Like (5) Dislike. The previous TREC contact stated that earnest money was due upon execution of this contract, a vague deadline that rarely happened. The Option Fee may or may not be credited to the buyer'scosts at closing. The seller promised to have the utilities on next week, so my buyer just wants to extend the termination-option period another 10 days. It provides security for the buyer and the buyer can terminate the. Updated January 2023 People always ask me, , I Have the Best HomeSearch Available Yes, I know you can search for homes on the Internet on your own, but no online searches available to the general publicincludingHAR, Trulia, Zillownone of them will allow you todo thecomplicated searchesthat I canperform with my custom home search. As a buyer, its important to understand when and how you can back out of a contract and keep your earnest money. 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. Shipping speed. Make sure you ask your agent about the consequences if you plan to waive any contingencies to strengthen your offer! An active option contract means the seller has accepted an offer to sell their property. Phone: (832) 779-2890. While including an option period is a common practice in Texas real estate, its not a mandatory requirement, explains Collins. But be warned: Every option period and extension comes at a price. An option period means the buyer can terminate the contract during the agreed-upon time frame without any particular reason being given. 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. 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. 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. Need a painter, electrician, mover, insurance company, etc.? Find top real estate agents in these similar cities, HomeLight has an A+ rating with the How much will I need to save for a major purchase? How much will my adjustable rate mortgage payments be? 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. The option period and fee are finalized in the purchase contract terms of the sale. Its at this time that the seller can deny and continue with the contract or the buyer can opt to back out and continue their home search. 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. NOTE: The $200-400 Option fee is paid directly to the sellerusually via a personal check. The home-buying process can be overwhelmingeven more so if you rush through it. Here are some tips on how to take a break from technology so. How much earnest money is normal depends on the norm where you live. 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. The option period is crucial for the buyers process; it creates time for making one of the biggest decisions in a homeowners life. This is the extra due diligence I do for you, to make sure that you are getting a great home. During the appraisal process, an appraiseran independent and unbiased professionalwill assess the fair market value of your potential home. It is almost like an undo button. 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). Rachel Leigh Gross is a freelance writer and editor based in Providence, Rhode Island. Your submission has been received! If the lender requires any repairs or treatments, such as termite treatment, neither party is obligated to pay for it. Work with an expert buyers agent to help you understand this key purchase contract component, so you have the time you need to make your decision. If for whatever reason within the option period outlined in the contract the buyer wants to terminate and back out of the contract, they can do so. Earnest money contracts are also called option contracts for this reason. If the market is very competitive, a higher earnest money percentage may be warranted to make your offer more attractive. Agents Compete, You Win. If the buyer terminates the contract, the seller can often keep the earnest money. Sellers expect to see an option period in a residential real estate contract, but generally speaking the longer the option period is, the less competitive your offers is. This inspection period, also known as the option period, typically lasts anywhere between 5 and 10 days. 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. The buyer can make an offer to the seller requesting to extend the option period with additional compensation. . Something went wrong while submitting the form. If the buyer terminates the contract, the seller can often keep the earnest money. For that reason, its not a process that should be rushed. [The sellers market] is making buyers do everything with haste. An option period typically lasts between 7-10 days, but it can be any length of time agreed on by the buyer and seller. It's a good faith deposit that shows serious intent to buy the home. Call Me 832-939-1701. Earnest money is one of many important aspects of a Texas real estate transaction. When buying a home in Texas, you should make the most of this time to ensure the property doesnt have any major issues. That fee goes toward the seller's time holding the potential buyer's spot. Unless the contract states otherwise, earnest money is due within 3 days of the contracts Effective Date. 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. The number of days set forth for the option period is negotiable, but typically, anywhere between 1 and 10 days. We strive to make our website accessible to everyone. 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. Just like you do about that oat milk latte. However, other regions have similar processes that support the buyers 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. 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 earnest money will be returned to the buyer, but the option fee is forfeited to the seller. The buyer must submit the TREC Release of Earnest Money form with the contract termination. Youre able to make a more competitive offer with confidence.. amanda@mimsrealty.com or 832-517-0988. 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. (Option fees typically range from $100-$500. My job isnt just helping you find a house to buyIm helping you buy a home. 5.0. It also allows time to negotiate repairs with the Seller. Join the 10,000 agents who already receive our weekly newsletter. It also compensates the seller for their time as you do your due diligence on the house. 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. When purchasing a home in Texas, you may hear the term "option period." The non-refundable fee is paid to the seller (usually about $100). Be among the first to hear about upcoming events, industry insights, expansion announcements, and more. I assist with inspections, repair negotiations, home warranties, HOA compliance inspections, hazard insurance, surveys, appraisals, title commitment, home warranties, title company, and more. Earnest money is the good faith money that buyers place into escrow when they submit their offer, in order to demonstrate that theyre serious about buying the property. In this example, because Day 3 is a Sunday, the deadline is Monday. During this time period, a home buyer will want to complete any desired home inspections (general, architectural, foundation, pest, etc.). I can filter out , Accurately pricing a home takes more than a three-minute look at current sales numbers by a computer algorithm. If you're an agent interested in turning contingent clients into cash buyers, schedule an appointment with a Homeward Advisor here. To ensure the extension of the option period is valid, be sure to include an amount the buyer has paid seller for the additional option fee. If the inspection is completed within the option period, the buyer can walk away without penalty. The buyer can terminate the contract during the option period for virtually any reason. What Is an Option Fee? In most markets, you would put down $1,000 to $4,200 in earnest money. For example, states such as North Carolina and Georgia have a due diligence period that works in a similar way. 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. You don't want to end up with a house that's not worth the value you paid. Sellers are free to reject offers that include option periods or to make counter offers without option periods. Save searches and favorites, ask questions, and connect with agents through seamless mobile and web experience, by creating an HAR account. With this acquisition, Transactly further expands their. Keep in mind that the seller keeps the option money if the buyer backs out of the contract. By paying this fee, youre purchasing the right to back out of the purchase for any reason during the option period. There are several options for paying Texas earnest money: The title company can choose which funds it accepts. That means it will go toward closing costs and/or your down payment. The option period is based on calendar days, not business days, and it begins on the next full business day after the date on the executed contract. 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. It depends on why the deal failed to close. Can be extended by mutual agreement of the buyer and seller. If the Option fee is not paid within 3 days, then the Option period does not exist and you are buying the home as is! I wont ignore potential defects that can cost you money, or effect your resale value, in the future. 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. If the seller does not respond to a request to sign the release form, the deposit will be automatically released back to the buyer after 15 days (standard). For additional consideration, the Option Period may be extended by the buyer for an agreed-upon number of days. The term option period is specific to Texas. Texas REALTORS is committed to advocating for a strong real estate industry, advancing a culture of continued learning, and staying ahead of issues concerning members and their clients. 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. Earnest money in Texas is given to the title or escrow company, a third party trusted with holding funds and documents involved in the transaction until contingencies are met and the deal closes. An option period usually comes at the cost of a non-refundable option fee on the buyer's side. The buyer can take advantage of this option to complete a few checks for their peace of mind. 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. If you made an offer and waived this contingency, you cannot back out of the deal and get your deposit back no matter what the inspection uncovers. During this period, your lender conducts a. This enables the buyer to terminate the sale at any point during the allotted time. Earnest money is refundable, and its paid to the escrow agent to hold in escrow, not to the seller. My buyer client is on the eighth day of his 10-day termination-option period, and the seller still hasnt turned on the utilities to allow the buyer to have the property inspected. I am the local neighborhood expert who can give you a professional and accurate Current Market Analysis (CMA) to tell you what your Sugar Land home is worth today. A great real estate agent can help a buyer navigate the option period and make the most of it. When does the option period start? A typical option period is anywhere between 1 and 10 days but is dependent on several factors. This option, when written into a real estate contract, creates the right to terminate the contract within a certain number of days for a specified price without risking the earnest money deposit. How much will my fixed rate mortgage payment be? Texas REALTORS provides content through various online platforms, including this blog. For example, some complex properties with lots of systems (septic, a well, a pool, etc.) The chief benefit of the option period is it allows the homebuyer time to determine if they want to move forward with the purchase. The length of the option period and the option fee are negotiable between the buyer and the seller. IKEA Life at Home Report 2021 A homeowner's routine home maintenance checklist Don't let the market tell you when you're ready to buy a home Get started Popular What Is an HOA and How Can It Affect Homeowners? It can be returned to the buyer or kept by the seller if the buyer defaults. Reverse Mortgage Pros and Cons from a Financial Planners Perspective, 11 Questions to Ask When Buying a New Construction Home. (During this time, the Seller cannot back out of the contractonly the Buyer has that right.). The buyer may choose to back out of the deal during the option period and still get their earnest money back. The option period begins the next day after the contract is executed. Yes, Texas real estate closing laws allow earnest money to be returned to the buyer in many circumstances. If 5pm rolls around and the buyer has not made a decision, then the contract is in effect and continues. Transactly Now Affiliated With eXp Realty ST. LOUIS, Mo. In some areas, the typical earnest money deposit is a flat amount such as $1,000 or $5,000 regardless of the purchase price. Do not exclude weekdays and holidays from the count if the Effective Date is a Thursday, Friday is Day 1 and Saturday is still Day 2; the weekdays are not skipped to make Monday Day 2! The Texas Real Estate Commission revised its contracts effective January 1, 2016, to implement this time deadline. The option period is a good time to negotiate these repairs, otherwise closing may be an afterthought. The buyer and seller are still negotiating repairs and want to extend the option period. 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). Wire transfer fraud is a growing problem that can be hard to spot! $500 for five days has become my go-to when Im competing with other contracts and low inventory, Bacak explains. 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. Decisions in a homeowners life cash buyers, schedule an appointment with a Homeward Advisor.! 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