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the stipulated price. See Estate of Franklin v. Commissioner, 64
T.C. at 763-764.
In an option contract, the seller agrees to hold an offer
open for a specified period of time. Old Harbor Native Corp. v.
Commissioner, supra at 201. It is clear that the prior approval
purchase contracts establish a specific time for an originator to
exercise its right to sell the mortgage to petitioner.
Petitioner granted an option for consideration. The
Sellers’ and Servicers’ Guide states:
A commitment fee of 2 percent of the amount of the
purchase contract must be submitted by the
[originator] with the executed purchase contract.
Three-fourths of the commitment fee is refundable on
the Freddie Mac funding date, when the mortgage,
meeting all of the terms of the purchase contract and
section 3803, is delivered to the applicable Freddie
Mac regional office on or before the delivery date
stated in the purchase contract.
When petitioner and an originator entered into a prior approval
purchase contract, petitioner was entitled to retain the 0.5-
percent nonrefundable portion of the commitment fee. This
nonrefundable portion of the commitment fee constitutes
consideration to petitioner for granting an option.
2. Economic Substance of the Option
An essential part of any option is that its potential value
to the optionee and its potential future detriment to the
optionor depends on the uncertainty of future events. An
optionee is willing to pay for potential future value, and the
optionor is willing to accept a potential future detriment for a
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