What is an Option Period?
What is an option period? This is a time frame that allows a buyer to determine whether or not they would like to purchase the property they have written a contract on without the fear of losing their earnest money deposit.
Say that you are purchasing a property for $200,000. You are pretty sure you want the house, but if there is something wrong that can’t be fixed or is too expensive to fix you don’t want to be obligated to go through with the purchase.
This is the time that will allow you to decide.
How long does it last and what do you do during this time? During this time, you will be able to have an inspection completed, termite inspection and any other type of inspection you feel necessary . You will be able to find out if any major repairs need to be made to the property and negotiate those repairs with the seller.
If something comes up that you find unacceptable , you have the option to cancel your contract with the seller. If you and the seller decide to negotiate on any terms regarding the repairs or problems that may be present, this is the time to do this. Make sure you are getting everything in writing before the deadline of the option period.
If you do cancel your contract during this time, you will be refunded your earnest monedy deposit in full.
Is the option fee refundable and how much is it? The option fee is non-refundable and is paid to the seller. This is an incentive for the seller to accept your contract and take the property off of active sale status. This will tell other real estate agents that there is a contract on the property, but that the contract is contingent upon the buyer exercising their option period.
There is not a set amount for an option fee. I have seen them for $25, $50 , $100 and much more. The seller has to agree to the amount and may want you to pay more. It also depends on the property price. But, it is usually a small amount to hold the property for the buyer while they makes a decision on whether to purchase or not. Remember that this is non-refundable, so if you decide to cancel the contract you will not get this money back, but you will be entitled to receive your earnest money deposit back in full.
Is there a deadline with an option period? Yes. The option fee is normally paid within a two day period to the seller unless otherwise stated in the contract. You also have the deadline of the option period itself. This can be 7 days, 10 days or whatever has been specified on the contract. Make sure that you and pay close attention to these deadlines. Not exercising them during the specified times can make this option void. Then you will be obligated to go through with your contract no matter what you find out about the property.
Do I have to utilize the option period? No. The option period is strictly voluntary. I believe that an option period is very important if you know little or nothing about the property you wish to buy. Again, it gives you the flexibility of walking away from the transaction if you feel it necessary without losing your earnest money deposit. This is the perfect time to get all of your inspections completed, find out things about the house and generally determine if the property is right for you.
Option periods are a good time to make important decisions about the property you wish to buy. It secures your ability to receive your earnest money deposit back, if you decide you are unable to or no longer wish to purchase the property. You don’t want to risk losing your earnest money deposit because a home inspection comes back with major problems. You want to be able to walk away if absolutely necessary and take your earnest money deposit with you.
What is Earnest Money?
When do you pay earnest money? The check is written at the time the contract offer is made. In Texas, the earnest money check is written to the title company that will provide the title insurance and handle the transaction. When all parties to the transaction (buyers and sellers) have agreed to all contract terms and signed or initialed where necessary and the contract has been executed, the earnest money check will be cashed and deposited with the title company in an escrow account. The money will be credited to the buyer at closing.
How much is the earnest money? Customarily, it’s 1% of the purchase amount but sometimes the buyer writes it for less. The higher the figure, the more impressed the seller will be when evaluating multiple offers.
What if you decide not to buy the house? Traditionally, you forfeit the earnest money if you decide not to buy but in Texas we have written into our contracts an “option period” clause that allows you a limited amount of time to withdraw your offer and get the earnest money back. Both parties and both agents must sign a release for the earnest money to be returned to either party.
What if there is a dispute about who should receive the earnest money when an offer is terminated? In Texas, the contracts suggest you first seek mediation before litigation.
