Traditionally, the option fee was paid to the seller. Plus, my proprietary House Report (see sample) includes the data and information you need to ensure that you are making great home purchase. . DOWNLOAD the HOWS the SUGAR LAND REAL ESTATE MARKET Report TODAY! If you're a homebuyer interested in learning more about becoming a cash buyer, schedule an appointment with a Homeward Advisor here. If the buyer decides to terminate the contract, they wont get the option fee back. But dont be confused the fee is also a win for buyers whether or not they back out! 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. If you use a check, the funds must clear before the earnest money is considered deposited. It gives you the right to terminate the contract without losing your Earnest Money Deposit. If you are an HAR Account subscriber or a member of HAR, please click, -------------------------------------------------. A seller with multiple offers wants the best price in the shortest amount of time. A wire transfer is the most common and safest way to make your good faith deposit. Texas markets where multiple offers are common may have higher expectations. When buying a home in Texas, you should make the most of this time to ensure the property doesnt have any major issues. 4.9. During this time period, a home buyer will want to complete any desired home inspections (general, architectural, foundation, pest, etc.). This fee makes the option period more worth a seller's time. The option period ends at 5 pm central standard time on the last day of the option period. The applicability of the legal principles discussed in this material may differ substantially in individual situations. Keep in mind that the seller keeps the option money if the buyer backs out of the contract. This may include retaining or refunding the earnest money. What happens if buyer does not deposit earnest money? 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. A general rule of thumb is the earnest money is refundable to the buyer if the. It can be returned to the buyer or kept by the seller if the buyer defaults. In most markets, you would put down $1,000 to $4,200 in earnest money. In the state of Texas, an option period allows a buyer to get these details before making the final choice. But for those who terminate, they only lose the option fee. Ideally, you want to have the home thoroughly inspected and the purchase contract reviewed by a real estate attorney before you sign anything. Learn About the Benefits of Owning a Home Versus Renting, HOME BUYING 101|Sep 23, 2020 12:00:00 PM|by radius financial group. A home purchase isnt something you want to rush into. 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. This low fee is paid to have an option period during which you can enter the property, perform due diligence, and have the home inspected. Ultimate Guide to Sugar Land (eBook), DOWNLOAD c. You will not post content or take any action on our blog posts that infringes someone elses rights or otherwise violates the law. In summary, the Option period gives you time to have the home thoroughly inspected and find any defects that you cannot live with. Want to learn more about everything that goes into the home-buying process? You (the buyer) and the seller agree on the length of the option period as one of the terms in your contract. HomeLight, Inc. 100 1st Street, Suite 2600, San Francisco, CA 94105. It's also home to The University of Texas' main campus. You should contact an attorney or licensed CPA to obtain advice with respect to any particular issue or problem. 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. If a buyer backs out of a contract without a valid reason, the seller can keep the earnest money. Making their services extremely sought after by new and experienced agents alike., Transactly Acquires TC Solutions, LLC Further Expanding National Network of TCs Transactly, a rapidly growing Real Estate Transaction Platform, has announced the acquisition of TC Solutions, LLC based in King County, Washington. 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. 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. 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. After the inspection, your home inspector will issue a detailed report on the condition of your new home. These numbers come from journalists parsing data from across the United States, and they say Texas is one of the most expensive places to divorce. Other states use different terminology to refer to a similar period of time typically used for inspections and other contingencies: In many states, contingencies are taken care of before the purchase contracts are signed, which negates the need for a formal option period. There are some financing situations (i.e. (View helpful videos on my YouTube channel). Copyright 2021 Sheila Cox. Every buyer deserves a few days to review the property and decide on the purchase without risking too much financial loss. An option period can be extended if the seller agrees. NO other agent in the world does this! As a buyer, you need to make sure you make the most competitive offer you can, while still ensuring youre making a great investment.. How much earnest money is normal depends on the norm where you live. The non-refundable fee is paid to the seller (usually about $100). She has 4+ years of writing experience and holds a degree in English Literature from Brown University. Sellers usually favor offers with a good faith deposit because they do not want to waste their time with a deal that falls through. Agents need to be careful about calculating this due date. If your client wants his back-up contract to last until or beyond the first contract's closing date, you can also ask the listing agent to provide the first contract's closing date. An option period typically lasts between 7-10 days, but it can be any length of time agreed on by the buyer and seller. Creekview Realty notes that the option fee is usually $100 and the period is seven to 10 days. In some areas, the typical earnest money deposit is a flat amount such as $1,000 or $5,000 regardless of the purchase price. Thank you! This enables the buyer to terminate the sale at any point during the allotted time. The standard contract allows for damages if either party wrongfully fails to sign the release or wrongfully challenges it. 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. So when you sign the contract to purchase a home, you will give your real estate agent two checks: 1) Option fee check payable to the Seller, and 2) Earnest money (usually 1 percent of sales price) payable to the Title Company. The length of the option period and the option fee are negotiable between the buyer and the seller. Sometimes in the home inspection report there are problems with the house that were not disclosed or unknown at the time. The average earnest money deposit nationwide is 1% to 2% of the purchase price but 3% in California. An option period means the buyer can terminate the contract during the agreed-upon time frame without any particular reason being given. My team of experts is ready to help you achieve your goals. (Option fees typically range from $100-$500. Understanding the contractual elements in a real estate transaction is important to protect yourself and your investment. 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. 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. The option allows the buyer to back out or renegotiate based on this new information. 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. Wire transfer fraud is a growing problem that can be hard to spot! Earnest money contracts are also called option contracts for this reason. In fact, during the option period you can terminate the contract for any reason. a. 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. It is essentially the buyers security. The chief benefit of the option period is it allows the homebuyer time to determine if they want to move forward with the purchase. You don't want to end up with a house that's not worth the value you paid. Both the option periods fee and duration are negotiable. As an experienced professional, theyll use their knowledge to help you avoid any major missteps., Home appraisals are typically ordered by your mortgage lender. It also allows time to negotiate repairs with the Seller. Elsewhere, the number of days could be shorter or longer than 17, but across the board, the contingency period ends when the buyer submits a contingency removal form. Requires consideration - a non-refundable fee paid to the seller called the Option Fee. Get answers, ask questions and more. How do we do that? The length of the option period is negotiable and it may be as short as 5 days. If the buyer is more motivated to purchase the home, they may sweeten the pot with a higher amount and shorter option period. Buyers anxieties are put at ease when they realize how beneficial this is to them as the buyer. Learn everything you need to know about the home-buying process. Typically, you must pay a fee to set up an option period. However, the more competitive the real estate market, the more important it becomes. It works the same way with either program:, Traditionally, homebuyers have had to choose between moving quickly and having peace of mind. During the Option Period, the buyer can terminate the contract for any . 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. Texas Real Estate Commission Information About Brokerage Services | Texas Real Estate Commission Consumer Protection Notice, Amanda Brown Realty with Coldwell Banker Realty 2021 | Designed and Maintained by Arbor Green Design, Amanda Brown Realty with Coldwell Banker Realty 2021 | Designed and Maintained by, extend the option period with additional compensation, How to Find a Real Estate Agent | First-Time Home Buyer Help, Cedarbrook Ridge Estates: Harker Heights, TX, Estancia West: Upscale Living in Killeen TX, From the Pro: How to Buy Land From a Neighbor, Texas Real Estate Commission Information About Brokerage Services, Texas Real Estate Commission Consumer Protection Notice. Thinking about buying or selling real estate? You will not post any defamatory, discriminatory, libelous, threatening, vulgar, sexually explicit, abusive, profane, rude, or obscene content (including comments); b. Dont you deserve to have a Five-Star real estate agent on your side? How to Become a Transaction Coordinator in California, Transactly Acquires TC Solutions, LLC Further Expanding National Network of TCs. The option period and fee are finalized in the purchase contract terms of the sale. Before inspections, you may fear the state of the home or the sellers willingness to negotiate repairs if the home needs serious work. 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 neither are willing or able to do this, the contract can usually be terminated under the standard property approval contingency which requires the lender accept the property and its appraisal. . That is, when all parties have signed and agreed to the contract. This form must be signed by the seller and buyer and delivered to the title company. 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. How much will I need to save for a major purchase? The earnest money will be returned to the buyer, but the option fee is forfeited to the seller. 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. Texas REALTORS provides content through various online platforms, including this blog. 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. 5.0. The option period starts the day AFTER the contract is executed. Free shipping for many products! Traditionally, the option fee was paid 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. Don't overlook the importance of the option period. You may dread the idea of an additional fee, but its worth it. I have the expertise to help solve complicated problems that often occur in the process. A great real estate agent can help a buyer navigate the option period and make the most of it. The Austin area is known for its live music scene as well as many parks and lakes ideal for hiking and exploring. A buyer can make their offer more appealing to a seller by offering a shorter option period, say 5-7 days. 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. Reasonable shipping cost. Agents usually advise clients put down earnest money to make sure their offer is considered. What Is an Option Fee? Option periods delay sellers from achieving that goal, so a seller is typically motivated to shorten the length of the option period (or eliminate it altogether). The option period is a good time to take a breath and review any contingencies before taking the final plunge. It depends on why the deal failed to close. Check out p. 27 regarding the sample Flood Map info I provide. Find real estate questions & answers. 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. 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. For example, if your clients effective date is January 22 with a 10-day option period, the option period will end on February 1. 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. Earnest money is refundable, and its paid to the escrow agent to hold in escrow, not to the seller. Bacak explains, The more option money you put down, the better as it shows the seller youre invested and wont terminate.. 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. As the buyer, it's important to note that the option and extension fees are more than a symbolic gesture. 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. Average for the last 12 months. It is almost like an undo button. Once it is received, the earnest money will be released back to the buyer. The Texas real estate contract option period is in place to provide protection to the buyer. An accepted contract is just the beginning. Option period can be extended, but generally these are due to other factors. After closing on a house in Texas, the earnest money is generally credited toward the purchase of the home. There are several options for paying Texas earnest money: The title company can choose which funds it accepts. While Texas REALTORS has used reasonable efforts in collecting and preparing materials included here, due to the rapidly changing nature of the real estate marketplace and the law, and our reliance on information provided by outside sources, Texas REALTORS makes no representation, warranty, or guarantee of the accuracy or reliability of any information provided here. and delivered to the title company. Another point of security is that the seller cannot make any other deals during the option period. The option money is a non-refundable fee, but it can be applied to the sales price of the home after closing. In fact, some modestly priced homes only include option fees of $100. 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. If the buyer chooses to terminate, the EMD would be refunded, but the seller would retain the option fee. 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. If you do not exercise your option (and continue the purchasing process), then the option fee is usually applied toward your closing costs. However, Sheila Cox and Keller Williams assumes no liability or damages due to typos, errors or omissions. Your submission has been received! The length of the option period and the option fee are negotiable between the buyer and the seller. In hot markets like Austin, an earnest money amount of 2% or more may be needed to stand out against other offers. Excess screen time can lead to exhaustion and stress. 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. 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. 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. The home-buying process can be overwhelmingeven more so if you rush through it. They support agents by taking time-consuming, detail-specific, and deadline-oriented tasks related to contracts off of their plates. Sellers take the dollar amount and the duration in consideration when deciding on which offer to go with. In most areas of the state, 1% of the purchase price or $500 is normal. 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