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Option Fee Risk Calculator
Option fees buy termination right but are non-refundable. This calculator sizes trade-off.
Expected value of option
$1,750
Expected walk savings
$6,750
Option fee cost
$5,000
How the math works
Expected savings = walk probability × loss if forced to buy. EV = savings − option fee.
Option fees are cheap relative to the flexibility they buy. A $5k non-refundable option fee protects against a 15% chance of $45k losses — $6.75k expected value vs $5k cost. This math almost always favors buying the option when seller offers it.
How to Use
- Enter option fee amount.
- Enter purchase price.
- Enter probability of walk.
- Enter alternative deal loss if fail.
- Read expected value of option.
Frequently Asked Questions
Option vs contingency?
Contingency: buyer can walk for cause. Option fee: buyer can walk for any reason during option period. Option fee typically 0.1-0.5% of purchase, non-refundable. Common in Texas; rarer elsewhere (effectively a paid termination right).
When to use?
Hot markets where seller won't accept contingencies. Buyer needs diligence time but has competition. Option period 7-30 days typical. Cost pays for the optionality — skip if contingency feasible.
Negotiation?
Larger option fees (above $10k) negotiable. Shorter option period (7 days) typical for clean deals. Longer (30+ days) for complex assets. Each extra day of option = additional fee typically $250-2000.
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