What is an option period?

The option period is a small, but essential part of the homesale process, helping buyers ensure that everything is in order before they seal the deal on their new home. When you’re selling or buying a home in Texas, it's one feature that’s unique to the local real estate market. 

An option period refers to the time after the buyer and seller have signed the real estate contract, and during this period the buyer can terminate the contract for any reason and still get their earnest money refunded. This is the “good faith deposit” paid by the buyer that is held in escrow and later applied to closing costs.

How option periods work 

During the option period, a potential homebuyer in Texas is free to walk away from the sale without penalty, whether it’s because the seller won’t budge during repair negotiations, the inspection uncovers severe issues, or they’ve simply had a change of heart. 

On the flip side, the seller can’t sell the house to anyone else during the option period, but they can still take backup offers.

When the option period begins, the home listing’s status will change from “Active” to “Option Pending.” This label lets other potential buyers know what’s happening with the sale, while still leaving a window of opportunity if the deal ends up falling through.

The option period officially begins the day after the effective date of the contract (i.e., when the contract is signed.) While the Texas Real Estate Commission doesn’t require option periods for all home sales, it still has specific guidelines around them.

Option period fees in real estate

To set up an option period, the buyer needs to pay a small option fee to the seller, usually around $100. This number is negotiable, as is the number of days in the option period.

The buyer must pay the option fee by 11:59 pm on the 3rd day of the option period; otherwise, the contract will be canceled. If the buyer decides to pass on the house, they must give the seller a written notice of termination by 5 pm on the last day of the option period. The seller will keep the fee.

The option fee in real estate is a way for a buyer to show the seller that they’re serious about purchasing the house, pending the results of the home inspection. The option fee also compensates the seller for the time that they spend waiting for the buyer to complete their due diligence.

Option fee vs. earnest money deposit

The option fee may seem pretty similar to the earnest money deposit, but they’re two distinct pieces of the real estate puzzle. Here are some of the main differences between them:

How long do option periods last?

Option periods are typically seven to 10 days, but it is ultimately decided by the buyer and seller. In some cases, both parties may agree to extend the option period after it has come to an end.

Most people use the option period to better understand the condition of the property they’re buying. The buyer can schedule home inspections to ensure there are no unexpected problems with the house, particularly with its foundation, roof, plumbing, HVAC, and electrical system.

Once the buyer receives the inspection results, they can also get estimates for any repairs that the inspector suggests. The buyer can use this information in a few different ways. They can use it to renegotiate the sales price so that it includes the cost of repairs. They could also request that the seller fixes the damage themselves before the sale closes or request a seller credit or concession towards the closing costs.

With so many factors to consider when buying or selling a home, it can be tough to keep your cool. With Orchard you can buy and sell without the stress and uncertainty. And with neighborhood expertise, we’ll help you navigate the ins and outs of the Texas real estate market.