What is an Option Period? And Why Do You Need An Option Period?


What is an Option Period?  And Why Do You Need An Option Period?

Unless you have bought a home in recent years, you are probably wondering what “Option Period” means. Sometimes referred to as the “Due Diligence Period” the option period is an amount of time when the buyer can initiate further negotiations to the initial contract agreement. Let’s take a look at this aspect of home buying in Houston Texas.

When an option period is negotiated the buyer pays a “Option Fee” typically in the range of $100-$500 depending on the size and strategy involved in the negotiation. Obviously a shorter option or no period at all would be desired by the seller side of a transaction. We always recommend a option period for the buyer to complete any home inspections or other due diligence desired. There is no set period of time or fee amount in Houston Texas. Typically your Realtor will recommend a 10 day period for a $100 fee.  This this will give the buyer a unrestricted right to terminate the contract if the buyer gives notice of terminations within the time period negotiated without any penalty. The only loss to the buyer if they terminate during the option period will be the option fee they have paid and any costs involved in their inspections of the property.

Let’s look at an example.

The buyer enters into a contract to buy a home in Houston, Texas. They pay $100 for a 10 day option period. Next the buyer hires a licensed Home Inspector to complete a full home inspection. Typically these inspections range a few hundred dollars and are well worth it. The inspector provides a complete analysis of the property with any deficiencies and recommendations to the buyer. If something is discovered that is unacceptable to the buyer, the buyer can now work with their Realtor to either negotiate repairs to be made, re-negotiate the sales price or terminate the contract and receive their earnest money deposit back. Typically the earnest money is around 1% of the sales price. So on a $200,000 home that could be up to $2000 on the line. Now you can see how important an option period can save you if something comes up unexpected.

Protect yourself and make sure you ask for an option period. Hire an inspector and give yourself the time to thoroughly examine the property. It could save you from buying a home with thousands of dollars on unknown repairs and give you the opportunity to walk away if you decide it is not the right property for you.

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