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. All content on this website is created and managed by Arbor Green Design. In 2018, the Texas Real Estate Commission (TREC) updated its standard Texas real estate contract for residential purchases to clarify when does earnest money need to be deposited. If you purchased a home in Texas then youre familiar with the Texas real estate contract option period. Extensive case law in Texas suggests that the buyer must offer something of value to the seller to ensure that the extension is legally enforceable. This lets us know how we can best help get your client started with Homeward. Thats because option periods are called different things in different places. In a sellers market, offers with option periods might lack a bit of appeal to a seller with a lot of interested buyers. By paying this fee, youre purchasing the right to back out of the purchase for any reason during the option period. Agents need to be careful about calculating this due date. Typically in this period the home buyer will coordinate for a thorough home inspection and any other inspections they like. The length of the option period and the option fee are negotiable between the buyer and the seller. is money put down as a deposit with a Texas real estate purchase agreement. If this contingency was waived by the buyer, the deposit is forfeited if financing falls through. 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 option period is crucial for the buyers process; it creates time for making one of the biggest decisions in a homeowners life. An option period is a short window of time after your offer is accepted during which you take a closer look at your new home.If you find red flags or major issues during the option period, you can terminate the purchase and get your earnest money deposit (EMD) back from the seller. The option period begins the day after the effective date of the contract. A few common contingencies that are often included in real estate offers include: Due diligence is essential when it comes to buying a home. The compensation makes the contract legally enforceable. Contact us today! A seller with multiple offers wants the best price in the shortest amount of time. The option period can last anywhere from 7 to 10 days. For that reason, its not a process that should be rushed. How much will my fixed rate mortgage payment be? However, this doesnt spell the end of your dream home journey. 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. Yes as long as the contract has a financing contingency. The Option Fee must be delivered no later than 11:59 p.m. on the third day after the effective date of the contract. In most areas of the state, 1% of the purchase price or $500 is normal. It depends on how long the back-up buyer wants to stay in the back-up position. The purpose of earnest money is showing you are a serious buyer. At HomeLight, our vision is a world where every real estate transaction is simple, certain, and satisfying. If the buyer chooses to terminate, the EMD would be refunded, but the seller would retain the option fee. The option money is a non-refundable fee, but it can be applied to the sales price of the home after closing. If not, they'll face little to no penalty, says Katie Collins, Customer Experience Manager at Homeward. Once it is received, the earnest money will be released back to the buyer. A wire transfer is the most common and safest way to make your good faith deposit. What is an option period? , not the seller, within 3 days of the effective date. 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! If the seller fails to complete repairs or treatments that have been agreed upon, or repairs are not done by an authorized or licensed person with the required permits, the buyer can extend the closing date or terminate the contract and have the deposit refunded. Having trouble understanding how an option period works in the state of Texas? These two types of deposits are frequently confused and both must be delivered after signing a Texas real estate purchase agreement. If a buyer wishes to terminate the contract during the Option Period, he/she must notify the seller by 5 p.m. local time (where the property is located) on the day that the Option Period ends. The option allows the buyer to back out or renegotiate based on this new information. Candid AdviceI promise to give you candid advice on all homes and areas so you can make the best decisions. While including an option period is a common practice in Texas real estate, its not a mandatory requirement, explains Collins. There must be an amount included in Paragraph 6. Earnest money is one of many important aspects of a Texas real estate transaction. 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. Therefore, we promote stricteditorial integrity in each of our posts. 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. 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. 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" 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. Read our Ultimate Home Buying 101 Guide. There are over 100 tasks that I perform for you during the purchasing process. 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. c. You will not post content or take any action on our blog posts that infringes someone elses rights or otherwise violates the law. If a buyer backs out of a contract without a valid reason, the seller can keep the earnest money. This will prevent other potential buyers from viewing and making offers to purchase that home. Amanda Brown is a licensed real estate agent with the State of Texas. 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. Traditionally, the option fee was paid to the seller. 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. But be warned: Every option period and extension comes at a price. After closing on a house in Texas, the earnest money is generally credited toward the purchase of the home. Use TRECs Amendment to the contract (TAR 1903, TREC 39-8) and fill in an amount acceptable to both parties in Paragraph 6. The Option Period is an important part of a real estate transaction in the state of Texas. For example, all parties execute the contract on June 2nd. Earnest money is money put down as a deposit with a Texas real estate purchase agreement. Will the buyer have to pay another option fee even though the extension is because the seller breached the contract? hbspt.cta._relativeUrls=true;hbspt.cta.load(20424362, 'e9dcb309-7259-4f5d-aa74-c702513a4917', {"useNewLoader":"true","region":"na1"}); Visit https://www.nmlsconsumeraccess.org/to verify UpEquity as a financial services provider.UpEquity is a licensed mortgage company in these states.UpEquity SPV2 LLC DBA UpEquity (NMLS #2101265).Parent company LnderLab, Inc. DBA UpEquity (NMLS #1849773), 3100 Alvin Devane Blvd. Tell me exactly what you want, and I can narrow down your options better than any search you have access to. (Option fees typically range from $100-$500. However, other regions have similar processes that support the buyers decision. 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. Keep in mind that option periods are specific to Texas and other states will have different processes that give buyers the time they need to make the final decision. The standard form most agents use is the TAR Release of Money Texas form. 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. The revised contract form, which became mandatory in 2021, requires the buyer to deliver the option fee to the title company, not the seller, within 3 days of the effective date. You will not post any defamatory, discriminatory, libelous, threatening, vulgar, sexually explicit, abusive, profane, rude, or obscene content (including comments); b. 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. 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. If the lender requires any repairs or treatments, such as termite treatment, neither party is obligated to pay for it. Buyers & Agents: Be Careful About Wire Fraud! No questions asked. She has 4+ years of writing experience and holds a degree in English Literature from Brown University. If the inspection uncovers serious issues or the seller wont budge on the contract terms, youre free to walk away from the sale without any repercussionsyoure allowed a change of heart. The previous TREC contact stated that earnest money was due upon execution of this contract, a vague deadline that rarely happened. The buyer must submit the TREC Release of Earnest Money form with the contract termination. Texass option period is not mandatory and could affect a buyers offer being accepted as the seller could view it as inconvenient. The first day is the day after the purchase contract is signed by both parties. Most residential real estate contracts in Texas include an option period. If there is something I didn't answer for you or if you have additional questions, please reach out to me. On the contract is an option period that allows you time to schedule an inspection. My team of experts is ready to help you achieve your goals. As the buyer, it's important to note that the option and extension fees are more than a symbolic gesture. I have the expertise to help solve complicated problems that often occur in the process. In this example, because Day 3 is a Sunday, the deadline is Monday. 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. 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. Want to learn more about everything that goes into the home-buying process? Here are quick answers to common questions about earnest money Texas buyers, sellers, and real estate agents have. In fact, some modestly priced homes only include option fees of $100. Shes worked in the mortgage industry since 2019 and holds a BA in Communications from California State University, Monterey Bay. You may need to pay a secondary option fee to get the seller to concede. Very important! Get started with a dependable Texas. Ends at 5 p.m. local time. Sellers usually favor offers with a good faith deposit because they do not want to waste their time with a deal that falls through. When you use our Buy with cash or Buy Before you sell solutions, youll benefit from our Dual Appraisal Advantage. 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. Before inspections, you may fear the state of the home or the sellers willingness to negotiate repairs if the home needs serious work. Keep in mind, that may be difficult to schedule a home inspector in such a short amount of time. If the buyer decides to terminate the contract, they must give written notice by 5 p.m. on the last day of the agreed-upon option period. A typical fee ranges between $100 and $500+, determined by the market and negotiated terms, and is due three days after the contracts start date. It means you can back out of the purchase if youve discovered something ugly or move forward with a home thats been held for you during your decision-making. Yes. Youre able to make a more competitive offer with confidence.. VA loans) that require the home to be in a particular condition. 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. 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. In hotter markets like Austin and its suburbs, earnest money amounts of $3000, $5000 and more are not uncommon. This is often done by paying an additional termination-option fee. What date should I put here? We all know the feeling of angst that hits as we move closer to the barista at a coffee shop to order a morning java. 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. . If you're a homebuyer interested in learning more about becoming a cash buyer, schedule an appointment with a Homeward Advisor here. You must offer something of value if the option and extension periods are to be legally enforceable. As mentioned, the option starts the day after the contract is executed and ends on the date specified in the contract. What Is an Option Fee? After the inspection, your home inspector will issue a detailed report on the condition of your new home. It ends at 5pm on the specified end date. I can filter out , Accurately pricing a home takes more than a three-minute look at current sales numbers by a computer algorithm. They support agents by taking time-consuming, detail-specific, and deadline-oriented tasks related to contracts off of their plates. If the contract has a generous inspection contingency, the buyer can back out of the deal before the deadline passes if they are unhappy with anything turned up during the inspection. Your submission has been received! A great real estate agent can help a buyer navigate the option period and make the most of it. 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. Im on your side because Im YOUR agent. To get the privilege of having an option period as a homebuyer, you'll pay an option fee to the seller. As one, Transaction coordinators play an important role in the real estate industry. [The sellers market] is making buyers do everything with haste. Your agent will deliver both checks to the appropriate party and get a written receipt for proof, within 3 days of executing the contract. An option fee is a small percentage of the total cost of a home, rarely exceeding $500. This enables the buyer to terminate the sale at any point during the allotted time. A typical option period is anywhere between 1 and 10 days but is dependent on several factors. Ready to save time on paperwork, ensure transactions close smoothly, and deliver the best experience to your clients? 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. . It is important that the additional fee obtained by the seller to extend the option period is more than a symbolic gesture. As an experienced professional, theyll use their knowledge to help you avoid any major missteps., Home appraisals are typically ordered by your mortgage lender. Its a sign of good faith that a buyer intends to follow through with their offer and purchase the property. Texas escrow law does not require earnest money and a contract is valid without it. What is a Kick-Out Clause, and How Can You Avoid It? Applicability of the legal principles discussed in this material may differ substantially in individual situations. For example, states such as North Carolina and Georgia have a due diligence period that works in a similar way. $500 for five days has become my go-to when Im competing with other contracts and low inventory, Bacak explains. 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. Depending on the local market conditions and norms, the average earnest money amount may be a flat amount such as $500 to $2,000 or a percentage of the purchase price, usually 1% to 2%. Traditionally, the option fee was paid to the seller. 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! However, there's an extension when the deadline is on a weekend or holiday. The option period is a small but critical part of the home-buying process. My job is to protect you from defective homes as much as possible while helping you make a sound financial investment. 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. However, the more competitive the real estate market, the more important it becomes. Reverse Mortgage Pros and Cons from a Financial Planners Perspective, 11 Questions to Ask When Buying a New Construction Home. Take a look at a sample House Report that I do for my clients. What if the seller refuses to release earnest money in Texas? This includes a professional CMA when you are ready to purchase a specific homeso you dont pay too much. 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. 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. Note that the inspection contingency is frequently waived in hot markets. 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. But for those who terminate, they only lose the option fee. Once it is received, the earnest money will be released back to the buyer. Can be extended by mutual agreement of the buyer and seller. 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. But dont be confused the fee is also a win for buyers whether or not they back out! The option period begins the day after the contract is signed, and both buyer and seller are contractually obligated to carry out those terms. 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. Usually on the contract you have 7 to 10 days to complete the inspection. If the transaction doesnt close and the deal falls through, do you get your earnest money back? It's a good faith deposit that shows serious intent to buy the home. Generally, the option provides the buyer time to do their due diligence on the property. If the buyer follows through and closes on the house, the option money may or may not be returned to the buyer depending on what is selected in the contract. Purchasing a house is an extraordinary financial investment, and a change of heart could significantly impact your finances. 5.0. 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. Plus, my proprietary House Report (see sample) includes the data and information you need to ensure that you are making great home purchase. The purpose of this grant is to improve educator quality and effectiveness by offering financial support to educator preparation programs that would like to explore and/or pilot an educator certification assessment that is performance-based, content-specific, and grade-band specific in the form of funds for the purchase of exam vouchers. Like (5) Dislike. Whats Your Home Worth in Current Market? Yes. The buyer also has the option to ask the seller to make repairs or reduce the purchase price. 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. Thorough home inspection and any other inspections they like creates time for making one of many important of... $ 100- $ 500 little to no penalty, says Katie Collins typical option period in texas Customer experience at. Stated that earnest money back in hot markets right to back out or renegotiate based this. 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