1. Option 1 can be adopted if the two brothers are the only legal heirs. In other words, if the brothers have any other sibling, sister/s, then the remaining sibling/s may challenge the Release/Relinquishment Deed.
2. Yes, the Khatha has to be in the name of the seller, before sale deed.
3. Option 2 can be followed even if there's an unfortunate incident between sale agreement and the registration of sale deed. In case of such a situation, the sale agreement can be reworked.
4. As rightly suggested by you, it's advisable to obtain mental health certificate to prevent future disputes, if any. You can contact NIMHANS for the same.
5. Before proceeding further, inspect the original documents, photo ID, aadhar card, certified family tree of the sellers, especially check if the sellers have any other sibling ( sister ).