What is an Option Period?
In Texas real estate, an Option Period is written into the contract to give a buyer a specified number of days in which they can terminate the contract for any reason. It is intended to give the buyer time to conduct their due diligence havi which includes inspections and appraisals, to negotiate repairs and other items in the contract, and to get approved for financing if they are applying for a mortgage. The buyer pays a non-refundable fee to the seller, called an Option Fee, which is the charge for this review period and it typically ranges from $100-200.
According to HAR.com the Texas Real Estate Option Period typically lasts from 1 to 10 days. It begins the day after the purchase contract is signed and ends at 5 PM local time on the specified end date. During the Option Period, the property is labeled as “option pending” (OP) on the MLS. If the buyer needs more time, they can potentially negotiate with the seller to extend the Option Period for additional days.
The Option Period in Texas allows the buyer to terminate the contract for any reason without the risk of losing their earnest money. This is why the Option Period is typically only about a week, although some buyers are granted only a day or two, particularly if the home has several offers on the table or has only been on the market for a short period of time in a hot real estate market.
You can see why the seller wants to reduce the number of days in the Option Period as much as possible while still giving the buyer time for inspections. The longer the home is under OP, the fewer buyers will bother looking at the home because they assume the home will stay under contract.
How Does The Option Period Impact Buying and Selling Texas Homes?
The Option Period can be a stressful time for buyers and sellers. Buyers are pressured to get their inspection scheduled and conducted, then wait for the results, get repair estimates, and negotiate any issues with the seller. The seller must patiently wait for all of this to occur, hoping nothing happens to jeopardize the contract. Anything from a worrisome inspection report to buyer financing troubles and a low appraisal could cause the buyer to back out of the contract during this option period. And there’s reason to worry. According to the National Association of RealtorsⓇ, “issues related to obtaining financing” accounted for 30% of the problems that delay contract settlement, followed by home inspection issues (19%) and appraisal issues (16%).
The Option Period is not a set period of time, but you can make your contract more attractive if you are able to minimize the number of days you ask for in the Option Period. One of the best ways to reduce the length of the Option Period is to remove as many of the reasons why you need an Option Period to begin with. For instance, if you need financing, you can get a pre-approval letter in advance so you have more confidence that you will get approved for a mortgage. Similarly, you can order the inspection and have your lender order the appraisal as early as possible. This ensures you get the results back quickly, within the option period, and have time to negotiate any repair costs or ask for a lower purchase price if the appraisal comes in low.
While a home inspection, report, repair bids and negotiations may take several days to complete and extend the length of the Option Period, home inspections are a good thing for you as a buyer. Rarely, if ever, would you want to bypass a thorough third-party inspection.
As a buyer, it is critical you know what you’re buying, warts and all. If there is a major issue that will require a significant investment to fix, you want to consider that cost before you sign on the dotted line. The home sale price may be within your budget, but when you add in all of the repairs, will that send you over budget? Does the damage or poor condition affect the integrity of the home, such as a cracked foundation, drainage problems, or structural.