Today, we’re doing a deep dive on what is known as an Option Period. Here in Texas, an Option Period is crucially important when buying a home so we felt it would be valuable to go into the in’s and out’s of what it is! One of the most common fears when buying a home is that a buyer would be committed to a house that would end up being a money pit. In a lot of ways, the Option Period helps alleviate those fears and creates time for due diligence. If you don't know what an Option Period is or want more information on how to make it work for you, listen up!
Option Period Breakdown
So what the heck is an option period? Allow us to break it down. The most common contract period time frame, here in Texas, is 30 days. The first part of that contract period is what's called the Option Period, which is a negotiable amount of time typically five to ten days. That's part of the contract period where you have the unrestricted right to terminate the contract for absolutely any reason. You pay the seller a fee, termed the “option fee,” for this right to terminate during the specific amount of time agreed upon. This option fee is also negotiable and we commonly see anywhere from as low as $100 to $500. Sometimes it’s higher depending on the circumstance and how competitive a house it is. If you close on the property then that money gets refunded to you. In general it’s a very inexpensive way to get more time to exclusively explore the property, think about the house, and do your due diligence inspecting it.
What Happens During the Option Period?
Now, let’s talk about what we do during the Option Period and what’s going to happen. The day your contract is signed is day zero of the Option Period and on the final day of agreed upon Option Period your option will expire at 5:00pm. During the time frame we are first trying to get your inspection scheduled and it typically takes 2-3 days to get them out to check the property. When they do come they’ll spend an average of 4 hours there and it’ll cost an average of $500. Of course this varies based on the size of the house you have. Every inspection will have honey-do list items, but our focus is looking for big ticket items that are really expensive to fix and safety hazards.
For those in Texas the roof and foundation are two things that typically need to be addressed. Your inspector can give you an estimate, but you’ll need a contractor to come look at the issue to get an estimate. Luckily, we have a good roster of people we trust to refer you to and call. We highly recommend having extra cash on hand to invest in a plumbing inspection. There is a lot of foundation movement here and the pipes are encapsulated in a slab of foundation so if your foundation is moving, so are the pipes. We want to make sure there aren’t cracking or any unseen major issues. A $300 plumbing test could uncover a $3,000 issue, so it is certainly worth the investment! Your time, your money, spent on inspecting during the Option Period is really going to be the make or break on whether or not you feel fully informed about your house moving forward.
Uncovering Issues During the Option Period
Let’s talk a little bit about your options if your inspection were to uncover a big ticket item or safety hazard during the Option Period. Your first option would be to ask the seller to fix it and this can be hit or miss as the seller is likely to go with the cheapest and quickest option to solve the problem. Your second option would be to ask for a financial credit to be able to fix it once you close on the house. What that typically looks like is the seller would give you credit on your closing costs and theoretically you would have the cash in hand to be able to do that. For example, if your closing costs were $7k and that were to be reduced to $4k you now have $3k to address the issues at hand. This kind of cuts out any possible back and forth with the seller if they were to fix it themselves and it is not up to your standards.
Now, if there were to be a much more costly issue that couldn’t be covered in the closing costs then the issue would need to be fixed and the work would need to be done ahead of time by the seller. If the buyer were to have plenty of cash on hand and would still prefer to do it themselves they might be able to reduce the purchase price. Every situation is entirely different, for example, we just closed on a house where the repairs were $10k and we were able to work out a deal where we used all the buyers’ credit amount, didn’t have to bring money for closing, and the remaining balance was taken off of the purchase price. At the end of the day the question is, “How much are these things going to cost to fix and who's going to pay for it?” If we can't come to terms on that, that is a reason that you probably would terminate.
Walking Away During the Option Period
You can truly walk away for any reason during the Option Period, in fact, you don’t need to give the seller a reason whatsoever. Every situation is unique and has a lot of moving pieces. If there were to be an issue that costs $10k-$20k and we couldn’t come to a resolution with the seller, then that would be a scenario where we would walk away. Or it could be as simple as that house just wasn’t for you after all. Investing in a quality inspection is way less expensive than buying a home with a bunch of issues. We are experts at navigating the Option Period and trying to make sure that we really maximize the amount of time that we have to get all the information that we're looking for.
Option Periods Are Important
Keep in mind this is all a part of the process and both the timeline and price are negotiable when it comes to the Option Period. It is always more appealing to the seller to have a shorter Option Period, but we would never recommend foregoing it altogether; it is there to protect your investment. The Option Period is one of the most important parts of the contract period, so we hope you learned something today.
The better prepared you are for buying a home, the less overwhelming the process will be. If you are questioning whether or not you’re ready to buy a house go listen to Episode Seven where we talk all about how to know if you’re ready. We also have a quiz on wherewelivepodcast.com that lets you know if you're ready to buy. As always we are here to answer any of your questions when it comes to anything and everything home buying!
Until next time,
Brianna and Keelie