View helpful videos on my YouTube channel, Texas Real Estate Commissions Information About Brokerage Services. During the Option Period, the property will be removed from 'Active" status and placed in "Option Pending" status in the MLS (Multiple Listing Service). If the seller does not comply with the terms of the contract, the buyer has the right to terminate the contract and request release of the earnest money or choose to enforce specific performance. If there is a structural inspection contingency, it typically states that the buyer can only back out and have the earnest money released if the inspection finds a single defect that would cost at least $1,500 to remedy. TREC made a change to the standard Texas real estate contract regarding how option fees are paid. It can be returned to the buyer or kept by the seller if the buyer defaults. The standard form most agents use is the. NAR offers advice for avoiding wire fraud such as using transaction management software or secure email for all communications. The Option Period is an important part of a real estate transaction in the state of Texas. However, Sheila Cox and Keller Williams assumes no liability or damages due to typos, errors or omissions. She has published content on The Balance, The Balance SMB, Thrive Global, and other smaller publications on topics ranging from personal finance and entrepreneurship to lifestyle and real estate. Generally, the option provides the buyer time to do their due diligence on the property. The deadline is moved forward a day if Day 3 falls on a weekend or legal holiday. Texas markets where multiple offers are common may have higher expectations. As one, Transaction coordinators play an important role in the real estate industry. With this acquisition, Transactly further expands their. 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. If you buy an Option period, it begins the day the contract is executed (signed and acknowledged by all parties). The 35 Steps to Building a House: Your Start-to-Finish Guide. When you are putting down thousands of dollars, you want to know what happens to your deposit if the deal falls apart and how its credited when the transaction closes. by Five-Star Real Estate Agent SHEILA COX, We handle inspections in a very unique way in Texas. The "option" in Texas real estate is an agreed upon number of days in the one to four family residential contract (purchase contract) that allows for the buyer to back out of the contract for any reason. Texas escrow law does not require earnest money and a contract is valid without it. 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. On the contract is an option period that allows you time to schedule an inspection. Share with your sellers these tips on how to live in a show-ready house Issues Mobilization and Political Advocacy Assessment, TACS Texas Accredited Commercial Specialist, TAHS Texas Affordable Housing Specialist, TRLP Texas REALTORS Leadership Program, TRLS Texas Residential Leasing Specialist, TRPM Texas Residential Property Manager, Sales of Million-Dollar Homes in Texas Report. Any reason is valid to change your mind during an option period the only thing were risking is our option fee, shares real estate agent Jennifer Bacak, who sells homes 47% faster than the average agent in Bryan,Texas. This includes a professional CMA when you are ready to purchase a specific homeso you dont pay too much. How much earnest money is required in Texas? If the buyer opts to renegotiate the contract, they send the amended contract to the listing agent to discuss it with the seller. TREC and TAR contracts use calendar days, not business days. 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%. 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. 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. Heres why: Option periods are baked into residential real estate contracts in Texas for a number of reasons. Thinking about buying or selling real estate? 5.0. The revised contract form, which became mandatory in 2021, requires the buyer to deliver the option fee to the title company, not the seller, within 3 days of the effective date. It's a good faith deposit that shows serious intent to buy the home. 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. Applicability of the legal principles discussed in this material may differ substantially in individual situations. The option period can also be extended for an agreed-upon number of days. If the contract has a generous inspection contingency, the buyer can back out of the deal before the deadline passes if they are unhappy with anything turned up during the inspection. The term option period is specific to Texas. (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. An option period usually comes at the cost of a non-refundable option fee on the buyers side. a. For long-term resale value, the neighborhood you choose is just as important as the home you buy. However, this doesnt spell the end of your dream home journey. 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. It is almost like an undo button. Having trouble understanding how an option period works in the state of Texas? 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. Every buyer deserves a few days to review the property and decide on the purchase without risking too much financial loss. Excess screen time can lead to exhaustion and stress. Earnest money contracts are also called option contracts for this reason. Share with your sellers these tips on how to live in a show-ready house Issues Mobilization and Political Advocacy Assessment, TACS Texas Accredited Commercial Specialist, TAHS Texas Affordable Housing Specialist, TRLP Texas REALTORS Leadership Program, TRLS Texas Residential Leasing Specialist, TRPM Texas Residential Property Manager, Sales of Million-Dollar Homes in Texas Report. Get started with a dependable Texas transaction coordinator from Transactly who will handle all the paperwork and deadlines for you for a low flat fee! Shorter option periods generally benefit the seller and longer option periods benefit the buyer. Its a sign of good faith that a buyer intends to follow through with their offer and purchase the property. Dont you deserve to have a Five-Star real estate agent on your side? You will not post any defamatory, discriminatory, libelous, threatening, vulgar, sexually explicit, abusive, profane, rude, or obscene content (including comments); b. For example, states such as North Carolina and Georgia have a due diligence period that works in a similar way. It provides security for the buyer and the buyer can terminate the. What Documents Will I Need for Taxes if I Bought a House Last Year? After changes made in 2018, Texas law requires that your real estate agent delivers the earnest money within three days that the signed purchase contract is executed. As a buyer, the option period allows you to include contingencies in your offer and address any concerns you might have before finalizing the contract. An option fee is a small percentage of the total cost of a home, rarely exceeding $500. If there is something I didn't answer for you or if you have additional questions, please reach out to me. During this period, which can be 714 days depending on the contract terms, you can schedule home inspections to ensure that the house is in good condition. If the seller does not deliver the sellers disclosure notice about the property condition within the time specified, the buyer can terminate the contract and have their deposit refunded. HomeLight, Inc. 100 1st Street, Suite 2600, San Francisco, CA 94105. . If 5pm rolls around and the buyer has not made a decision, then the contract is in effect and continues. When does the option period start? Agents usually advise clients put down earnest money to make sure their offer is considered. If a buyer wishes to terminate the contract during the Option Period, he/she must notify the seller by 5 p.m. local time (where the property is located) on the day that the Option Period ends. The Texas real estate contract option period is in place to provide protection to the buyer. The length of the option period and the option fee are negotiable between the buyer and the seller. 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. Better Business Bureau. Starts at the beginning of the purchase contract period. Working with a top buyers agent will help you make sense of option periods and all other things homebuying related with HomeLight, you can find a top-rated buyers agent near you in as little as two minutes to start your journey to closing on your dream home. If your client wishes to terminate under Paragraph 5B, the Termination Option Paragraph, she must provide notice to the seller by 5 p.m. local time where the property is located on February 1. 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. If the buyer terminates the contract, the seller can often keep the earnest money. However, there's an extension when the deadline is on a weekend or holiday. Typically in this period the home buyer will coordinate for a thorough home inspection and any other inspections they like. Enhance your real estate experience with HAR App, To post a comment on this blog post, you must be an HAR Account subscriber, or a member of HAR. The option period is crucial for the buyers process; it creates time for making one of the biggest decisions in a homeowners life. They won't, however, get their option fee back. If either party prevents the transaction from closing on time, outside of issues the contract specifies allow the closing date to be extended, the non-defaulting party can exercise their rights under Paragraph 15. It works the same way with either program:, Traditionally, homebuyers have had to choose between moving quickly and having peace of mind. The standard contract allows for damages if either party wrongfully fails to sign the release or wrongfully challenges it. It also compensates the seller for their time as you do your due diligence on the house. d. You will not post any information intended to sell or advertise a business, product, or service. $500 for five days has become my go-to when Im competing with other contracts and low inventory, Bacak explains. 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. An option period is a contractual term that gives the buyer an agreed-upon period to weigh their options before making a binding decision. If the buyer does not comply with the contract terms, they are in default and the seller has the right to terminate the contract and keep the earnest money deposit. During this period, your lender conducts a. . It ends at 5pm on the specified end date. Earnest money is refundable, and it's paid to the escrow agent to hold in escrow, not to the seller. and delivered to the title company. An option period gives the buyer a specific amount of time to have the property inspected and decide if they will continue with the purchase. While the option is clearly laid out in the contract, most buyers want to know more about it before they even begin their home search. If this contingency was waived by the buyer, the deposit is forfeited if financing falls through. In 2018, the Texas Real Estate Commission (TREC) updated its standard Texas real estate contract for residential purchases to clarify when does earnest money need to be deposited. 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. Heres what agents and buyers need to know about earnest money in Texas including guidelines on the typical Texas earnest money amount and when it must be deposited. 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. The purpose of earnest money is showing you are a serious buyer. (Heres a list of home inspectors.) This 3-day deadline is extended is extended to the next business day when the earnest money due date falls on a legal holiday or weekend. Sometimes in the home inspection report there are problems with the house that were not disclosed or unknown at the time. It's also home to The University of Texas' main campus. For example, a court may find that $1 does not satisfy legal requirements. Often times the renegotiation will include having the seller make the repairs or concessions based on items found in the home inspection. The typical option fee in Texas is $100 with a 7- to 10-day option period. 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. When a buyer submits an offer on a home they can request an option period in exchange for a dollar amount. I will help you narrow your options and find the best neighborhood for you based on your specifications. She has 4+ years of writing experience and holds a degree in English Literature from Brown University. Last Updated May 17, 2018 It's the last day of my buyer's option period. Make sure you ask your agent about the consequences if you plan to waive any contingencies to strengthen your offer! References. Requires consideration - a non-refundable fee paid to the seller called the Option Fee. Phone: (832) 779-2890. When you use our Buy with cash or Buy Before you sell solutions, youll benefit from our Dual Appraisal Advantage. In summary, the Option period gives you time to have the home thoroughly inspected and find any defects that you cannot live with. or the buyer backs out with cause allowed in the contract. As of January 2016 the option period time ends at 5 p.m. on the final day of the period. Madeline Sheen is an associate editor for HomeLight who works with an amazing team of experts in home buying, personal finance, and mortgage to create articles for HomeLights Buyer Resource Center. 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. Option Period: What Is It When Buying A Home. 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. This inspection period, also known as the option period, typically lasts anywhere between 5 and 10 days. The option money is a non-refundable fee, but it can be applied to the sales price of the home after closing. Earnest money is not required to make a valid Texas real estate contract. Selling Your Rental Property? 1650 Highway 6, #350, Sugar Land , TX 77478 (Map) As a good rule of thumb, buyers should be prepared to put down the average earnest money amount Texas sellers expect no more, but definitely no less. For example, some complex properties with lots of systems (septic, a well, a pool, etc.) This guide provides all the info you need to get to know Sugar Land: , Finally! The buyer must make a decision no later than 5pm local time of the property. An inspection of a home takes place after a contract has been executed, signed by both the seller and buyer. We all know the feeling of angst that hits as we move closer to the barista at a coffee shop to order a morning java. 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). Sellers usually favor offers with a good faith deposit because they do not want to waste their time with a deal that falls through. Utilize an agents expertise in negotiation, offer a short option period, and up your option fee. Please share this info with your Friends! Take a look at a sample House Report that I do for my clients. Financing contingencies and appraisal contingencies are separate from the option period but the only way for a buyer to get the option fee returned to them, is if they close the sale, according to Bacak. However, the more competitive the real estate market, the more important it becomes. The earnest money will be returned to the buyer, but the option fee is forfeited to the seller. The Option Fee must be delivered no later than 11:59 p.m. on the third day after the effective date of the contract. Bacak explains, The more option money you put down, the better as it shows the seller youre invested and wont terminate.. Thebuyer may decide to exercise their right to terminate if they are not satisfied with the condition of the property after receiving the report(s). A buyer can make their offer more appealing to a seller by offering a shorter option period, say 5-7 days. When purchasing a home in Texas, you may hear the term "option period." In Texas, a typical option period is around 10 days and the typical option fee is about $10.00 to $30.00 per day. Once it is received, the earnest money will be released back to the buyer. This lets us know which side of the homebuying process youre on, so we can help you get started with Homeward. What Is an Option Fee? Copyright 2021 Sheila Cox. Grant Period From February 23, 2022, to August 31, 2023. The non-refundable fee is paid to the seller (usually about $100). is money put down as a deposit with a Texas real estate purchase agreement. However, the more competitive the real estate market, the more important it becomes. How do we do that? Option period can be extended, but generally these are due to other factors. There are some financing situations (i.e. Earnest money contracts are also called option contracts for this reason. If you use a check, the funds must clear before the earnest money is considered deposited. hbspt.cta._relativeUrls=true;hbspt.cta.load(7043426, '1d20d9bc-09e0-4630-9baa-430ec5a1c064', {"useNewLoader":"true","region":"na1"}); In Texas, the option period begins the day after the contracts are signed. Will the buyer have to pay another option fee even though the extension is because the seller breached the contract? The length of the option period is negotiable and it may be as short as 5 days. 5.0. Yes. Applicability of the legal principles discussed in this material may differ substantially in individual situations. 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. At 5:00 p.m. on the last day of the Option period, if you have not had the Seller sign an Amendment agreeing to price modifications or repairs, then you are buying the home as is. Make sure you get your inspection reports several days before the end of the Option so you can review them and discuss with your agent and have time to submit an Amendment to the Seller. 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. The buyer would still receive back the earnest money deposit (EMD) placed down at signing, usually between 1% and 3% of the sale price. This includes for any reason during the option period, if the seller defaults on the contract, and based on specific contingencies like financing and the home inspection. The option in Texas real estate is an agreed upon number of days in the one to four family residential contract (purchase contract) that allows for the buyer to back out of the contract for any reason. Note that the inspection contingency is frequently waived in hot markets. When calculating deadlines for my buyer in the One to Four Family Residential Contract (Resale), should I include weekend days or federal holidays? (Option fees typically range from $100-$500. The standard contract now states: Within 3 days after the Effective Date, Buyer must deliver $__ earnest money to __, as escrow agent, at __.. The average earnest money deposit nationwide is 1% to 2% of the purchase price but 3% in California. The Texas Real Estate Option Period: Provides security for the buyer. Even though the seller can take a backup offer, they cannot sell the property to another buyer when the listing status is not active. 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. However, the transaction is in an option period, or inspection period. 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. An option period is a contractual term that gives the buyer an agreed-upon period to weigh their options before making a binding decision. If youre ready to take the next step toward homeownership, chat with a radius loan officer today to discover your options. NOTE: The $200-400 Option fee is paid directly to the sellerusually via a personal check. NO other agent in the world does this! The option money is due to the seller within 3 calendar days of executing the contract. If you're a homebuyer interested in learning more about becoming a cash buyer, schedule an appointment with a Homeward Advisor here. Unless the contract states otherwise, earnest money is due within 3 days of the contracts Effective Date. For example, if the contract effective date is March 1, the option fee must be paid by 11:59 p.m. March 4. As the buyer, it's important to note that the option and extension fees are more than a symbolic gesture. Any legal or other information found on this page or at other sites to which we link, should be verified before it is relied upon. When youre buying a home, zip your wallet! This is compensation for the time and effort theyve wasted and the need to relist their home. 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. However, its usually expected by sellers and an offer may not be accepted without it, especially if there are multiple offers. If for some reason you need to extend the option period, youll pay an additional fee. This is the same deadline as the earnest money deposit. c. You will not post content or take any action on our blog posts that infringes someone elses rights or otherwise violates the law. Im your transaction manager and will guide you, step-by-step, through the process so you never miss an important deadline. 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. That said, its important to recognize that while paying the option fee and including an option period provides more reassurance, asking for too much time may make your offer less competitive.. Some back-up buyers may want to have their contract terminate within days if the first contract doesn't terminate early, while others may want to retain their back-upcontract rights until after the last possible date that the first contract might close. It gives you the right to terminate the contract without losing your Earnest Money Deposit. If an appraisal comes in too low, and appealing it doesnt work, the buyer must pay the difference or the seller must drop the price for the deal to close. The standard TREC contract has default provisions that allow the seller to cancel the contract if the earnest money is not deposited on time. I know my buyers termination option ends on Thursday, but at what time? No questions asked. 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! (Also see Pricing a Home Correctly), Best Home SearchesYes, you can search on your own, but no other home search available can filter down to the school leveland filter out the subdivisions that may be known to flood. Sellers take the dollar amount and the duration in consideration when deciding on which offer to go with. On average, a Texas divorce without children costs about $15,600, and one with children costs about $23,500. These factors include: The greatest determiner of the option period and fee is market status a buyer might need to aim for a shorter option period in a sellers market. Check out p. 27 regarding the sample Flood Map info I provide. This fee makes the option period more worth a seller's time. If youre not from Texas, you may have never heard of an option period. In most areas of the state, 1% of the purchase price or $500 is normal. 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 you waived this contingency, you will need to surrender the deposit if you cannot fulfill the contract due to financing. Yes as long as the contract has a financing contingency. If youd like more information regarding the Texas option period I would love to hear from you. 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. A great real estate agent can help a buyer navigate the option period and make the most of it. Theres going to be multiple offers, and to be the best, you need to move rapidly, Bacak shares. Earnest money is one of many important aspects of a Texas real estate transaction. Remember that the good faith deposit is not necessary to make the contract binding. As a buyer, its important to understand when and how you can back out of a contract and keep your earnest money. You must offer something of value if the option and extension periods are to be legally enforceable. Agents Compete, You Win. A typical option period is anywhere between 1 and 10 days but is dependent on several factors. But that gives me pause as an agent because its very risky, Bacak shares. The term option period is specific to Texas. What is an option period? Reasonable shipping cost. At HomeLight, our vision is a world where every real estate transaction is simple, certain, and satisfying. Please note that data on this website is derived from various sources and every effort is made to ensure the accuracy. The median home price in Texas is $420,000. I wont ignore potential defects that can cost you money, or effect your resale value, in the future. So basically, the termination option is a clause that allows buyers to legally cancel an executed contract. For first time buyers, its often a confusing element and a possible hurdle to buying a home. To get the privilege of having an option period as a homebuyer, youll pay an option fee to the seller. VA loans) that require the home to be in a particular condition. What Does Contingent Mean In Real Estate? Like the Earnest Money Deposit, this fee is a show of good faith meant to demonstrate that youre serious about the purchase. This enables the buyer to terminate the sale at any point during the allotted time. With cause allowed in the real estate transaction risky, Bacak explains excess screen time lead... Between the buyer backs out with cause allowed in the home buyer will coordinate for a thorough inspection. 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