What is the Option Period?
Within our multi-part series Blog ‘Austin, Texas Real Estate Explained’ we will attempt to highlight certain areas within the Residential Contract and home buying/selling process in hopes to provide some valuable insight into the Austin Real Estate industry.
According to the Texas Real Estate Commission (TREC) One –to-Four Family Residential Resale Contract – the Option Period is the Seller, and Buyer’s agreement to pay Seller (X-number of dollars) within 3 days after the effective date of the contract, Seller [then] grants Buyer the unrestricted right to terminate this contract by giving notice of termination to Seller within (X-number of days) after the effective date of [the] contract.
Essentially, this means that the Buyer pays the Seller a certain amount of money (more on this later) to have the unrestricted right to purchase the property. The time limit on the Option Period is negotiable. Usually it’s about 10 days. But in the Austin, Texas Real Estate market, I am seeing that 7 days is become more common.
The amount of money paid to the Seller is also negotiable. In the past we have seen the rage of about $10-20 per day for the Option Period. Again, in the current Austin, Texas Real Estate market this dollar amount can be a great negotiating tool to entice a Seller to choose your contract over another, say during multiple offer situations.
What Happens During the Option Period?
Typically, the Option Period is used to get the home Inspected by a licensed Home Inspector. A Buyer may also use this time to research the home and/or and ask the Seller any pertinent questions pertaining to the home.
Once the Inspector sends the Buyer their Inspection Report the Buyer may choose to invite their Contractors and/or Tradesmen to provide estimates for repairs or remodeling. At this point the Buyer and Seller will begin to negotiate for repairs.
This round of negotiations can also include a variety of changes to the contract – closing date, contract amount, Seller required repairs. These changes along with adding addenda’s to include Non-realty Items can make the contract look much differently in the end. When negotiating repairs the Buyer may elect to terminate the Option Period as consideration for the Seller to accept the new terms.
FAQ: Option Period & Fees
I am a Buyer, can I get my Option Fee refunded back to me if I decide not to go through with the home purchase?
Typically, no. The Option Fee is a non-refundable fee paid to a Seller to provide the Buyer with the unrestricted right to purchase the home for a negotiated amount of days; the Option Period. However, this fee can be credited to the Buyer at closing if negotiated properly.
How do I calculate when the Option Periods ends?
This is always a little tricky for everyone! I thought Texas Association of Realtors® (TAR) did a great job of explaining it, so here you go!
“Since Paragraph 23, the Termination Option Paragraph, uses the word within when describing the time period, Day One of the option period is the day after the effective date of the contract. For example, if [a Buyer’s] effective date is January 22 with a 10-day option period, the option period will end on February 1. If [the Buyer] wishes to terminate under the Termination Option Paragraph, [the Buyer] must provide notice to the Seller by 5 p.m. local time where the property is located on February 1.” – TAR
I know what date my Option Period ends on, but at what time does it end?
According to TREC, “the termination option ends at 5 p.m. local time to where the property is located (effective January 1, 2016).”
I’m a Buyer and I just put a back-up contract on a home with a 7-day Option Period. How do I calculate when my Option Period begins?
According to TAR, “you have the option to terminate at any time while you’re in the back-up position.” So there is a built-in Option Period right away.
Moreover, Paragraph 23 of the Resale Contract states that the Option Period begins once the Contract is effective (or Executed). It is interpreted by TAR that the Option Period “doesn’t start until your contract becomes the primary contract, which is the date you receive notice from the seller of the termination of the first contract.”
Ubiquitous Legal Disclaimer: The material provided here is for informational purposes only and is not intended and should not be considered as legal advice for your particular matter. You should contact your attorney to obtain advice with respect to any particular issue or problem. Applicability of the legal principles discussed in this material may differ substantially in individual situations.