Not everyone is ready to begin escrow right away. Sometimes a buyer elects to preserve their contractual right to purchase a home rather than obligate themselves to actually purchase the property. In these instances the buyer creates a future right to purchase via an option to purchase or preemptive right.
An option to purchase contract obligates the homeowner to sell their home to the buyer if the buyer,within an agreed upon period of time, exercises their right to purchase the home. In essence, an option to purchase contract makes the seller's offer to sell irrevocable for a period of time. During this period of time the buyer can accept this irrevocable offer and thereby create a sale agreement. Alternatively, the buyer can choose to not exercise their contractual right to accept as they have no obligation to purchase the property as a buyer would in a sale agreement. To form an option to purchase agreement the buyer must give consideration to the seller (ie. some type of bargained for exchange), normally represented as monetary payment to the seller.
The prospective buyer does not have to enter into an option to purchase contract to preserve their right to buy a home. A prospective buyer can create a preemptive purchase right by creating a right of first refusal. A prospective buyer with a right of first refusal is given the right to match any third party offers the seller is willing to accept. For example, if a seller is willing to accept 500k from a third party the seller must give the prospective buyer with a right of first refusal the opportunity to match the 500k offer. Alternative, a prospective buyer can preserve their ability to purchase the home before anyone else with a right of first offer. The right of first offer forces the seller to offer the property to the prospective buyer before anyone else. If the prospective buyer does not accept the seller cannot drop the price and sell to someone else; they have to sell the property on the same or better terms than what was offered to the prospective buyer with a right of first offer.
