What Is an Option Period & Fee in Texas?

One of the questions I get the very most is: What is an option period? Every state has its own regulations and norms. An option period is Texas’ way of providing a home buyer time for due diligence. In exchange for that time, the buyer pays the seller an option fee. Both the option period length and the option fee amount are negotiable points in a real estate contract.

During their option period, a buyer can terminate the contract for any reason at all. Maybe something major came up during the inspection, and the buyer and seller can’t agree on how to move forward. Or maybe the buyer just changed their mind or got cold feet.

If the buyer moves forward and closes on the house, the option fee is credited towards their closing costs. If the buyer takes their option to leave the contract, the seller retains the option fee. The option fee is never refunded.

Buyers always want to know: How long is a typical option period? And how much is a typical option fee?

The answer is: It’s completely negotiable. If you are competing against multiple buyers, you will want to have a short option period with a high fee. For example, two days for $1,000. A contract that is much more favorable to the buyer might have a 10-day option period for $200. Option fees are paid to the title company within three days of contract execution. If the third day falls on a holiday or weekend, the fee is due on the next business day.

The option period is a dangerous time for the seller! If the buyer takes their option and the house goes back on market, the seller has lost time on market and other potential buyers will wonder if there is something wrong with the house. That might make them hesitant to make an offer or more likely to submit a low ball offer. Sellers should discuss these risks with their agent when considering whether to accept an offer.

What type of due diligence should buyers do during the option period? The biggest thing is inspections! But you could also be doing further research into the area. Or if you’re an investor, you could dive deeper into your numbers.

During the pandemic market, there were people who waived their option period altogether. There are very few situations in which this is a good idea. The reason is, inspections always turn up something. Even in a brand-new new-construction house, there is always something that is out of code or not working.

After your inspections, you will probably have another round of negotiations with the seller to address those unexpected items that come up. Usually that means asking the seller to either make repairs or provide repair credits. If you don’t have an option period, you lose this opportunity.

It’s important not to leave repair negotiations to the last minute!! Option periods expire at 5pm on the last day. When counting days, the day the contract is signed, is day zero. So if you sign a contract on Monday at 8am, a seven-day option period would last through 5pm on the following Monday.

I hope this is helpful!! Subscribe to my YouTube channel for more information on real estate in Austin, Texas. If you have more questions, please reach out! I’m available by text, phone, and email.