How does the option period work?
After the real estate contract to purchase your home is executed (meaning all of the terms are agreed upon and all parties have signed the contract), an “option period” typically begins. The option period is a span of time in which the buyer has an unrestricted right to terminate the contract for any reason so long as proper and timely notice is provided to the seller.
This is the buyer's opportunity to conduct any due diligence necessary before moving forward with the home purchase. During this period -- often 7 to 10 days -- the buyer commonly has the home inspected to determine if there are any underlying issues (roofing, plumbing, electric, etc.) that could affect the price of the home. Based on what is discovered during the inspection, the buyer may ask the seller to make repairs or attempt to renegotiate the sales price of the home.
Because the seller takes a risk by changing the status of his or her home to “pending” or “under contract,” the buyer often compensates the seller by paying for the “option” to terminate the contract. This is a way of showing good faith to the seller. The cost and length of the option period may vary, as it is one of the key negotiable terms of the real estate contract.
Here in Austin the option fee usually ranges from $100.00 up to $5,000 depending on the cost of the home being purchased or strategic negotiating reasons. Because it serves as a type of deposit to secure the contract with the seller, the option fee is not refundable if the buyer chooses to terminate the contract during the option period. If, however, the buyer proceeds with the purchase, the option fee is applied toward the final sales price of the home.