In the standard rhythm of a property transaction, we are accustomed to a “give and take” dynamic. You promise to sell your home, and I promise to buy it—this is a bilateral contract. However, the legal architecture of property law allows for a much more flexible, albeit “lopsided,” arrangement known as a unilateral contract. In a unilateral contract, only one party—the offeror—makes a legally binding promise to perform. The second party—the offeree—is under no obligation to do anything at all. However, if the offeree chooses to act upon the request, the offeror is then legally compelled to fulfill their end of the bargain. It is essentially a promise exchanged for an act, rather than a promise exchanged for another promise.
For many buyers eyeing a specific SFH or a developer looking to secure a strategic parcel, the unilateral contract is a tactical tool used to “freeze” a property in time without committing to a full purchase immediately. While a traditional RPA in real estate creates a mutual obligation, a unilateral agreement provides an exit ramp for one party while keeping the other firmly locked into the terms. Understanding this distinction is vital before you move a property to under contract status.
The Most Common Form: The Option to Purchase
The most frequent appearance of a unilateral contract in the residential market is the “Option to Purchase.” In this scenario, a seller provides a buyer the exclusive right to purchase their property at a fixed price within a specific timeframe (the option period). The buyer pays an “option fee” for this privilege.
From a legal standpoint, this is entirely one-sided. The seller is legally bound to sell the parcel if the buyer exercises the option. Conversely, the buyer can walk away for any reason—or no reason at all—losing only their option fee. This is a favorite strategy for investors who need time to check real estate comps or secure a POF (Proof of Funds) without the pressure of a looming closing date. Because the contract is unilateral, it does not become a bilateral PSA in real estate until the buyer officially “exercises” the option.
Unilateral Contracts in Real Estate Marketing
Another classic example is the “Open Listing.” In an open listing, a seller tells multiple brokers: “I will pay you a 3% commission if you are the one who brings me a buyer.”
- The Seller’s Promise: To pay a commission upon performance.
- The Broker’s Obligation: Zero. The broker is not required to market the home, spend money on photos, or even show the property.
The contract only becomes binding once a broker successfully performs the act of bringing a buyer. If a broker fails to find a buyer, the seller owes nothing. This differs from an “Exclusive Right to Sell,” which is a bilateral agreement where the agent promises to market the property and the seller promises to pay them regardless of who finds the buyer.
Underwriting and the Unilateral Risk
When a unilateral contract is eventually exercised, it moves into the hands of a lender’s underwriter. This is where things can get complicated. If an option was signed a year ago at a price that no longer matches current real estate comps, the underwriter may flag the deal. Banks are often wary of unilateral agreements that have been “sitting” because the market value of the SFH can fluctuate wildly during the option period. To satisfy the bank, the buyer may need to provide an updated T12 (for commercial units) or a fresh POF to prove they are still capable of executing the “act” they previously only had the option to perform.
Unilateral Contracts in Land Development and Plottage
For developers, unilateral contracts are essential for plottage in real estate. If a developer needs to combine five different parcels to build a shopping center, they cannot risk buying the first four only to have the fifth owner refuse to sell. Instead, the developer will enter into unilateral option contracts with all five owners. This allows the developer to spend money on soil tests and environmental reviews to ensure there is no latent defect. If the land is suitable, they exercise all five options simultaneously. If they find a latent defect on one parcel, they simply let the options expire and walk away, avoiding a catastrophic financial commitment.
The Path to the Settlement Statement
Even though the journey begins with a one-sided promise, every unilateral contract that is successfully performed ends at the same place: the settlement statement. Once the offeree performs the act, the contract becomes “executed.” The escrow officer will then treat the file like any other transaction, ensuring that TRID compliance is met and that the grantee receives a clear title. It is important to note that any “option fee” paid at the start of the unilateral contract is often credited toward the purchase price on the final settlement statement.
Conclusion: The Power of the “If”
A unilateral contract is the ultimate “if-then” statement of the real estate world. It provides flexibility for the buyer and a potential premium for the seller. However, because these contracts are one-sided, they must be drafted with extreme precision. A vague unilateral agreement can lead to years of litigation regarding whether the “performance” was actually met.
Before you enter into a unilateral agreement, consult with a professional to ensure your PSA in real estate covers all contingencies. Compare the proposed price against the latest real estate comps to ensure you aren’t overpaying for the “option” of waiting. If you are an investor, keep your POF updated so you can act the moment the market shifts. By mastering the unilateral contract, you gain a level of control over parcels that traditional bilateral contracts simply cannot offer.
