Real estate contracts in Texas have an “undo” button of sorts. A clause in the sales contracts allows buyers to legally cancel the whole deal. Paragraph 23 in the Texas Real Estate Commission residential sales contracts is called the “termination option,” and it lets buyers pay a fee for the right to terminate their contract during a defined period of time.
The termination option isn’t required to purchase a home, but most buyers make it part of their offer. The amount of the fee and the number of days of the option period are negotiable. Whether you’re buying or selling real estate, your Texas Realtor can help you decide what is best for your situation.
Why buyers use termination-option periods
During the option period, a buyer can terminate the contract for any reason and get the earnest money back as long as you give notice of termination within the time specified in the contract. Most buyers use the option period to have the property inspected or otherwise evaluated. If the buyer doesn’t terminate the contract during the option period, the transaction moves ahead. Depending on what’s in the contract, the option fee may be credited to the sales price at closing.
Advice for buyers
As a buyer, make sure the option fee is an amount you are comfortable paying if you want the ability to terminate the contract. And don’t schedule your inspections at the end of the option period. You want enough time to conduct inspections and address any concerns. Also, if an inspection reveals conditions that lead to additional negotiations, you will want those talks to happen during the option period so you still have the right to terminate.
What’s in it for the seller
Sellers don’t have the ability to terminate the contract during the option period, but the termination option does have a few benefits for sellers. One benefit is that a seller receives a fee in exchange for agreeing to give the buyer the right to terminate. For example, if you agree to a $200 option fee as a seller, then you get $200 whether or not the buyer chooses to terminate the contract.
Another benefit is that the option period gives buyers time to make sure they are entering into the contract pleased with their purchase. You probably prefer to sell your home to someone who is satisfied with the condition of the property instead of a buyer who regrets agreeing to buy your home. If the buyer terminates the contract during the option period, you likely got out of a transaction that would have caused you headaches and possibly a trip to the courtroom.
Advice for sellers
While most sellers want to keep the option period as short as possible, digging in your heels may work against you. If a buyer feels pressured and can’t get the information she needs in time, she may feel that her best course of action is to terminate the contract. Remember, you can still market the property and accept backup offers during the option period, which gives you a measure of protection in case the deal does fall through.
For more advice about buying and selling real estate in Texas, visit TexasRealEstate.com.
For more information on buying or selling property in Texas, please call Waymond Lightfoot at (210) 386-5201.