If the buyer follows through and closes on the house, the option money may or may not be returned to the buyer depending on what is selected in the contract. When calculating deadlines for my buyer in the One to Four Family Residential Contract (Resale), should I include weekend days or federal holidays? In general, the shorter your option period, the more attractive your offer is to the seller. 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. The purpose of this grant is to improve educator quality and effectiveness by offering financial support to educator preparation programs that would like to explore and/or pilot an educator certification assessment that is performance-based, content-specific, and grade-band specific in the form of funds for the purchase of exam vouchers. In Texas, a typical option period is around 10 days and the typical option fee is about $10.00 to $30.00 per day. What is a Kick-Out Clause, and How Can You Avoid It? It means you can back out of the purchase if youve discovered something ugly or move forward with a home thats been held for you during your decision-making. An option period is a contractual term that gives the buyer an agreed-upon period to weigh their options before making a binding decision. The three most common things that happen during this period include: A home inspection is a thorough examination of a home by a licensed home inspector. In Texas, a typical option period is around 10 days and the typical option fee is about $10.00 to $30.00 per day. Unless the contract states otherwise, earnest money is due within 3 days of the contracts Effective Date. Another point of security is that the seller cannot make any other deals during the option period. Unfortunately, if youre trying to buy a home in a competitive real estate market, you may have to forfeit your request for things like a home inspection if you want a seller to accept your offer. If your client's ability to perform under a contract (i.e., close the transaction) is contingent upon the closing of another property, the Addendum for Sale of Other Property by Buyer (TAR 1908, TREC 10-6) should be made part of the contract. Earnest money is refundable, and its paid to the escrow agent to hold in escrow, not to the seller. I wont ignore potential defects that can cost you money, or effect your resale value, in the future. The buyer and seller are still negotiating repairs and want to extend the option period. Earnest money is one of many important aspects of a Texas real estate transaction. Better Business Bureau. The chief benefit of the option period is it allows the homebuyer time to determine if they want to move forward with the purchase. Theyll help you understand any concerns or necessary repairs so you can address them with the seller before finalizing your purchase contract., Buying a home is a huge investment and your home inspector is an invaluable member of your team. Youll want to strike a balance by making sure you have enough time to get the information you need, while also finalizing the deal as soon as possible to give the seller the certainty they crave. (During this time, the Seller cannot back out of the contractonly the Buyer has that right.). This is where an option period becomes key even if your choice is to back out of a sale, youll feel better having decided that on your timeline. With so many contingencies, communications, and deadlines to manage in even a simple real estate transaction, its easy for real estate agents to get overwhelmed. If the seller does not fix objections within 15 days, the contract is terminated and the earnest money is returned to the buyer. As mentioned, the option starts the day after the contract is executed and ends on the date specified in the contract. Travis county: Home to Austin, Texas' capital, and is situated in south central Texas. Amanda operates under the brokerage of Coldwell Banker Realty. Very important! There is no official TREC release of earnest money form. Call Me 832-939-1701. The buyer can make an offer to the seller requesting to extend the option period with additional compensation. The earnest money deposit is paid to the escrow agent after the purchase agreement is executed and signed by both parties but before three days have passed. Often times the renegotiation will include having the seller make the repairs or concessions based on items found in the home inspection. Extensive case law in Texas suggests that the buyer must offer something of value to the seller to ensure that the extension is legally enforceable. For additional consideration, the Option Period may be extended by the buyer for an agreed-upon number of days. HomeLight, Inc. 100 1st Street, Suite 2600, San Francisco, CA 94105. You will not post any defamatory, discriminatory, libelous, threatening, vulgar, sexually explicit, abusive, profane, rude, or obscene content (including comments); b. Before inspections, you may fear the state of the home or the sellers willingness to negotiate repairs if the home needs serious work. Make sure you ask your agent about the consequences if you plan to waive any contingencies to strengthen your offer! You (the buyer) and the seller agree on the length of the option period as one of the terms in your contract. Remember that earnest money is credited toward closing costs and the down payment at closing. However, Sheila Cox and Keller Williams assumes no liability or damages due to typos, errors or omissions. There is not a predefined requirement for how much a buyer must pay for the option period in Texas; however, it typically ranges between $100 to $200. Having a strong case for extension, such as needing additional time for a specialty inspection, is a good negotiation tool. The Option Fee is given (hand-delivered or mailed) to the seller (or seller's agent) at the beginning of the contract period. Even though the seller can take a backup offer, they cannot sell the property to another buyer when the listing status is not active. These numbers come from journalists parsing data from across the United States, and they say Texas is one of the most expensive places to divorce. How much will my fixed rate mortgage payment be? In fact, some modestly priced homes only include option fees of $100. They won't, however, get their option fee back. You may need to pay a secondary option fee to get the seller to concede. Whichever name is used, know that its referring to the same thing: a finite period of time designed to give you peace of mind as a homebuyer. A seller with multiple offers wants the best price in the shortest amount of time. I'm always here to help! At closing, the earnest money deposit is credited toward closing costs and/or the down payment. Note that the inspection contingency is frequently waived in hot markets. An option period can be extended if the seller agrees. The option period is a good time to negotiate these repairs, otherwise closing may be an afterthought. The applicability of the legal principles discussed in this material may differ substantially in individual situations. In a hectic, fast-paced, and emotionally overwhelming market, this time gives the buyer space to breathe and evaluate both the condition of the home and the costs of moving forward. In a perfect world, the information you gather in the option period makes you more confident about moving forward. In summary, the Option period gives you time to have the home thoroughly inspected and find any defects that you cannot live with. While this period can last anywhere from a few days to a few weeks, Redfin reports that a typical option period is between one and two weeks long.. It also allows time to negotiate repairs with the Seller. It is almost like an undo button. Yes. Since Paragraph 5A, the Delivery of Earnest Money and Option Fee 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. Find a top real estate agent in your area to help you buy your dream home. Austin has a median home price of $656,000 thats $6,500 to $13,000 to put down 1-2% as a good faith deposit! How long will it take to pay off my credit card? I will help you narrow your options and find the best neighborhood for you based on your specifications. For example, states such as North Carolina and Georgia have a due diligence period that works in a similar way. If the buyer chooses to terminate the contract during the option period, the seller has the right to keep the amount paid for the option period. Generally, the option provides the buyer time to do their due diligence on the property. Usually on the contract you have 7 to 10 days to complete the inspection. In fact, during the option period you can terminate the contract for any reason. Excess screen time can lead to exhaustion and stress. It can be found in paragraph 23 in the One to Four Family Residential Contract promulgated by the Texas Real Estate Commission (TREC), as seen below. For first time buyers, its often a confusing element and a possible hurdle to buying a home. But when you make a Homeward Cash Offer, you can have both. Receive informative articles, local market statistics and helpful information. Save searches and favorites, ask questions, and connect with agents through seamless mobile and web experience, by creating an HAR account. It also compensates the seller for their time as you do your due diligence on the house. However, there's an extension when the deadline is on a weekend or holiday. The option period is a good time to take a breath and review any contingencies before taking the final plunge. a. Once the inspection is complete and the licensed inspector provides the buyer with the report, the buyer can make a decision to move forward with the purchase, renegotiate the contract, or terminate altogether. The standard contract now states: Within 3 days after the Effective Date, Buyer must deliver $__ earnest money to __, as escrow agent, at __.. Yes as long as the contract has a financing contingency. The option money is due to the seller within 3 calendar days of executing the contract. Im your transaction manager and will guide you, step-by-step, through the process so you never miss an important deadline. If you do not exercise your option (and continue the purchasing process), then the option fee is usually applied toward your closing costs. I'm a home buyer considering using Homeward, I'm a real estate agent representing a customer, a typical option period is between one and two weeks long, assess the fair market value of your potential home, Affiliated Business Arrangement Disclosure. The buyer can request this form be signed if they wish to back out with cause or if the seller has defaulted on the contract. For real estate agents and transaction coordinators, its one of many details to oversee that can delay closing or even cause a deal to fall apart. It works the same way with either program:, Traditionally, homebuyers have had to choose between moving quickly and having peace of mind. TREC and TAR contracts use calendar days, not business days. After the inspection, your home inspector will issue a detailed report on the condition of your new home. What Is an Option Fee? But dont be confused the fee is also a win for buyers whether or not they back out! The term option period is specific to Texas. Extensive case law in Texas suggests a termination-option period cannot be extended without an additional option fee, so a buyer should pay another option fee to reliably extend the option period. Keep in mind that the seller keeps the option money if the buyer backs out of the contract. If you exercise your option (and decline purchasing the home), then you lose your option fee ($200-500), but you get your 1% earnest money back. If the buyer opts to renegotiate the contract, they send the amended contract to the listing agent to discuss it with the seller. Connect with a top agent to find your dream home. That the lot appraise at the purchase price (if you are buying cash) The Texas Real Estate Option Period: If a buyer decides that he/she wants the Option Period written into a real estate contract, it is usedsolely to have the option to exercise the right to terminate the contract for any reason whatsoever without risking the earnest money deposit. If the buyer decides to back out of the sale after the option period because of a low appraisal (and the lender will not lend what is needed to purchase the property) or a financing issue, and the appraisal and financing contingencies have not been released, the buyer will still lose the option fee, but will be refunded their earnest money deposit. (Download my Ultimate Sugar Land Guide), Great DataI will give you the most in-depth data you have ever seento help you make the wisest decisions. Killeen, TX 76549, Gatesville, Harker Heights, Temple, Nolanville, Killeen, Belton, Salado, Copperas Cove, Lampasas, Kempner, McGregor, Valley Mills, Lorena, Woodway, and Evant. With so many contingencies, communications, and deadlines to manage in even a simple real estate transaction, its easy for real estate agents to get overwhelmed. Im on your side because Im YOUR agent. Putting down too little or forgoing the good faith deposit entirely can even be insulting to a seller or make them think the buyer isnt serious or financially secure. An active option contract means the seller has accepted an offer to sell their property. Ideally, you want to have the home thoroughly inspected and the purchase contract reviewed by a real estate attorney before you sign anything. If you dont know what you want, the line disappears too quickly. If for some reason you need to extend the option period, youll pay an additional fee. Any and all inspections that you want to have done to the home must happen before the end of the Option period. There are a few items to consider when negotiating the timeframe: You can skip the option period, and thats another way to make your offer appealing. Once it is received, the earnest money will be released back to the buyer. I can filter out , Accurately pricing a home takes more than a three-minute look at current sales numbers by a computer algorithm. Earnest money in Texas is a seemingly simple line item, but failure to meet specific deadlines can easily cause a deal to fall apart or worse lead to a buyer losing their earnest money or even facing damages. For example, if the contract effective date is March 1, the option fee must be paid by 11:59 p.m. March 4. You may be unfamiliar with the term option period, which is understandable as the phrase is specific to the Lone Star State. This fee makes the option period more worth a sellers time. In Massachusetts, the contingency date is 17 days after acceptance (acceptance referring to the day that the buyer and seller agreed on terms for the contingency period). Because there are drawbacks to using a check, including a potential waiting period for the money to clear, you should know how to pay earnest money without a check. Traditionally, the option fee was paid to the seller. Earnest money is money put down as a deposit with a Texas real estate purchase agreement. Be sure to carefully read the language of the contract. If youd like more information regarding the Texas option period I would love to hear from you. If not, they'll face little to no penalty, says Katie Collins, Customer Experience Manager at Homeward. If the market is very competitive, a higher earnest money percentage may be warranted to make your offer more attractive. Im looking out for you every step of the way and keeping my eye on the listing agent, the seller, the builder (if applicable), the lender, the inspector, and the title company. If neither are willing or able to do this, the contract can usually be terminated under the standard property approval contingency which requires the lender accept the property and its appraisal. The option period starts the day AFTER the contract is executed. The buyer must make a decision no later than 5pm local time of the property. The median home price in Texas is $420,000. For example, all parties execute the contract on June 2nd. Typical contingencies for land purchases include: That the buyer can obtain suitable financing typically within 30 days, or longer if you are using a construction loan to finance both the land and construction. Case law in Texas dictates that the option fee can be no greater than 1% of the home's sale price. Think of it like home-purchase insurance for the buyer. The length of the option period and the option fee are negotiable between the buyer and the seller. There is often a nonrefundable option fee (typically around $100) paid by the buyer that is usually applied to closing costs if the buyer decides to move forward with the purchase. The earnest money you deposit shows that you have skin in the game too. This is the same deadline as the earnest money deposit. As one, Transaction coordinators play an important role in the real estate industry. You are allowed to back out of the contract for any reason during your option period but you will lose your option fee to the seller. The buyer may back out of the purchase of the home. The length of the option period is negotiable and it may be as short as 5 days. This is because it offers the buyers the security of being able to back out after signing the purchase contract. Hows the Market in Sugar Land?, Texas Real Estate Commissions Information About Brokerage Services (click here), Consumer Protection Notice (click here), Agent: Sheila Cox, Realtor Since Paragraph 5A, the Delivery of Earnest Money and Option Fee Paragraph, uses the word withinwhen describing the time period, Day One of the option period is the day after the effective date of the contract. Thank you! Theres going to be multiple offers, and to be the best, you need to move rapidly, Bacak shares. An accepted contract is just the beginning. If the transaction doesnt close and the deal falls through, do you get your earnest money back? No representations or warranties, either expressed or implied, are made to the accuracy of the information herein, or with the respect to suitability, usability, feasibility, merchantability, or condition of any property or neighborhood herein. If the buyer in this situation chooses to request an extension of the termination-option period instead of exercising the default remedies available to him in the contract, then he must agree to offer something of value as consideration to the seller to ensure that the extension is legally enforceable. Gain access to our suite of customizable marketing assets for agents. Earnest money contracts are also called option contracts for this reason. Rachel Leigh Gross is a freelance writer and editor based in Providence, Rhode Island. The buyer can take advantage of this option to complete a few checks for their peace of mind. At the end of the Option Period (and the timing is very strict) you can do one of the following: Make sure you hire a real estate agent who knows how to properly handle Option Periods and protect your money. Oops! Leaving it blank or putting zero dollars may lead to an unenforceable amendment. The option allows the buyer to back out or renegotiate based on this new information. How much earnest money is required in Texas? The buyer also has the option to ask the seller to make repairs or reduce the purchase price. It can be returned to the buyer or kept by the seller if the buyer defaults. 6 of the Top We Buy Houses for Cash Companies in Kissimmee, What to Do When You Cant Afford Home Repairs and Need Help, 18 House Hunting Tips From Real Estate Experts, 5 of the Top We Buy Houses for Cash Companies in Amarillo, terminate the sale at any point during the allotted time, "5 Steps to Optimize Your Home Buyers Option Period," Stonebriar Property Inspections (June 2021), "Option Period," Legacy Texas Title (May 2021), "What is an Option Fee in Real Estate?," Close Concierge (July 2021), "Hot Markets, Cool Practices," Texas Real Estate Center (August 2021), "How to Deal With Inspection Reports Provided to a Seller," Texas Real Estate Commission (May 2019), Final negotiated terms between buyer and seller. The average option fees range from $100 to $500 - depending on the terms of the contract, where the property is located, and the number of days in the option period. Its a sign of good faith that a buyer intends to follow through with their offer and purchase the property. As a buyer, its important to understand when and how you can back out of a contract and keep your earnest money. The option period ends at 5 pm central standard time on the last day of the option period. If the contract has a financing contingency, the buyer can have the deposit refunded and be released from the contract by completing the Release of Earnest Money TREC form. So you must be ready to get your inspections ordered ASAP. For example, if your client's effective date is January 22 with a 10-day option period, the option period will end on February 1. This low fee is paid to have an option period during which you can enter the property, perform due diligence, and have the home inspected. Earnest money contracts are also called option contracts for this reason. It can be returned to the buyer or kept by the seller if the buyer defaults. [citation needed] A great real estate agent can help a buyer navigate the option period and make the most of it. This lets us know how we can best help get your client started with Homeward. Texas escrow law does not require earnest money and a contract is valid without it. During the appraisal process, an appraiseran independent and unbiased professionalwill assess the fair market value of your potential home. In most markets, you would put down $1,000 to $4,200 in earnest money. Grant Period From February 23, 2022, to August 31, 2023. No questions asked. Sellers are free to reject offers that include option periods or to make counter offers without option periods. All rights reserved. Need a painter, electrician, mover, insurance company, etc.? In a sellers market, offers with option periods might lack a bit of appeal to a seller with a lot of interested buyers. The Option Fee must be delivered no later than 11:59 p.m. on the third day after the effective date of the contract. The seller may respond by contesting the release in which case it may go to mediation or before a judge who decides who receives the earnest money. Austin has a median home price of $656,000 thats $6,500 to $13,000 to put down 1-2% as a good faith deposit! is money put down as a deposit with a Texas real estate purchase agreement. When you write a contract to purchase a home in in Texas, you can buy an option period (usually 7-10 days, negotiable) from the seller for $200-$400 (negotiable) that gives you the irrevocable privilege to back out of the sales contract for any reason, and still receive your 1 percent earnest money back. Earnest money contracts are also called option contracts for this reason. In addition, if you find any defects that you cannot live with, then you must negotiate the repairs, or change in price, before the end of the Option period. Buyers typically use this time to have the home inspected to make sure theres nothing substantially wrong with the property before they commit to the purchase. In the state of Texas, an option period allows a buyer to get these details before making the final choice. By interacting with any of our blog posts, you agree to comply with the following terms and conditions: Texas REALTORS, in its sole discretion, reserves the right to remove any content you have uploaded, posted, or submitted onto any of our blog posts if we believe that it violates these terms or conditions. Yes, Texas real estate closing laws allow earnest money to be returned to the buyer in many circumstances. As of June 2022, the median sales price in Travis county was $665,000. With this acquisition, Transactly further expands their. Yes. After closing on a house in Texas, the earnest money is generally credited toward the purchase of the home. While including an option period is a common practice in Texas real estate, its not a mandatory requirement, explains Collins. Its the last day of my buyers option period. Depending on the local market conditions and norms, the average earnest money amount may be a flat amount such as $500 to $2,000 or a percentage of the purchase price, usually 1% to 2%. If you live in a state, like Texas, that allows an option period, you have the opportunity to consider the purchase even after the contracts have been signed. Find real estate questions & answers. The number of days and the amount of the option fee, like sales price and earnest money, are among those features negotiated between a seller and potential buyer in the sale contract; in Texas, option fees typically range from $100 to $200, while earnest money ranges from one to several thousand dollars. An option period is an agreed-upon period of time, after the buyer and seller have signed the real estate contracts, during which the buyer can terminate the contract for any reason without risking their earnest money. Typically in this period the home buyer will coordinate for a thorough home inspection and any other inspections they like. There are several options for paying Texas earnest money: The title company can choose which funds it accepts. Your agent will deliver both checks to the appropriate party and get a written receipt for proof, within 3 days of executing the contract. This includes a professional CMA when you are ready to purchase a specific homeso you dont pay too much. Option Period: What Is It When Buying A Home. It provides security for the buyer by giving you the chance to terminate the purchase contract for any reason whatsoever without risking your good faith deposit. Buyers & Agents: Be Careful About Wire Fraud! Your lender will use the results of the appraisal to determine how much money theyre willing to lend you for the property., Today there is an appraiser shortage so most homebuyers arent able to get an appraisal during the option period. How do I determine the last day to terminate under my clients 10-day option period in the One to Four Family Residential Contract (Resale)? For long-term resale value, the neighborhood you choose is just as important as the home you buy. Check out p. 27 regarding the sample Flood Map info I provide. Broker: Keller Williams Southwest Want to learn more about everything that goes into the home-buying process? That is, when all parties have signed and agreed to the contract. An option period usually comes at the cost of a non-refundable option fee on the buyer's side. Take a look at a sample House Report that I do for my clients. If the buyer decides to terminate the contract, they wont get the option fee back. 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