What is an Option Period?

Written By: Jennifer Roberts, Local Market Expert

June 12, 2019

Are you buying or selling a home in the Lone Star State? One feature that’s unique to the Texas real estate market is an option period. Here’s everything you need to know about it.

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So what exactly is an option period?

An option period refers to the time after the buyer and seller have signed the real estate contract. During this period, the buyer can terminate the contract for any reason and still get their earnest money deposit refunded. (Remember, this is the “good faith deposit” paid by the buyer that is held in escrow and later applied to closing costs.)

Most buyers use this time (usually 7-10 days) to understand the condition of the property. The buyer can schedule home inspections to ensure there are no unexpected problems with the house, particularly with its foundation, roof, plumbing, HVAC, and electrical system.

Once the buyer receives the inspection results, they can also get estimates for any repairs that the inspector suggests. The buyer can use this information in a few different ways. They can use it to renegotiate the sales price so that it includes the cost of repairs. They could also request that the seller fixes the damage themselves before the sale closes. Or they could request a seller concession, a credit from the seller that goes towards the buyer’s closing costs.

During the option period, the buyer is free to walk away from the sale without penalty, whether it’s because the seller won’t budge during repair negotiations, the inspection uncovers severe issues, or they’ve simply had a change of heart. On the flip side, the seller can’t sell the house to anyone else during the option period, but they can still take backup offers.

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How does an option period work?

To set up an option period, the buyer needs to pay a small option fee to the seller, usually about $100. This number is negotiable, as is the number of days in the option period.

The buyer’s payment to the seller is meant to show that they’re serious about buying the house, pending the results of the home inspection. The option fee also compensates the seller for the time that they spend waiting for the buyer to complete their due diligence.

When the option period begins, the home listing’s status will change from “Active” to “Option Pending.” This label lets other potential buyers know what’s happening with the sale while still leaving a window of opportunity if the deal ends up falling through.

While the Texas Real Estate Commission doesn’t require option periods for all home sales, it still has specific guidelines around them. For example, the option period officially begins the day after the effective date of the contract (i.e., when the contract is signed.) The buyer must pay the option fee by 11:59 pm on the 3rd day of the option period; otherwise, it will be canceled. And if the buyer decides to pass on the house, they must give the seller a written notice of termination by 5 pm on the last day of the option period.

Option fee vs. earnest money deposit

The option fee may seem pretty similar to the earnest money deposit, but they’re two distinct pieces of the real estate puzzle. Here are some of the main differences between them:

-- The option fee must be paid to the seller directly, while the earnest money deposit is typically held in an escrow account by a third-party title company or the seller’s real estate agent.

-- Option fees typically range from $100 to $200, while earnest money ranges from between 1% to 3% of the home’s purchase price.

-- If the buyer terminates the agreement during the option period, the seller keeps the option fee. However, the buyer will still get their earnest money back.

-- If the home sale goes through, the earnest money deposit will go towards the buyer’s down payment at closing. Depending on the details of the purchase contract, the option fee may or may not be credited back to the buyer.

The bottom line

The option period is a small, but essential part of the home sale process, helping buyers ensure that everything is in order before they seal the deal on their new home. With so many factors to consider when buying or selling a home, it can be tough to keep your cool. But what if there was a way to buy and sell without the stress and uncertainty? With Perch, you can.

Just spend a few minutes telling us about your home, and you’ll receive a market-price cash offer — no showings required. And if you’re looking to buy and sell a house at the same time, we’ll guarantee your home sale so that you can make a competitive, non-contingent offer on your dream home.

Better yet, Perch is local to Texas, currently serving customers in the San Antonio, Dallas-Fort Worth, and Austin areas. With this neighborhood expertise, we’ll help you navigate the ins and outs of the Texas real estate market. Thinking about working with us? Get started today:

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