An option (belonging to the broader category of real estate derivatives) that has a real estate price or index as underlying. Under the option contract, the seller sells the buyer the right, but not the obligation, to buy a property (real estate unit) during or by a specified period of time at a preset price. The buyer has the option to buy or not buy the property by during or by end of the holding period. Similar to other types of options, a real estate option may take the form of a call or put option.

A real estate call option is a contract on a specific unit of real estate that allows the buyer the exclusive right to buy the underlying property. During the holding period, the seller cannot sell the property to any other market participant. The buyer pays (a premium) for the option to buy the real estate as per the set terms and conditions of the contract. The option usually includes a predetermined purchase price and is only valid for a specified holding period such as 6 -12 months.

The real estate call option, however, does not make the buyer obligated to buy the property, while the seller remains obligated to sell to the buyer within the defined period or at its end, and as per the terms of the contract.

Historically, the New York Real Estate Securities Exchange began trading stocks and bonds in 1929, but the later plunge in real estate prices forced the SEC to intervene in 1941 where it stopped trading in real-estate related securities. In the last decade of the century, futures on residential and commercial real estate appeared on the markets (the London FOX property Futures Market). Later on, options and futures contracts on residential housing indexes for different cities, on a standalone and composite basis. Furthermore, different types of property indexes were introduced for real estate-based derivatives. However, lack of activity on exchanges was a major reason behind the unpopularity of this type of derivatives, so far.

Real estate options are also referred to as property options.