We handle inspections in a very unique way in Texas. 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-$500 (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. (During this time, the Seller cannot back out of the contract…only the Buyer has that right.)
NOTE: The $200-500 Option fee is paid directly to the seller…usually via a personal check. 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. Your agent will deliver both checks to the appropriate party and get a written receipt for proof, within 3 days of executing the contract. If the Option fee is not paid within 3 days, then the Option period does not exist and you are buying the home as is! Very important!
If you buy an Option period, it begins the day the contract is “executed” (signed and acknowledged by all parties). So you must be ready to get your inspections ordered ASAP. (Here’s a list of home inspectors.) Any and all inspections that you want to have done to the home must happen before the end of the Option period. In addition, if you find any defects that you cannot live with, then you must negotiate the repairs, or change in price, before the end of the Option period. At 5:00 p.m. on the last day of the Option period, if you have not had the Seller sign an Amendment agreeing to price modifications or repairs, then you are buying the home “as is.” Make sure you get your inspection reports several days before the end of the Option so you can review them and discuss with your agent and have time to submit an Amendment to the Seller.
In summary, the Option period gives you time to have the home thoroughly inspected and find any defects that you cannot live with. It also allows time to negotiate repairs with the Seller. At the end of the Option Period (and the timing is very strict) you can do one of the following:
- If you “exercise” your option (and decline purchasing the home), then you lose your option fee ($200-500), but you get your 1% earnest money back.
- If you do not exercise your option (and continue the purchasing process), then the option fee is usually applied toward your closing costs.
Make sure you hire a real estate agent who knows how to properly handle Option Periods and protect your money.