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How to Maximize Your Texas Option Period

Sunday, February 04, 2024

Primary Blog/How to Maximize Your Texas Option Period

Texas Option Period:  3 Helpful Steps to Make the Most of your Time.

If you're a prospective homebuyer in Texas, you may have come across the term "option period" in your real estate journey. Understanding the ins and outs of this period is essential for securing the best deal and protecting your interests.

In this article, we break down the option period, starting with its definition and exploring the timeline of events specified in the 1-4 residential contract. We will then provide you with three expert tips on how to maximize this timeframe to your advantage. Additionally, below is a Q&A section where we address common inquiries buyers typically have about the option period.

​So, whether you're a first-time homebuyer or a seasoned real estate investor, read on to gain valuable knowledge and empower yourself with the tools to navigate the Texas option period with confidence. Let's get started!

The Option Period Explained

You may be thinking, 'I understand that a contract includes an option period, but what exactly does this option period entail?' so lets explain it further. The option period is a window of time during a home purchase that the buyer has to get the house inspected and do their due diligence before being locked into purchasing the home or property. Before the option period begins, the option fee is negotiated and paid to the seller. If the buyer finds a reason to terminate during the time specified in the contract, they have every right to. Purchasing a new home is something that shouldn’t be rushed. The option period can also be referred to as the termination period, it is meant to protect buyers and give them more than a walk-through before they follow through and buy the property. If a buyer terminates during the option period their earnest money is returned however the option fee will be kept by the seller. 

Understanding the TREC 1-4 Residential Contract

Let’s start out by going over a few sentences from the real estate contract that is commonly used in most transactions. You will notice the blank areas that are required to be filled in by your agent and outlines the terms for the termination option period and how much the seller will be compensated for the option period. As you can see below the earnest and option money will both be turned in to the Title company for them to hold during the course of the transaction. This is called putting your funds in escrow.

The Timeline of the Option Period

When a buyer and seller have agreed on the terms in a offer and it is signed and executed, the contract is then delivered to a title company and the real estate contract begins. Inside the contract contains the terms and conditions for the termination period (option period) and the amount of the earnest money deposit.

Paragraph 5 section A of the 1-4 residential contracts covers the “earnest money and termination option,”. The seller and buyer will negotiate for an agreed-upon timeline, fee for the option period, and the amount of earnest money being put in.

When entering into a contract, specifically when you go into paragraph 5, it is crucial you understand the dates set in place and when all payments are due.

Key activities during the option period, as outlined in the contract, include:

1. The buyer provides an option fee to the seller, granting them the privilege to rescind the contract within a specified timeframe. This fee compensates the seller for holding the property off the market during this interval.

2. This period is an opportunity for the buyer to conduct thorough investigations to confirm the property's condition. A licensed inspector should be hired to examine the property's structural integrity and check for issues related to plumbing, roofing, electrical systems, among many other key components of a property, ensuring the buyer is fully informed about what they are committing to.

3. Based on the inspection results and contractor estimates, the buyer may negotiate with the seller for repairs or a discount equivalent to the anticipated repair costs.

​​The option period is a vital component of the real estate transaction, providing a safeguard for the buyer while offering the seller assurance through the option fee. Strategically determining the duration and cost of the option period can enhance your proposal, with a shorter period and a higher fee often being more appealing to sellers, as it reduces the time their property is off the market.

3 Helpful Steps to Make the Most of your Time

Depositing the earnest money with the title company within 3 business days is required in order to have a valid contract in the State of Texas. As a buyer who is making an offer on a home, keep in mind that the more money you put in the offer, the stronger your offer is, but those funds will be due to the title company immediately. This money is given to show genuine interest in the property and is a show of good faith that you intend to purchase the home. 

Step 1: Maximize the Option Period by increasing the number of days.

When we think about option periods, it’s easy to understand that it is mainly there to benefit buyers. The option gives the buyer the right to terminate the contract during this due diligence period.

As a buyer, you want to have the longest option period possible, while maintaining the lowest possible option fee. Keeping a low cost is beneficial because you get to keep more money in your pocket. Having a longer option period allows for more time to get the house inspected. This is a core task when going through an option period, and we’ll go over it here shortly.

A seller, normally prefers a shorter option period and making the buyer pay a larger option fee. This allows less time for them to back out of the deal and also gives shows them that the buyer is serious. A buyer willing to pay a large option fee amount is a sure sign that they are serious. Even with a serious buyer it is common practice for a seller to consider backup offers, especially in a seller’s market.

You can start to see how there can be some needed negotiation when going through this process. The seller and buyer want exact opposites, yet they will have to reach mutual agreement or there will not be a real estate trasnsaction.

Step 2: Time to Set up a home inspection

The option period can also be referred to as the inspection period. Home inspections are highly recommended when purchasing a home as you want to ensure all major components of the house are in good working order.

The main function of the option period is for the buyer to get the home inspected. If any problems come up during the inspection, the buyer will need to schedule specialty inspections for further diagnosis as home inspectors are not certified technicians.

Step 3: Negotiate Repairs

Once necessary repairs are identified it is time for the buyer and seller to negotiate the repairs that need to be addressed. If the buyer finds issues that are a 'deal killer' if not repaired, the buyer is able to ask the seller to pay to have items fixed and if they agree, the seller is then responsible to hire a licensed specialist to fix the specific problems the buyer has asked for them to repair. If the seller does not want to handle the repairs the buyer can ask the seller for concessions to cover the cost for the buyer to fix the identified issues after they move in. In most cases you will need a quote from a specialist to find out how much the repair will cost. However, the seller can refuse to make any repairs or give concessions and then the buyer will need to choose if they would like to proceed with the purchase contract or terminate the contract and continue their search for another property.

How a home inspection works

Once hired, an inspector will thoroughly examine the subject property and provide you with a report detailing the condition of the home. This inspection will usually take 2-3 hours depending on the size of the home. The inspector is hired by the buyer and is there to identify deficiencies within the home and educate the buyer during the process. Buying a property can be costly, and the inspection is crucial to knowing the condition of the property you are buying.

If any problems are found during the home inspection, the best course of action is to get that problem looked at by a professional, as soon as possible, so they can make recommendations on how to resolve the issue and for what amount. If you need additional time to schedule a specialist to look at the home you should have your buyers agent request an extension to the option period in order to be able to make an informed decision. Extending the option price can come with an additional option fee paid to the seller for their time off the market.

Once an issue is found by the inspector, the seller is required by law to disclose the issue to a future buyer, if the seller decides to terminate the contract during option period. So it is in the seller’s interest to be reasonable, as the next buyer will probably ask for the same repairs.

When is the Earnest and Option Money Due?

It is due to the title company within 3 business days after the offer is accepted and executed. When and if the deal closes, the money will them be credited toward the buyer’s closing costs.

What is the Typical Earnest and Option Fee Amount?

While the law does not require any earnest money to actually be put down, it is a normal practice for at least 1% of the house to be put down. However, in hot market areas like Austin, Texas, this may be higher depending on how competitive buyers are when you go to purchase a home. This is because the higher the earnest money is when being put down, the better it looks to a seller. Remember, earnest money is a show of “good faith” so as you put more money into earnest, the seller feels you’re someone who will follow through with the closing process.

Does the option period include weekends in Texas?

The countdown for those days will start the day after the contract effective date. If the contract is signed on Thursday, then the count will start on Friday and go through the weekend. The weekends count toward the total days agreed to for the option period in the contract. On the last day, the buyer has until 5 pm to decide if they want to actually terminate the contract, if this day falls on a holiday or weekend you have until the next business day.

How Can I Get my Earnest Money Back if i decide to Terminate?

During the option period, the earnest money is held by a third party, the escrow agent at the title company you have chosen to work with. If during the option period, the buyer exercises their right to terminate the contract, the option fee goes to the seller, but any earnest money is returned to the buyer. This is why it is important to negotiate terms that best fit what you want before signing day.

Purchasing a home is undoubtedly one of the most complex transactions you'll encounter, filled with intricate details and important decisions. It's essential to have a local real estate agent by your side, someone who knows the Austin market inside and out and is dedicated to ensuring your best interests are always front and center. Remember, if any part of the process seems unclear or overwhelming, don't hesitate to ask your agent questions. Gaining clarity and understanding is key to a successful home buying experience. If you find yourself in need of guidance, I'm here to help. As an Austin real estate agent, I'm committed to navigating you through every step, making the journey as smooth and straightforward as possible.

Let Me Help Make Your Dream Home a Reality

Are you tired of sifting through endless online listings, feeling overwhelmed by the search for your dream home? I'm Kristi Metcalf, and i would love to simplify the process for you.

As a native Texan and an experienced real estate agent, I bring a wealth of local knowledge and industry expertise to the table, making your real estate journey smooth and efficient. Whether you're buying or selling, my dedication to my clients and the real estate field shines through in every interaction.

If you're in the market to buy, I pledge to assist you in finding the perfect home, maintaining transparent communication at every juncture, and skillfully negotiating to secure the best possible deal for you. If selling is on your horizon, I'm committed to helping you prepare your home for maximum value, crafting a tailored marketing strategy that highlights your property's unique attributes, and attracting a broad spectrum of potential buyers.

Throughout your real estate journey, I'm here to offer my expertise and unwavering support. So why wait? Let's embark on this exciting path together towards finding your ideal home. Contact me today to get started.

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Hi, I Am Kristi Metcalf

Realtor in Austin, TX

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