A home purchase isn’t something you want to rush into. Ideally, you want to have the home thoroughly inspected and the purchase contract reviewed by a real estate attorney before you sign anything. 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 is a good time to take a breath and review any contingencies before taking the final plunge.
What Is an Option Period?
An option period is an agreed-upon period of time, after the buyer and seller have signed the real estate contracts, during which the buyer can terminate the contract for any reason without risking their earnest money. Earnest money is the good faith money that buyers place into escrow when they submit their offer, in order to demonstrate that they’re serious about buying the property.
An option period typically lasts between 7-10 days, but it can be any length of time agreed on by the buyer and seller. 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.
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. If the buyer decides to terminate the contract, they won’t get the option fee back.
The term “option period” is specific to Texas. Other states use different terminology to refer to a similar period of time typically used for inspections and other contingencies:
- Massachusetts: Contingency Period
- Florida: Inspection Period
- Georgia: Inspection and Due Diligence Period
In many states, contingencies are taken care of before the purchase contracts are signed, which negates the need for a formal option period. A few common contingencies that are often included in real estate offers include:
- Home inspection: Unless you’re buying in a competitive market where you have to eliminate as many contingencies as possible, you should definitely have a professional home inspector look over the property before you purchase it.
- Securing financing: Contracts can fall through if the buyer isn’t able to secure financing. That’s part of the reason why it’s always best to get pre-approved prior to placing an offer on a house. Once you have secured a pre-approval, it’s important to avoid any life changes that could affect that status (e.g., losing your job or lowering your credit score)
- Attorney approval: Hiring a real estate attorney isn’t required in most states, but it’s not a bad idea to have one look over your contract before you sign.
- Sale of current home: Sometimes, buyers need to sell their current home before they can follow through on the purchase of a new one.
Due diligence is essential when it comes to buying a home. Unfortunately, if you’re 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.
How Does the Option Period Impact the Home Buying Process?
During the option period in Texas, the home status changes from “active” to “option pending,” and the seller cannot sell the property to another buyer during that time, although they can take backup offers. When buying a home in Texas, you should make the most of this time to ensure the property doesn’t have any major issues.
In other states, you can include contingencies in your offer and make sure they’re addressed before closing day.
How Do You Determine the Last Day of Your Option Period?
In Texas, the option period begins the day after the contracts are signed. The agreed-upon option fee must be paid by the third day of the option period. 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.
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). 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.
Take the Next Step Toward Homeownership
Navigating the home-buying process can be overwhelming, and it helps to talk things through with an expert. If you’re ready to take the next step toward homeownership, chat with a radius loan officer today to discover your options.