PSI New Jersey Real Estate State Practice Exam

In general, how must option contracts be documented?

1. Must be verbal agreements

2. Must be in writing

3. Can be informal notes

4. Can be implied from actions

The correct answer is: Must be in writing

Option contracts must be in writing to be enforceable, as they are essentially agreements that provide a buyer with the right to purchase a property at a predetermined price within a specified timeframe. This requirement stems from the Statute of Frauds, which aims to prevent disputes and misunderstandings by ensuring that certain types of agreements, including real estate contracts, are documented clearly and formally. Having an option contract in writing protects both parties by providing a clear record of the terms and conditions of the option, which helps to avoid conflicts regarding each party's rights and obligations. A written contract serves as tangible evidence that can be referenced if any legal issues arise. Verbal agreements, informal notes, or implied contracts can lead to ambiguity and misunderstandings about the terms, making it difficult to enforce the agreement legally. Thus, maintaining formality with written documentation is crucial in real estate transactions to uphold clarity and enforceability.