What is the Option Period When Purchasing a Home?
You found the home of your dreams, you are now under contract to purchase and you paid a fee for an option period. You’re told that this is the time to get your inspections done and do your due diligence. But what does this really mean to you? To prevent a default on your end, it’s important to understand what the option period is and when it ends.
The Option Period
As the contract states, the option period is your unrestricted right to terminate the contract during the agreed-upon period of time. It is the time in which you make your final, binding decision to purchase or not purchase the home. This can mean that you wake up the next morning, decide it’s just not the home for you, and terminate the contract without any further recourse other than forfeiting the non-refundable fee that you paid for this right. Or the most common reason for terminating the contract during the option period is that after you had a general home inspection done, you determined the home needs too many repairs for you to take care of, and the seller is not willing to negotiate. The most important thing to remember here is that you must terminate within your option period to prevent defaulting on your end, and also losing your earnest money. Remember, the option fee is non-refundable if you terminate, but if you move forward with the purchase, the option fee will be credited to you at closing if this was agreed to during the negotiation of the contract.
Paying the Option Fee and the Option Period Deadline
In Texas, the option fee must be delivered to the seller within 3 business days of the executed contract date, and the option period ends on the effective date at 5 p.m. local time where the property is located. If your effective option period date is January 10th and you have a 10-day option period, the option period will end on January 20th at 5 p.m. If you terminate the contract after the option period ends, you not only forfeit the option fee, you will be in default and will have to release the earnest money to the seller as liquidated damages.
During the Option Period
As mentioned above, the option period is your unrestricted right to terminate the contract during the agreed-upon period of time, and you can terminate for any reason during the option period. But if you are serious about moving forward with the purchase, the option period is not a time to procrastinate, as the days tend to go by quickly. During the first day of the option period, you should schedule a professional home inspection to allow time to address any repairs if needed. If you need to have a structural engineer take a look at the foundation, or a roofing company inspect the roof, schedule these appointments as soon as possible. You want to allow yourself sufficient time to address and negotiate any needed repairs with the seller.
Extending the Option Period
The option period can be extended for an additional non-refundable fee by submitting an amendment to the contract to the seller. The amount of the additional fee is negotiable, and the extension must be agreed to by both parties before the original option period expires.
Use a Realtor
A real estate professional will help you understand the contractual elements in a real estate transaction, and help you stay on top of important deadlines.