Marla Lewis is 2021-22 President of the Houston Black Real Estate Association (HBREA)

—Distributed by the Houston Association of REALTORS®

Buying or selling a home can become complicated in this already high-pressure market that we are experiencing. Even other expensive items like cars or boats don’t present you with the level of complexity you will experience during most home sales.

One part of the contract that’s designed to help make the process easier is what is known as the option period. The option provision is contained in all Texas Real Estate Commission (TREC) residential contracts. On the new-home and resale contracts, it’s called the termination option, and you can find it in paragraph 23.

Buyers pay for a chance to say “no thanks”
During the option period, a buyer may terminate the contract for any reason and get his or her earnest money back. Most buyers use the option period to evaluate the condition of the property and otherwise determine if they want to proceed with the transaction, but that first point is worth repeating: It doesn’t matter what the buyer’s grounds are for terminating the contract. In fact, the buyer doesn’t even have to give a reason as long as he gives notice of termination within the specified time. If the buyer does not give notification during the option period, the transaction moves ahead and the option fee is either credited to the sales price at closing or not, as negotiated in the original contract.

What’s in it for sellers?
The termination option sounds pretty attractive to buyers, but what about seller? Sellers do not have the ability to terminate the contract during the option period – they are obligated to sell to the buyer under the terms of the contract (unless the buyer terminates), but the termination option does provide benefits to the seller.

First, sellers receive a fee in exchange for the buyer receiving his right to terminate. The amount is whatever the buyer and seller negotiated in the original contract. Perhaps more importantly, the option gives the seller peace of mind that the buyer is happy to be purchasing the home. Think about it. Who would you rather sell your home to – someone who is bitterly disappointed that he or she ever agreed to buy your home, or a buyer who is excited to purchase your house and is satisfied with the condition of the property? The truth is that if the buyer terminates the contract during the option period, you most likely got out of a transaction that would have caused you headaches at the least – possibly even a trip to the courtroom.

Lest sellers think that the option period creates a free-for-all for buyers to make offers left and right on properties they are not serious about, consider this: Only about one in 10 transactions don’t make it past the option period, according to the National Association of REALTOR®.

What does it cost and what’s involved?
The termination option is not a required element of a contract offer to purchase a home. However, most buyers do make the option part of their offer. The amount of the fee and the number of days of the option are both negotiable parts of the contract. Your Realtor can help you decide what is reasonable and necessary given the circumstances of your situation. As a buyer, you will want to make sure the option fee is an amount you are comfortable paying should you decide to terminate the contract. You also want to be certain you allow yourself enough time to conduct inspections of the house and address any concerns you have about the property.

While most sellers want to keep the option period as short as possible, negotiating hard for an extremely brief option period may work against you. If a buyer feels pressured and cannot get the information needed within the timeframe allowed, he or she may feel her best course of action is termination of the contract.

Buyers can do their part by scheduling inspections at the beginning of the option period. You’ll want to allow enough time to ask the inspector questions, schedule follow-up inspections with other experts if recommended, and conduct any other due diligence you need to feel comfortable with your decision to purchase the home. Sometimes, an inspection will reveal conditions that lead to additional negotiations between the buyer and seller. A buyer will want this to happen during the option period, so they still have the right to terminate if they choose.

Even though there’s an option on the property, sellers can continue to market the house and accept backup offers. This gives sellers who choose to accept backup offers a measure of protection in case something does fall through.

No matter which side of the transaction you are on, the option period can give you additional confidence that the entire process of buying or selling a home will work smoothly for you.

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