Texas Favors Buyers: Understanding The Option Period

If you went to any type of investment market (say stocks, bonds, etc.) and asked if you could lock in the current price and take it off the market for 10 days before you decided for sure that you wanted to buy it, and in exchange for this option to buy you would give them $150, what do you think they would say?  My guess is something like: “You’re crazy! Get out of here!” Texas, however, has a similar sort of arrangement for homebuyers, which, in my opinion, is ridiculously slanted in favor of buyers.

Everything is negotiable, but I usually try to push for 10-day option periods for my buyers.  Occasionally during competitive situations this gets pushed down to 7 days.  I usually push for about $150 as an option payment, but sometimes this can get pushed up to as much as $300, or a little more depending on the property price and competition.  Still, for this very nominal fee, if they accept your offer, you get this entire 7-10 day option period to drop out for ANY reason whatsoever.  If you drop out, all you’ll lose is that small fee.  After I explain this, some people still think there’s a catch.  There’s not!  If you’re in a bad mood, if you’d like to take a vacation, if you think the stars are not in the right alignment … really, anything, is reason enough to drop out.  You don’t even have to give a reason.  Since often the only thing at risk is about $150, if you really like a house there’s usually not a lot of reason not to jump in.  You can worry about cold feet later after you win the bid.

Now the function of the option period is really to let you do your due diligence.  We will help you schedule inspections, which will tell you every dirty detail about a house and everything that might conceivably need repairs.  Because you have the ability to drop out of the contract, you also have a little bit of leverage, and therefore the option period is also a second chance to negotiate repairs or monetary allowances to do those repairs on your own.  After midnight on the last day of your option period though, the window closes and you’re on the hook to complete the contract.  Until then though, you get to find out everything about the house, and rethink your whole game plan.  This feature of Texas real estate contract law makes it much easier to jump in if you like a property but are not 100% sure about everything yet.

When you go under contract, there is also an earnest money payment, which is usually negotiated to go toward closing costs, so it’s a payment you basically get back in the end.  I can elaborate on this a little more in a future post.  Please let us know if there are any questions you might have, or any ways we can help you out with the whole home buying process.