In a real estate option contract where the option holder provides $5 as consideration, what is the effect?

• A. No, $5 is insufficient consideration.
• B. Yes. The option is valid because $5 can constitute consideration.
• C. No, consideration is not required for options.
• D. Yes, but only if the property is residential.

Answer: (B)

A real estate option contract requires some consideration to be enforceable, but the amount does not have to reflect the property's value. Even a nominal amount, like $5, can satisfy the requirement if it is part of a bargained-for exchange.

Providing $5 as consideration means the optionor is giving up something in exchange for keeping the offer open for a set period, giving the optionee the right to buy under the stated terms during that time. This makes the option a binding contract for the duration specified.

So, the option is valid because a small amount can constitute valid consideration. The other statements are incorrect because consideration is required for options, the amount need not be large, and it isn’t restricted to residential properties.