What Is an Option Period When Buying a Home
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Also called a “wrap” or “gap financing,” bridge loans are a lifeline for home buyers who are eager to purchase new digs before they’ve sold the home they’re currently in. The real estate option premium, negotiated holding time, and ultimate selling price are frequently the most essential components of a real estate option agreement that are negotiated over the course of the transaction. A thorough third-party inspection is something you should only do in exceptional circumstances. As a consumer, it is vital that you understand exactly what you are purchasing, faults and all. If there is a big problem that would need a considerable expenditure to resolve, you should factor that cost into your decision before signing on the signed line.
The home will revert to “option pending” on the market and sellers can only accept backup offers during this time. In a buyer’s contract, option money is a very significant component. When a buyer pays an option fee, he or she is obtaining the unlimited right to cancel the contract at any moment throughout the period specified in the agreement. When buyers are putting in an offer on a house, there are often many questions about earnest money and option money, funds that are put down in the first few days of an executed contract. Option money, in particular, can be confusing so let’s talk about an option period in real estate and what that entails.
What happens when the option period ends?
Every state will have their own real estate laws so be sure to confirm your limitations with your realtor. An option period is a boon for buyers as it gives them a chance to inspect the home thoroughly, get the purchase contract reviewed by a real estate attorney, and get a home appraisal value before taking the final plunge. The average option fees range from $100 to $500 – depending on the terms of the contract, where the property is located, and the number of days in the option period.
However, the exact duration of the period depends on the nature of the property. A house with complex systems such as a septic system, a swimming pool, or a well will take longer to inspect and hence will require a long option period. You don't want to end up with a house that's not worth the value you paid. Buying a home is probably one of the biggest decisions you’ll ever make. Our real estate agents can help you with properties anywhere in Texas.
Paragraph 23. Termination Option
Neither the Texas Real Estate Commission nor the Texas Association of Realtors have emphasized the fact that buyer’s agents are responsible for delivering option money to the seller or the seller’s agent. An Option Period is a specified number of days during which the buyer has the right to have the property inspected and can cancel the contract for any reason. The Option Period can be “bought” for a fee known as the Option Fee in which the amount can be negotiated between the buyer and seller. The TREC 1-4 Family Residential contract only specifically mentions the buyer being able to receive their earnest money back in the event of termination for casualty loss . The option fee is paid for the right to terminate, not for the actual termination, so we would probably refer to an attorney to help us if a situation like this arose to help guide us to the right answers.
Despite the fact that the house is legally still on the market, many Austin real estate professionals will not show homes that are under contract or have “waiting back up” status in the Multiple Listing Service. During the course of drafting a transfer contract, a buyer, a seller, and their respective agents hash out the details of these concerns. They most likely do not have the legal authority to terminate the agreement and retain their earnest money. In this case, a wise seller would be able to claim that the contract was not fully adhered to and, as a result, the option period was not formed. When the option period expires, the contract continues into the next phase, preparing for closing.
hidden costs of buying a home — and ways to avoid them
If the inspection uncovers serious issues or the seller won’t budge on the contract terms, you’re free to walk away from the sale without any repercussions—you’re allowed a change of heart. Another point of security is that the seller cannot make any other deals during the option period. The non-refundable fee is paid to the seller (usually about $100).
You’re essentially purchasing, or paying for, the unfettered right to withdraw from the agreement at any time throughout the option term for ANY reason. Among these is the ” Option Fee,” also known as ” Option Money,” which is a sum of money paid directly to the seller of real estate. Depending on whether the sales price exceeds the assessed value, you may be required to put additional money down in order to meet the lender’s down payment requirement. A.According to the Texas Real Estate Commission, which has been recently revised, “The termination option ends at 5 p.m. The Option Period may be extended by mutual agreement between the buyer and seller, but the seller can ask for an additional Option Fee.
Real Estate vs. Stock Options
For additional consideration, the Option Period may be extended by the buyer for an agreed-upon number of days. It is important that the additional fee obtained by the seller to extend the option period is more than a symbolic gesture. 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.
A real estate options contract is in force when a seller no longer has a choice as to whether or not to sell the property and at what price during the option holding term. Is it clear to you what the distinction between earnest money and option money means? My clients in the Austin region frequently inquire about the distinction between option money and earnest money, which I am happy to explain.
Aside from the time required for the house inspection, the Option Period may also need to include time for the mortgage approval procedure and the appraisal by the bank. As reported by realtor.com, the full mortgage procedure, including pre-approval, house assessment and obtaining the loan itself, can take anywhere from 30 to 60 days, depending on the lender. In Texas, there is no Option Period that will allow for this amount of time. You may reduce this time by obtaining pre-approval for a mortgage before even entering into a house purchase contract. For both buyers and sellers, the Option Period may be a stressful period of time.
According to Kimberly Howell Properties, as long as the buyer follows these steps, they will be able to lawfully terminate the contract and obtain their earnest money back. Due to the fact that the buyer pays the option fee over the table, sellers deposit it instantly. However, if your buyer would like to make an exception to this regulation, this should be specified in the transfer contract before the option price is paid. The buyer might also request that the seller use the money to the closing costs.
If so, we encourage you to consult with a credit expert like MSI Credit Solutions to learn about your options. MSI Credit Solutions leverages your consumer rights by working on your behalf. MSI's process will assist you with removing questionable negative items from your credit report, resulting with an increase to your credit scores. Here's everything you need to know about the option period and how it can help you.
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