addie Waelchi  |  Last update: February 10, 2026
Score: 4.7/5 (40 votes)

An option fee is typically a small, non-refundable fee (often $100 to $500, sometimes up to 1% of the price in competitive markets like Texas) paid for the exclusive right to inspect a property and cancel the contract within a set "option period," with the fee often credited to the price if the sale closes, but kept by the seller if the buyer walks away. The exact amount is negotiable, depending on market conditions, property value, and the length of the option period.

What is a typical option fee?

An option fee, typically around 1% of the purchase price, provides time to secure financing and conduct due diligence. Earnest money demonstrates the buyer's good faith and serious intent to complete the acquisition.

Is option fee negotiable?

Negotiable terms: The amount and terms of the option fee are negotiable between the buyer and the seller and should be clearly outlined in the contract. Time-bound: The option period is limited, and the duration is mutually agreed upon by both parties.

How do option fees work?

An Option Fee is a payment made by a buyer to a seller in exchange for the exclusive right to purchase a property within a specified time period under an option agreement. The fee compensates the seller for keeping the offer open and taking the property off the market during the option term.

Do you get your option fee back?

Option fees are almost always non-refundable, since they pay for the right to cancel the contract during the option period. However, if the sale closes, the fee is typically credited toward your total purchase costs.

The Difference Between Option Fee vs. Earnest Money

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Who keeps the option fee?

To secure this right, the buyer generally pays an option fee, which is usually non-refundable. If the buyer chooses not to purchase the property before the option period expires, the seller keeps the option fee and is free to sell the property to someone else.

What happens if you don't sell your options?

What will happen if an option holder does not exercise their right to sell before its expiration? If the option's strike price has not been reached by its expiration date, your brokerage will automatically close the deal and remove the option from your list of open positions.

Is a 1% brokerage fee high?

A 1% brokerage fee isn't universally high or low; it's a common rate for full-service financial management but high compared to low-cost index funds, so it depends on the services received, your portfolio size, and your investment goals. For comprehensive wealth management (advice, planning), 1% is standard, but for basic investing, you can find much lower fees, with some funds charging less than 0.25%. 

Is downpayment 20% or 25%?

Downpayment: 25% of the purchase price, with 5% payable in cash and the remaining 20% payable in cash or your CPF OA savings. Maximum loan amount: Up to 75% of bank valuation or purchase price (whichever is lower). Use of OA savings: You can set aside any amount of CPF and pay your bank housing loan with cash instead.

How much do you pay for an option?

Contracts are priced per share, so traders need to multiply an options contract's quoted price by 100 to determine the price of a single contract. For example, a call priced at $3.50 would cost the option buyer $350, but the premium paid for an option is typically a fraction of the underlying asset's price.

Is a 3% broker fee normal?

Yes, a 3% broker fee (often split between the buyer's and seller's agents) is historically normal and common in real estate transactions, though it's negotiable, especially with recent industry changes. While the total commission is often 5-6%, it's typically split into 2.5-3% for the seller's agent and 2.5-3% for the buyer's agent, with the seller traditionally paying, but now buyers can negotiate paying their own agent directly. 

What is the 80/20 rule for realtors?

The 80/20 rule (Pareto Principle) in real estate suggests that 80% of results come from 20% of efforts, applying to agents (20% of clients generate 80% of commissions), investors (20% of properties yield 80% of income), or buyers (a home meeting 80% of needs is a good fit). It's a strategy for focus, helping professionals identify high-impact activities like lead nurturing and efficient property management to maximize productivity and profitability.
 

What are the cons of using a buyer's agent?

The cons of using a buyer's agent

The biggest drawback to using a buyer's agent is paying their fee, which is generally between 1%-3% of the property value or a flat fee usually above $10,000. They may also charge extra for auction attendance. Another potential negative is hiring a poor-quality buyer's agent.

What is the 7% rule in real estate?

The "7% rule" in real estate typically refers to a quick screening guideline for rental properties, suggesting the gross annual rent should be at least 7% of the property's purchase price to indicate a potentially good investment. It's a simplified metric for cash flow, where a $100,000 property would aim for $7,000 in annual rent, but it doesn't replace detailed financial analysis, ignoring expenses like taxes, insurance, and vacancies. 

Is option fee refundable?

Option fee funds should not be confused with earnest money, which is generally refundable if the buyer timely terminates under the option paragraph, whereas the option fee is not refunded.

How much does an option agreement cost?

How much does an Option Agreement cost? The cost for a licensed solicitor to help with an Option Agreement is dependent on many factors including the complexity and specific requirements of the case. On average it is expected to range from £112-£149 but in some cases it could cost as much as £186.

Is a 10% downpayment okay?

Key Takeaways

Putting down at least 20% on a house is the wisest move—it keeps you from paying private mortgage insurance (PMI) and saves you thousands in interest over time. If you're a first-time home buyer, a 5–10% down payment is okay—but be ready for a higher monthly payment with PMI tacked on.

What is the 15 month rule?

As part of the property cooling measures introduced in September 2022 to promote sustainable conditions in the property market, private property owners need to wait 15 months after the disposal of their properties, before buying a non-subsidised HDB resale flat.

How to not pay 20% down payment?

Don't Have a 20% Down Payment? Check Out These Alternatives

  1. Consider a contingency. You might not have $40,000 lying around to make a 20% down payment on a $200,000 house. ...
  2. Underwater on your mortgage or a first-time homebuyer?
  3. Apply for an FHA loan. ...
  4. Look to city programs. ...
  5. Get a VA loan. ...
  6. Apply for a USDA loan.

What is the 7% rule in stock trading?

The 7% rule in stock trading is a risk management guideline that suggests selling a stock if its price drops about 7% to 8% below your purchase price, helping to cut losses quickly and prevent larger drawdowns, popularized by William O'Neil, who found quality stocks rarely fall more than this without fundamental issues, acting as an automatic stop-loss to protect capital and enforce discipline. 

Is 2% a good commission?

If you're selling a luxury home, a home in an area where the average market value is high, or a home with lots of upgrades, the agent stands to make a good commission even at 2%.

What does 12% brokers fee mean?

Percentage-Based Fees: Many brokers charge a percentage of the annual or monthly rent, often ranging from 8% to 15% of the yearly rent. For example, if the monthly rent is $2,000, and the broker charges 12% of the annual rent, the fee would be $2,880 (12% of $24,000).

What is the 3 5 7 rule in trading?

The 3-5-7 rule in trading is a risk management framework guiding traders to limit losses and control exposure: never risk more than 3% of capital on one trade, keep total open risk to under 5%, and aim for at least a 7% profit (or 7:1 reward-to-risk) on winning trades, fostering discipline, capital preservation, and better psychology.
 

What if I invested $1000 in S&P 500 10 years ago?

If you invested $1,000 in the S&P 500 ten years ago (around early 2016), your investment would have grown to roughly $3,300 to over $4,000 by late 2025/early 2026, depending on the exact date and if dividends were reinvested, representing a significant gain of over 200-300% and an average annual return of roughly 11-15%. This demonstrates steady wealth building, with figures varying slightly based on specific fund (like SPY or VOO) and inclusion of reinvested dividends, which significantly boost total returns over time. 

What is the 60/40 rule for options?

The 60/40 tax rule refers to Section 1256 contracts (like futures & some index options), where 60% of gains/losses are taxed at lower long-term capital gains rates and 40% at higher short-term rates, regardless of holding period, offering a tax advantage over standard equity options. Options for this rule involve trading these specific instruments (futures, broad-index options like SPX, etc.) and reporting them on Form 6781, then Schedule D, to take advantage of the blended, more favorable tax treatment.