It's also home to The University of Texas' main campus. TREC made a change to the standard Texas real estate contract regarding how option fees are paid. Be among the first to hear about upcoming events, industry insights, expansion announcements, and more. An inspection of a home takes place after a contract has been executed, signed by both the seller and buyer. If you made an offer and waived this contingency, you cannot back out of the deal and get your deposit back no matter what the inspection uncovers. However, the more competitive the real estate market, the more important it becomes. Agents need to be careful about calculating this due date. Buy your first home this year: Perform a Financial Checkup DOWNLOAD the HOWS the SUGAR LAND REAL ESTATE MARKET Report TODAY! On average, a Texas divorce without children costs about $15,600, and one with children costs about $23,500. 5.0. The standard TREC contract has default provisions that allow the seller to cancel the contract if the earnest money is not deposited on time. Because the buyer is now in default of the contract, the seller can exercise their rights under the default provision. Buyers typically use this time to have the home inspected to make sure theres nothing substantially wrong with the property before they commit to the purchase. The deadline is moved forward a day if Day 3 falls on a weekend or legal holiday. Earnest money is refundable, and its paid to the escrow agent to hold in escrow, not to the seller. Keep in mind, that may be difficult to schedule a home inspector in such a short amount of time. (Option fees typically range from $100-$500. Share insights and experience. 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. In some areas, the typical earnest money deposit is a flat amount such as $1,000 or $5,000 regardless of the purchase price. In Texas, a typical option period is around 10 days and the typical option fee is about $10.00 to $30.00 per day. If the buyer terminates the contract, the seller can often keep the earnest money. If you dont know what you want, the line disappears too quickly. If this contingency was waived by the buyer, the deposit is forfeited if financing falls through. However, its usually expected by sellers and an offer may not be accepted without it, especially if there are multiple offers. Join the 10,000 agents who already receive our weekly newsletter. At closing, the earnest money deposit is credited toward closing costs and/or the down payment. Here's What To Know. How do I determine the last day to terminate under my clients 10-day option period in the One to Four Family Residential Contract (Resale)? Can be extended by mutual agreement of the buyer and seller. If the buyer chooses to terminate, the EMD would be refunded, but the seller would retain the option fee. The option period ends at 5 pm central standard time on the last day of the option period. 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. Communication. 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! At the end of the Option Period (and the timing is very strict) you can do one of the following: Make sure you hire a real estate agent who knows how to properly handle Option Periods and protect your money. The three most common things that happen during this period include: A home inspection is a thorough examination of a home by a licensed home inspector. Since Paragraph 5A, the Delivery of Earnest Money and Option Fee Paragraph, uses the word withinwhen describing the time period, Day One of the option period is the day after the effective date of the contract. Wire transfer fraud is a growing problem that can be hard to spot! 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. As a buyer, you need to make sure you make the most competitive offer you can, while still ensuring youre making a great investment.. Across the United States, due diligence is probably the most common name for an option period, but you may also hear it referred to as the inspection period or contingency period. I assist with inspections, repair negotiations, home warranties, HOA compliance inspections, hazard insurance, surveys, appraisals, title commitment, home warranties, title company, and more. The Austin area is known for its live music scene as well as many parks and lakes ideal for hiking and exploring. Option Period: What Is It When Buying A Home. 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. The property will be placed in OP (option pending) status in the MLS. The Option Fee may or may not be credited to the buyer'scosts at closing. Im on your side because Im YOUR agent. There are several things you can do to help achieve this: Weve hinted at it above, but lets be clear: Sellers often have a very different view of option periods than buyers do. If the buyer terminates the contract, the seller can often keep the earnest money. The length of the option period and the option fee are negotiable between the buyer and the seller. Creekview Realty notes that the option fee is usually $100 and the period is seven to 10 days. Youre able to make a more competitive offer with confidence.. If there is a structural inspection contingency, it typically states that the buyer can only back out and have the earnest money released if the inspection finds a single defect that would cost at least $1,500 to remedy. 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! or the buyer backs out with cause allowed in the contract. 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! When you use our Buy with cash or Buy Before you sell solutions, youll benefit from our Dual Appraisal Advantage. Texas REALTORS is committed to advocating for a strong real estate industry, advancing a culture of continued learning, and staying ahead of issues . $500 for five days has become my go-to when Im competing with other contracts and low inventory, Bacak explains. The option allows the buyer to back out or renegotiate based on this new information. Having trouble understanding how an option period works in the state of Texas? With so many contingencies, communications, and deadlines to manage in even a simple real estate transaction, its easy for real estate agents to get overwhelmed. Arbor Green Design is not a real estate agent, broker, or associated with any real estate team in the State of Texas or any other state. How much earnest money is normal depends on the norm where you live. It also allows time to negotiate repairs with the Seller. The home-buying process can be overwhelmingeven more so if you rush through it. 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. I can filter out , Accurately pricing a home takes more than a three-minute look at current sales numbers by a computer algorithm. This lets us know how we can best help get your client started with Homeward. 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. The previous TREC contact stated that earnest money was due upon execution of this contract, a vague deadline that rarely happened. Texas REALTORS provides content through various online platforms, including this blog. Bacak explains, The more option money you put down, the better as it shows the seller youre invested and wont terminate.. [The sellers market] is making buyers do everything with haste. After the inspection, your home inspector will issue a detailed report on the condition of your new home. Network of ExpertsMy network of experts can make your transition to the area as smooth as possible. When buying a home in Texas, you should make the most of this time to ensure the property doesnt have any major issues. As one, Transaction coordinators play an important role in the real estate industry. The term option period is specific to Texas. 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. Earnest money is one of many important aspects of a Texas real estate transaction. In Killeen, typical earnest money amounts range from about $500 to 1% of the purchase price . DOWNLOAD 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. As mentioned, the option starts the day after the contract is executed and ends on the date specified in the contract. In hotter markets like Austin and its suburbs, earnest money amounts of $3000, $5000 and more are not uncommon. In 2018, the Texas Real Estate Commission (TREC) updated its standard. Earnest money contracts are also called option contracts for this reason. A great real estate agent can help a buyer navigate the option period and make the most of it. But when you make a Homeward Cash Offer, you can have both. If you do not exercise your option (and continue the purchasing process), then the option fee is usually applied toward your closing costs. The termination option ends at 5 p.m. local time to where the property is located. 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. Save searches and favorites, ask questions, and connect with agents through seamless mobile and web experience, by creating an HAR account. The option period can also be extended for an agreed-upon number of days. Requires consideration - a non-refundable fee paid to the seller called the Option Fee. [citation needed] There is not a predefined requirement for how much a buyer must pay for the option period in Texas; however, it typically ranges between $100 to $200. It can be returned to the buyer or kept by the seller if the buyer defaults. Take a look at a sample House Report that I do for my clients. Your lender will use the results of the appraisal to determine how much money theyre willing to lend you for the property., Today there is an appraiser shortage so most homebuyers arent able to get an appraisal during the option period. If you use a check, the funds must clear before the earnest money is considered deposited. Plus, my proprietary House Report (see sample) includes the data and information you need to ensure that you are making great home purchase. Releasing earnest money prior to closing can be done by submitting the Texas Release of Earnest Money form to the title company signed by the seller and buyer. 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. Texass option period is not mandatory and could affect a buyers offer being accepted as the seller could view it as inconvenient. I have the expertise to help solve complicated problems that often occur in the process. 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. Texas markets where multiple offers are common may have higher expectations. If you waived this contingency, you will need to surrender the deposit if you cannot fulfill the contract due to financing. The buyer can terminate the contract during the option period for virtually any reason. After changes made in 2018, Texas law requires that your real estate agent delivers the earnest money within three days that the signed purchase contract is executed. You will not post any defamatory, discriminatory, libelous, threatening, vulgar, sexually explicit, abusive, profane, rude, or obscene content (including comments); b. The number of days set forth for the option period is negotiable, but typically, anywhere between 1 and 10 days. All content on this website is created and managed by Arbor Green Design. 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 buyer can take advantage of this option to complete a few checks for their peace of mind. Even though the seller can take a backup offer, they cannot sell the property to another buyer when the listing status is not active. They support agents by taking time-consuming, detail-specific, and deadline-oriented tasks related to contracts off of their plates. The termination option ends at 5 p.m. local time to where the property is located. This lets us know which side of the homebuying process youre on, so we can help you get started with Homeward. Its the last day of my buyers option period. The Option Period is an important part of a real estate transaction in the state of Texas. 4.9. Option period can be extended, but generally these are due to other factors. That is, when all parties have signed and agreed to the contract. 5.0. for residential purchases to clarify when does earnest money need to be deposited. 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. Check out p. 27 regarding the sample Flood Map info I provide. In Texas, the Option Period is typically between 1 and 10 days. In general, the shorter your option period, the more attractive your offer is to the seller. This may include retaining or refunding the earnest money. If the buyer is more motivated to purchase the home, they may sweeten the pot with a higher amount and shorter option period. 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 average earnest money deposit nationwide is 1% to 2% of the purchase price but 3% in California. Hard To Find Data & Statistics. All days are calendar days. Thebuyer may decide to exercise their right to terminate if they are not satisfied with the condition of the property after receiving the report(s). Its a sign of good faith that a buyer intends to follow through with their offer and purchase the property. . The option period begins the day after the effective date of the contract. In most places, you should put down a percentage. Something went wrong while submitting the form. The Texas Real Estate Commission revised its contracts effective January 1, 2016, to implement this time deadline. You don't want to end up with a house that's not worth the value you paid. The median home price in Texas is $420,000. (Heres a list of home inspectors.) 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. The option period begins on June 3rd. The median home price in Texas is $420,000. With so many contingencies, communications, and deadlines to manage in even a simple real estate transaction, its easy for real estate agents to get overwhelmed. Want to learn more about everything that goes into the home-buying process? Texas escrow law does not require earnest money and a contract is valid without it. The non-refundable fee is paid to the seller (usually about $100). Typically in this period the home buyer will coordinate for a thorough home inspection and any other inspections they like. Navigating the home-buying process can be overwhelming, and it helps to talk things through with an expert. So you must be ready to get your inspections ordered ASAP. I'm a home buyer considering using Homeward, I'm a real estate agent representing a customer, a typical option period is between one and two weeks long, assess the fair market value of your potential home, Affiliated Business Arrangement Disclosure. Starts at the beginning of the purchase contract period. 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. Yes. This usually has to be more than a symbolic gesture of $1, but nonetheless compensation. Amanda operates under the brokerage of Coldwell Banker Realty. Well, that angst multiplies 10 times when committing to a home purchase, and youll need extra time (and extra details) to feel confident in your decision. If you are an HAR Account subscriber or a member of HAR, please click, -------------------------------------------------. hbspt.cta._relativeUrls=true;hbspt.cta.load(7043426, '1d20d9bc-09e0-4630-9baa-430ec5a1c064', {"useNewLoader":"true","region":"na1"}); In Texas, the option period begins the day after the contracts are signed. Thank you! Yes. Before inspections, you may fear the state of the home or the sellers willingness to negotiate repairs if the home needs serious work. Texas REALTORS provides content through various online platforms, including this blog. But be warned: Every option period and extension comes at a price. Home | FAQ | Blog | Mortgage Calculator | VA Loans | Terms of Use | Privacy Notice, 2710 S Clear Creek Rd Ste 115 Buyers should make the most of the period and take every opportunity they can to solidify their decision to buy or terminate. 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. During the Option Period, the buyer can terminate the contract for any . Buyers anxieties are put at ease when they realize how beneficial this is to them as the buyer. 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. The Texas Board of Insurance which governs title companies in the state only requires that companies accept good funds. Many title companies will not accept a large sum of cash for the earnest money deposit. Understanding the contractual elements in a real estate transaction is important to protect yourself and your investment. While this period can last anywhere from a few days to a few weeks, Redfin reports that a typical option period is between one and two weeks long.. During the Option Period, the property will be removed from 'Active" status and placed in "Option Pending" status in the MLS (Multiple Listing Service). This includes weekends and holidays. An option period typically lasts between 7-10 days, but it can be any length of time agreed on by the buyer and seller. IKEA Life at Home Report 2021 A homeowner's routine home maintenance checklist Don't let the market tell you when you're ready to buy a home Get started Popular What Is an HOA and How Can It Affect Homeowners? Discover Sugar Landand Know What theExperts Know Without Wasting Hours, Days, and Weeks of Time and Effort It doesnt take years to get to know Sugar Landit just takes my free 145+ page real estate guide! Therefore, we promote stricteditorial integrity in each of our posts. This is where an option period becomes key even if your choice is to back out of a sale, youll feel better having decided that on your timeline. I wont ignore potential defects that can cost you money, or effect your resale value, in the future. I hope this answered your question- "What is the Option Period in Texas?" In hot markets like Austin, an earnest money amount of 2% or more may be needed to stand out against other offers. 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. If neither party wishes to, the contract is terminated and the deposit is refunded to the buyer. In most areas of the state, 1% of the purchase price or $500 is normal. Agents Compete, You Win. If the buyer decides to terminate the contract, they wont get the option fee back. This is compensation for the time and effort theyve wasted and the need to relist their home. An option period means the buyer can terminate the contract during the agreed-upon time frame without any particular reason being given. Gain access to our suite of customizable marketing assets for agents. Utilize an agents expertise in negotiation, offer a short option period, and up your option fee. The Option Fee is given (hand-delivered or mailed) to the seller (or seller's agent) at the beginning of the contract period. 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. But dont be confused the fee is also a win for buyers whether or not they back out! Case law in Texas dictates that the option fee can be no greater than 1% of the home's sale price. If the buyer opts to renegotiate the contract, they send the amended contract to the listing agent to discuss it with the seller. Most residential real estate contracts in Texas include an option period. Keep in mind that the seller keeps the option money if the buyer backs out of the contract. 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. As of June 2022, the median sales price in Travis county was $665,000. The buyer has the right to object to the Commitment and Exception Documents within a certain number of days. An accepted contract is just the beginning. In a sellers market, offers with option periods might lack a bit of appeal to a seller with a lot of interested buyers. Has an agreed-upon number of days. A home purchase isnt something you want to rush into. 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! An option period can be extended if the seller agrees. The option money is a non-refundable fee, but it can be applied to the sales price of the home after closing. Sellers usually favor offers with a good faith deposit because they do not want to waste their time with a deal that falls through. That fee goes toward the seller's time holding the potential buyer's spot. The option period is a small but critical part of the home-buying process. . 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. Work with an expert buyers agent to help you understand this key purchase contract component, so you have the time you need to make your decision. , not the seller, within 3 days of the effective date. If the transaction doesnt close and the deal falls through, do you get your earnest money back? If you buy an Option period, it begins the day the contract is executed (signed and acknowledged by all parties). 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. As long as the buyer meets the requirements of the inspection contingency, their earnest money deposit is returned. It can be returned to the buyer or kept by the seller if the buyer defaults. 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. Hows the Market in Sugar Land?, Texas Real Estate Commissions Information About Brokerage Services (click here), Consumer Protection Notice (click here), Agent: Sheila Cox, Realtor The earnest money you deposit shows that you have skin in the game too. Because there are drawbacks to using a check, including a potential waiting period for the money to clear, you should know how to pay earnest money without a check. Earnest money is not required to make a valid Texas real estate contract. If the buyer does not comply with the contract terms, they are in default and the seller has the right to terminate the contract and keep the earnest money deposit. Tell me exactly what you want, and I can narrow down your options better than any search you have access to. 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 chief benefit of the option period is it allows the homebuyer time to determine if they want to move forward with the purchase. If you're a homebuyer interested in learning more about becoming a cash buyer, schedule an appointment with a Homeward Advisor here. d. You will not post any information intended to sell or advertise a business, product, or service. I help with price analysis and negotiations, legal paperwork, inspections, repair negotiations, home warranties, HOA compliance inspections, hazard insurance, surveys, appraisals, title commitment, home warranties, and more. Sellers usually favor offers with a good faith deposit because they do not want to waste their time with a deal that falls through. This fee makes the option period more worth a seller's time. An option period typically lasts between 7-10 days, but it can be any length of time agreed on by the buyer and seller. Its at this time that the seller can deny and continue with the contract or the buyer can opt to back out and continue their home search. If youre not from Texas, you may have never heard of an option period. Amanda Brown is a licensed real estate agent with the State of Texas. 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. The length of the option period and the option fee are negotiable between the buyer and the seller. If the buyer decides to back out of the sale after the option period because of a low appraisal (and the lender will not lend what is needed to purchase the property) or a financing issue, and the appraisal and financing contingencies have not been released, the buyer will still lose the option fee, but will be refunded their earnest money deposit. (Also see Pricing a Home Correctly), Best Home SearchesYes, you can search on your own, but no other home search available can filter down to the school leveland filter out the subdivisions that may be known to flood. 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. Checkup DOWNLOAD the HOWS the SUGAR LAND real estate transaction is important protect! Wire transfer fraud is a growing problem that can be applied to the escrow agent hold! Theyve wasted and the seller & # x27 ; s also home to the buyer can the... Of good faith deposit because they do not want to rush into beginning... Option to complete a few checks for their peace of mind and acknowledged by all parties have and... Shorter option period, and deadline-oriented tasks related to contracts off of their plates vague. Long as the buyer and the need to be more than a symbolic of..., when all parties have signed and acknowledged by all parties ) home! Period ends at 5 p.m. local time to ensure the property be deposited contract is executed ( signed acknowledged... 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