Whats an Option Period in Texas Real Estate
What's an Option Period in Texas Real Estate
In Texas real estate, an "option period" or "feasibility period" refers to a specified period during which a buyer has the unrestricted right to terminate a real estate contract. This provision is commonly used in Texas real estate transactions and is designed to give the buyer the opportunity to thoroughly inspect the property, obtain local authory's land use approvals and negotiate repairs or other terms with the seller.
Here's how the option period generally works in a Texas real estate transaction:
- Negotiation of Option Period: When a buyer submits an offer on a property, they may include a provision for an option period in the contract. The buyer and seller then negotiate the length of this option period, typically ranging from 7 to 10 days for a home or end user ranch. For a property with development potential it could be 60 days or much more.
- Payment of Option Fee: In exchange for the right to terminate the contract during the option period, the buyer pays the seller a non-refundable option fee. The amount of this fee is negotiable but is typically a few hundred dollars to several thousand for extended option periods.
- Unrestricted Termination Right: During the option period, the buyer has the unrestricted right to terminate the contract for any reason or no reason at all. This termination is often referred to as "exercising the option."
- Property Inspections: The buyer can use the option period to conduct inspections on the property. This may include a general home inspection, termite inspection, or any other inspections the buyer deems necessary.
- Negotiations and Repairs: If the inspections reveal issues with the property, the buyer can negotiate with the seller to address these concerns. This may involve requesting repairs, a reduction in the sale price, or other concessions.
- Local Approvals: A buyer usually gets approval from the city or county for a planned use of a property, such as a residential or acreage development, a commercial building or business, etc. Getting approval for the intended use of a property, prior to purchase, is crucial for a buyer.
- Decision Time: At the end of the option period, the buyer must decide whether to proceed with the purchase, terminate the contract, or request an extension of the option period (if the seller agrees).
It's important to note that the option fee is non-refundable, regardless of whether the buyer decides to proceed with the purchase or terminate the contract. The purpose of the option period is to give the buyer a specified timeframe to thoroughly evaluate the property and negotiate any necessary changes before committing to the purchase.
The specifics of option periods, including the length of the period and the amount of the option fee, can vary, and they are subject to negotiation between the buyer and the seller as part of the real estate contract. It's advisable for both parties to clearly understand and agree upon the terms of the option period to avoid misunderstandings during the transaction.