Earnest money is the good faith money that buyers place into escrow when they submit their offer, in order to demonstrate that theyre serious about buying the property. The standard contract allows for damages if either party wrongfully fails to sign the release or wrongfully challenges it. The property will be placed in OP (option pending) status in the MLS. Sellers are free to reject offers that include option periods or to make counter offers without option periods. Here's What To Know. Hard To Find Data & Statistics. Think of it like home-purchase insurance for the buyer. (Read client testimonials), Local Area ExpertiseThis isnt just my businessits where I work and live (for 20 years) so I really know the area. You will not use our blog posts or posted content to do anything unlawful, misleading, malicious, or discriminatory; and. The previous TREC contact stated that earnest money was due upon execution of this contract, a vague deadline that rarely happened. So when you sign the contract to purchase a home, you will give your real estate agent two checks: 1) Option fee check payable to the Seller, and 2) Earnest money (usually 1 percent of sales price) payable to the Title Company. In a sellers market, offers with option periods might lack a bit of appeal to a seller with a lot of interested buyers. Your lender will use the results of the appraisal to determine how much money theyre willing to lend you for the property., Today there is an appraiser shortage so most homebuyers arent able to get an appraisal during the option period. She has 4+ years of writing experience and holds a degree in English Literature from Brown University. If there is a structural inspection contingency, it typically states that the buyer can only back out and have the earnest money released if the inspection finds a single defect that would cost at least $1,500 to remedy. If the inspection is completed within the option period, the buyer can walk away without penalty. Texas escrow law does not require earnest money and a contract is valid without it. A general rule of thumb is the earnest money is refundable to the buyer if the seller terminates the contract or the buyer backs out with cause allowed in the contract. We implement strict design techniques to achieve WCAG AA compliance. Please share this info with your Friends! How do we do that? Buyers should make the most of the period and take every opportunity they can to solidify their decision to buy or terminate. If you have questions or issues with accessibility, please contact us. TREC made a change to the standard Texas real estate contract regarding how option fees are paid. Need a painter, electrician, mover, insurance company, etc.? Connect with a top agent to find your dream home. by Five-Star Real Estate Agent SHEILA COX, We handle inspections in a very unique way in Texas. However, its usually expected by sellers and an offer may not be accepted without it, especially if there are multiple offers. . During the appraisal process, an appraiseran independent and unbiased professionalwill assess the fair market value of your potential home. (View helpful videos on my YouTube channel). This lets us know which side of the homebuying process youre on, so we can help you get started with Homeward. Reasonable shipping cost. In summary, the Option period gives you time to have the home thoroughly inspected and find any defects that you cannot live with. Earnest money is one of many important aspects of a Texas real estate transaction. Equal Housing Opportunity Disclaimer: All information on this site is subject to change and should be independently verified. In this example, because Day 3 is a Sunday, the deadline is Monday. Sellers take the dollar amount and the duration in consideration when deciding on which offer to go with. You may need to pay a secondary option fee to get the seller to concede. It can be found in paragraph 23 in the One to Four Family Residential Contract promulgated by the Texas Real Estate Commission (TREC), as seen below. These factors include: The greatest determiner of the option period and fee is market status a buyer might need to aim for a shorter option period in a sellers market. However, the more competitive the real estate market, the more important it becomes. Bacak explains, The more option money you put down, the better as it shows the seller youre invested and wont terminate.. The Option Fee must be delivered no later than 11:59 p.m. on the third day after the effective date of the contract. (During this time, the Seller cannot back out of the contractonly the Buyer has that right.). Having trouble understanding how an option period works in the state of Texas? An option period is an agreed-upon period of time, after the buyer and seller have signed the real estate contracts, during which the buyer can terminate the contract for any reason without risking their earnest money. This includes for any reason during the option period, if the seller defaults on the contract, and based on specific contingencies like financing and the home inspection. When you write a contract to purchase a home in in Texas, you can buy an "option period" (usually 7-10 days, negotiable) from the seller for $200-$400 (negotiable) that gives you the irrevocable privilege to back out of the sales contract for any reason, and still receive your 1 percent earnest money back. I help with price analysis and negotiations, legal paperwork, inspections, repair negotiations, home warranties, HOA compliance inspections, hazard insurance, surveys, appraisals, title commitment, home warranties, and more. If the deal falls through for any reason, who gets the earnest money will depend on the provisions of the contract. (Heres a list of home inspectors.) Other states use different terminology to refer to this period of time: Once the option period takes effect, the home's status changes from "active" to "option pending." Its a great tool for buyers to use to negotiate additional terms of the contract, or they can back out. An option period usually comes at the cost of a non-refundable option fee on the buyers side. This good faith deposit is a lot like getting pre-approved for a mortgage before making an offer on a home it reassures the seller they arent wasting their time. Ends at 5 p.m. local time. The applicability of the legal principles discussed in this material may differ substantially in individual situations. The option period is a small but critical part of the home-buying process. For example, states such as North Carolina and Georgia have a due diligence period that works in a similar way. Accurate description. 1650 Highway 6, #350, Sugar Land , TX 77478 (Map) When a buyer submits an offer on a home they can request an option period in exchange for a dollar amount. Texas Real Estate Commission Information About Brokerage Services | Texas Real Estate Commission Consumer Protection Notice, Amanda Brown Realty with Coldwell Banker Realty 2021 | Designed and Maintained by Arbor Green Design, Amanda Brown Realty with Coldwell Banker Realty 2021 | Designed and Maintained by, extend the option period with additional compensation, How to Find a Real Estate Agent | First-Time Home Buyer Help, Cedarbrook Ridge Estates: Harker Heights, TX, Estancia West: Upscale Living in Killeen TX, From the Pro: How to Buy Land From a Neighbor, Texas Real Estate Commission Information About Brokerage Services, Texas Real Estate Commission Consumer Protection Notice. This form must be signed by the seller and buyer and delivered to the title company. If this contingency was waived by the buyer, the deposit is forfeited if financing falls through. The inclusion of the option fee often makes the idea of an option period more palatable to a seller theyll lose a few days if you walk away, but theyll keep your option feebut its still a small amount of money compared to actually selling the property. The buyer can take advantage of this option to complete a few checks for their peace of mind. The buyer would still receive back the earnest money deposit (EMD) placed down at signing, usually between 1% and 3% of the sale price. If an appraisal comes in too low, and appealing it doesnt work, the buyer must pay the difference or the seller must drop the price for the deal to close. Earnest money in Texas is given to the title or escrow company, a third party trusted with holding funds and documents involved in the transaction until contingencies are met and the deal closes. However, Sheila Cox and Keller Williams assumes no liability or damages due to typos, errors or omissions. Traditionally, the option fee was paid to the seller. If the seller fails to complete repairs or treatments that have been agreed upon, or repairs are not done by an authorized or licensed person with the required permits, the buyer can extend the closing date or terminate the contract and have the deposit refunded. Austin has a median home price of $656,000 thats $6,500 to $13,000 to put down 1-2% as a good faith deposit! Starts at the beginning of the purchase contract period Requires consideration - a non-refundable fee paid to the seller called the Option Fee. You will not use our blog posts or posted content to do anything unlawful, misleading, malicious, or discriminatory; and. If you use a check, the funds must clear before the earnest money is considered deposited. The purpose of having a home inspected is to ensure that there are no significant flaws in the property before committing to purchasing it. It is important that the additional fee obtained by the seller to extend the option period is more than a symbolic gesture. Your real estate agent can advise you if your offer has a good chance of being accepted without earnest money, but it may be hard to get your offer taken seriously without putting down a good faith deposit. 4.9. Thinking about buying or selling real estate? Excess screen time can lead to exhaustion and stress. Killeen, TX 76549, Gatesville, Harker Heights, Temple, Nolanville, Killeen, Belton, Salado, Copperas Cove, Lampasas, Kempner, McGregor, Valley Mills, Lorena, Woodway, and Evant. In hot markets like Austin, an earnest money amount of 2% or more may be needed to stand out against other offers. Some back-up buyers may want to have their contract terminate within days if the first contract doesn't terminate early, while others may want to retain their back-upcontract rights until after the last possible date that the first contract might close. Please note that data on this website is derived from various sources and every effort is made to ensure the accuracy. During this period, your lender conducts a. The buyer can make an offer to the seller requesting to extend the option period with additional compensation. The Option Period in Texas is a specified number of days set forth in a real estate contract which allows the buyer to terminate the contract for any reason. Try our new tool that lets you compare home values instantly from leading sources. An executed contract is one where all parties have signed, initialed & money has been exchanged. Often times the renegotiation will include having the seller make the repairs or concessions based on items found in the home inspection. Thats because option periods are called different things in different places. In most areas of the state, 1% of the purchase price or $500 is normal. This is the same deadline as the earnest money deposit. The option period is a good time to negotiate these repairs, otherwise closing may be an afterthought. This is compensation for the time and effort theyve wasted and the need to relist their home. The revised contract form, which became mandatory in 2021, requires the buyer to deliver the option fee to the title company, not the seller, within 3 days of the effective date. hbspt.cta._relativeUrls=true;hbspt.cta.load(7043426, 'ab249a57-2fdf-4f5e-83f8-c65c29e9a946', {"useNewLoader":"true","region":"na1"}); Subscribe to the radius blog using the form below. Share with your sellers these tips on how to live in a show-ready house Issues Mobilization and Political Advocacy Assessment, TACS Texas Accredited Commercial Specialist, TAHS Texas Affordable Housing Specialist, TRLP Texas REALTORS Leadership Program, TRLS Texas Residential Leasing Specialist, TRPM Texas Residential Property Manager, Sales of Million-Dollar Homes in Texas Report. 8 Documents You May Need For Tax Filings if You Sold a House. The buyer and seller are still negotiating repairs and want to extend the option period. a. Reverse Mortgage Pros and Cons from a Financial Planners Perspective, 11 Questions to Ask When Buying a New Construction Home. Being careful with your offer is crucial in a hot market, and the option period gives you the space to reflect on one of lifes greatest decisions. The material provided on this website is strictly for informational purposes only and is not intended and should not be considered as legal advice or tax advice. for residential purchases to clarify when does earnest money need to be deposited. This includes title issues the title insurance company will exclude from coverage (Schedule B). Buy your first home this year: Perform a Financial Checkup The Option Fee is provided to the seller as consideration for taking the home off the market during this time. In Texas, a typical option period is around 10 days and the typical option fee is about $10.00 to $30.00 per day. The first day is the day after the purchase contract is signed by both parties. Buyers & Agents: Be Careful About Wire Fraud! from Transactly who will handle all the paperwork and deadlines for you for a low flat fee! This will prevent other potential buyers from viewing and making offers to purchase that home. If youre not from Texas, you may have never heard of an option period. A wire transfer is the most common and safest way to make your good faith deposit. Sellers expect to see an option period in a residential real estate contract, but generally speaking the longer the option period is, the less competitive your offers is. What is a Kick-Out Clause, and How Can You Avoid It? There is no official TREC release of earnest money form. DOWNLOAD the HOWS the SUGAR LAND REAL ESTATE MARKET Report TODAY! My buyer client is on the eighth day of his 10-day termination-option period, and the seller still hasnt turned on the utilities to allow the buyer to have the property inspected. The Texas Real Estate Commission revised its contracts effective January 1, 2016, to implement this time deadline. [The sellers market] is making buyers do everything with haste. It's a good faith deposit that shows serious intent to buy the home. An option period usually comes at the cost of a non-refundable option fee on the buyer's side. The standard contract now states: Within 3 days after the Effective Date, Buyer must deliver $__ earnest money to __, as escrow agent, at __.. A great real estate agent can help a buyer navigate the option period and make the most of it. This is when a home inspection will occur. That the lot appraise at the purchase price (if you are buying cash) Read our Ultimate Home Buying 101 Guide. Thank you! Your submission has been received! Texas REALTORS is committed to advocating for a strong real estate industry, advancing a culture of continued learning, and staying ahead of issues concerning members and their clients. In Texas, the Option Period is typically between 1 and 10 days. At closing, the earnest money deposit is credited toward closing costs and/or the down payment. Texas markets where multiple offers are common may have higher expectations. 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