What is an Option Period?
An Option Period is a specified number of days during which the buyer has the right to have the property inspected and can cancel the contract for any reason. The Option Period can be “bought” for a fee known as the Option Fee in which the amount can be negotiated between the buyer and seller.
Here’s what you need to know:
- Option Period is a number of days negotiated between the buyer and the seller.
- It occurs following execution of a purchase contract.
- The Option Fee can be applied towards closing cost if agreed upon.
- The Option Fee is usually given in the form of a personal check, either directly to the seller or to the seller’s agent.
- The Option Period may be extended by mutual agreement between the buyer and seller, but the seller can ask for an additional Option Fee.
- The Option Period is negotiable, but should be long enough to allow the property to be inspected and to negotiate repairs.
- The Option Period MUST be delivered to the seller within 3 days after the effective date of the contract or you will lose your right to back out during the Option Period.
- Notices regarding negotiation of repair items or termination must be given by 5:00 P.M. on the last day of the Option Period.
FAQ
Q. Do I have to have an Option Period?
A. No, an Option Period is not required if you are 100% sure that you want to purchase the property (typically seen with a land purchase). However, you can buy an Option Period and if inspections are done quickly and you would like to move forward, then you may decide to opt-out of the Option Period early. A buyer could ultimately close on the property sooner if this route is chosen. However, if the buyer wants to eliminate risk, and have the property properly inspected, it is best to stick to the negotiated Option Period.
Q. What processes should take place during my Option Period?
A. After you receive your inspection report, you and your buyer’s agent must list the repairs you or your lender require and send over an amendment to the listing agent. With FHA and VA loans, there are some repairs that sellers are required to fix by law. An experienced Realtor® will be able to advise on what are necessary repairs. In Sellers’ markets, its not wise to ask for a 10 page list of repairs. The seller knows that there are willing and able buyers waiting for the contract to fall through. And when that’s the case, a lot of times will refuse to make any repairs in the hopes that there is a better offer right around the corner. (Sellers have every right to refuse to make repairs!) Next, you and the seller, by way of your agents, will negotiate the amendment. Its also smart to start shopping for home insurance during this period.
Q. I am on the eighth day of my 10-day termination-option period, and the seller still hasn’t turned on the utilities to allow me to have the property inspected. The seller promised to have the utilities on next week, so I want to extend the termination-option period another 10 days. Will I have to pay another option fee even though the extension is because the seller breached the contract?
A. Yes and no. Everything is negotiable. If you choose to request an extension of the termination-option, then you should agree to offer something of value as consideration to the seller to ensure that the extension is legally enforceable. This is often done by paying an additional termination-option fee.
Q. Does a buyer have to complete the inspections before the option period is up?
A. No. However, in most cases, the buyer will want to complete the inspection within the option period in order to have the ability to terminate the contract if they are not satisfied with the condition of the property after the report is received or seller refuses to make lender required repairs.
Q. I know what day my termination option ends, but at what TIME on that day will it end?
A. According to the Texas Real Estate Commission, which has been recently revised, “The termination option ends at 5 p.m. local time to where the property is located”.
Q. Can my agent just mail the option check to the seller?
A. Yes, but the seller must receive the fee within 3 days after the effective date of the contract. Therefore, overnight delivery may be necessary to ensure that the buyer has a the option fee in hand.
Q. As the buyer, am I allowed to terminate during the option period even after the seller has started making repairs?
A. Yes. A buyer does not automatically give up the right to terminate the contract under the termination option when the seller agrees to make repairs. Your buyer’s agent has to give notice to the seller in order to opt-out of the Option Period, typically done on the amendment used to negotiate repairs. Otherwise, your option period ends on the day that the contract specifies.
HINT: Option Period is great security for buyers. A person can terminate the contract for ANY reason during this time period without risking earnest money.
Source: www.texasrealestate.com
Source: http://findrealaustin.com/real-tips/option-period-texas-real-estate-explained.htm/
Source: https://www.biggerpockets.com/blogs/977/7714-what-is-a-real-estate-option-period
To learn more about Option Period, contact a Triangle Realty team member! We’re always willing to help a client in any way.