If youre not from Texas, you may have never heard of an option period. Typically, you must pay a fee to set up an option period. However, there's an extension when the deadline is on a weekend or holiday. The purpose of earnest money is showing you are a serious buyer. In hotter markets like Austin and its suburbs, earnest money amounts of $3000, $5000 and more are not uncommon. Most real estate transfer contracts contain an option fee, though it's not a legally binding requirement. 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. 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. It also allows time to negotiate repairs with the Seller. I can help! 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. Better Business Bureau. 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 the buyer opts to renegotiate the contract, they send the amended contract to the listing agent to discuss it with the seller. and delivered to the title company. The property will be placed in OP (option pending) status in the MLS. Very important! Creekview Realty notes that the option fee is usually $100 and the period is seven to 10 days. For additional consideration, the Option Period may be extended by the buyer for an agreed-upon number of days. Oops! The option money is a non-refundable fee, but it can be applied to the sales price of the home after closing. As a buyer, you need to make sure you make the most competitive offer you can, while still ensuring youre making a great investment.. Reverse Mortgage Pros and Cons from a Financial Planners Perspective, 11 Questions to Ask When Buying a New Construction Home. Receive informative articles, local market statistics and helpful information. 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. Texas REALTORS provides content through various online platforms, including this blog. There must be an amount included in Paragraph 6. 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.. For instance, putting $0 in the blank may risk the extension being held unenforceable. 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. For long-term resale value, the neighborhood you choose is just as important as the home you buy. 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 active option contract means the seller has accepted an offer to sell their property. A general rule of thumb is the earnest money is refundable to the buyer if the. At closing, the earnest money deposit is credited toward closing costs and/or the down payment. During this period, your lender conducts a. My job is to protect you from defective homes as much as possible while helping you make a sound financial investment. 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. Building A, STE 100, Austin, TX 78741, Get estimates for repairs or revisit the contract, Apply for financing if you're not yet pre-approved or approved to. A higher fee and shorter time frame might make the buyers offer more attractive to the seller, and sellers may ask for better terms which could extend the negotiation period. . How Soon Can A Mortgage Be Refinanced After You Buy? 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. There are some financing situations (i.e. This lets us know how we can best help get your client started with Homeward. 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. An option period usually comes at the cost of a non-refundable option fee on the buyers side. 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. 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. 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. In fact, during the option period you can terminate the contract for any reason. That the lot appraise at the purchase price (if you are buying cash) What Documents Will I Need for Taxes if I Bought a House Last Year? The buyer may back out of the purchase of the home. Communication. Texas markets where multiple offers are common may have higher expectations. 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! If a buyer backs out of a contract without a valid reason, the seller can keep the earnest money. 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. Get more done faster with Transactly - a platform for real estate agents that connects you with tech-enabled transaction coordinators. 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). Starts at the beginning of the purchase contract period. Its a good faith deposit that shows serious intent to buy the home. d. You will not post any information intended to sell or advertise a business, product, or service. The option period is a good time to negotiate these repairs, otherwise closing may be an afterthought. The buyer may choose to back out of the deal during the option period and still get their earnest money back. The buyer has the right to object to the Commitment and Exception Documents within a certain number of days. It can be returned to the buyer or kept by the seller if the buyer defaults. If you waived this contingency, you will need to surrender the deposit if you cannot fulfill the contract due to financing. We researched the details and talked with an expert Texas real estate agent to help you make the most of an option period. An executed contract is one where all parties have signed, initialed & money has been exchanged. 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. 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. Free shipping for many products! On the contract is an option period that allows you time to schedule an inspection. Don't overlook the importance of the option period. The earnest money you deposit shows that you have skin in the game too. Killeen, TX 76549, Gatesville, Harker Heights, Temple, Nolanville, Killeen, Belton, Salado, Copperas Cove, Lampasas, Kempner, McGregor, Valley Mills, Lorena, Woodway, and Evant. The standard form most agents use is the TAR Release of Money Texas form. Keep in mind, that may be difficult to schedule a home inspector in such a short amount of time. However, the transaction is in an option period, or inspection period. Use TRECs Amendment to the contract (TAR 1903, TREC 39-8) and fill in an amount acceptable to both parties in Paragraph 6. 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. Will the buyer have to pay another option fee even though the extension is because the seller breached the contract? Other states use different terminology to refer to this period of time: Once the option period takes effect, the home's status changes from "active" to "option pending." Here are some tips on how to take a break from technology so. 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. 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. 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. Often times the renegotiation will include having the seller make the repairs or concessions based on items found in the home inspection. Buyers should make the most of the period and take every opportunity they can to solidify their decision to buy or terminate. Once the offer is accepted, Homeward conducts a, You buy back the home from Homeward once your new mortgage is ready. The buyer would still receive back the earnest money deposit (EMD) placed down at signing, usually between 1% and 3% of the sale price. Amanda operates under the brokerage of Coldwell Banker Realty. If for some reason you need to extend the option period, youll pay an additional fee. Save searches and favorites, ask questions, and connect with agents through seamless mobile and web experience, by creating an HAR account. 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 This requires paying a small option fee. 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. 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! There is no official TREC release of earnest money form. (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. Once it is received, the earnest money will be released back to the buyer. An accepted contract is just the beginning. The 35 Steps to Building a House: Your Start-to-Finish Guide. 4.9. Earnest money contracts are also called option contracts for this reason. After closing on a house in Texas, the earnest money is generally credited toward the purchase of the home. If the inspection is completed within the option period, the buyer can walk away without penalty. This includes title issues the title insurance company will exclude from coverage (Schedule B). These two types of deposits are frequently confused and both must be delivered after signing a Texas real estate purchase agreement. But be warned: Every option period and extension comes at a price. Take a look at a sample House Report that I do for my clients. The median home price in Texas is $420,000. If you dont know what you want, the line disappears too quickly. Its the last day of my buyers option period. Gain access to our suite of customizable marketing assets for agents. 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. Generally, the option provides the buyer time to do their due diligence on the property. You don't want to end up with a house that's not worth the value you paid. Typically in this period the home buyer will coordinate for a thorough home inspection and any other inspections they like. Buyers typically use this time to have the home inspected to make sure there's nothing substantially wrong with the property before they commit to the purchase. When a buyer submits an offer on a home they can request an option period in exchange for a dollar amount. Having trouble understanding how an option period works in the state of Texas? Thats because option periods are called different things in different places. Agents usually advise clients put down earnest money to make sure their offer is considered. 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. Earnest money is refundable, and its paid to the escrow agent to hold in escrow, not to the seller. 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. Please note that data on this website is derived from various sources and every effort is made to ensure the accuracy. Excess screen time can lead to exhaustion and stress. If you use a check, the funds must clear before the earnest money is considered deposited. 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). 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 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. TREC made a change to the standard Texas real estate contract regarding how option fees are paid. When does the option period start? 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