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An option fee is a payment made by a buyer to a seller in a real estate sale, giving the buyer the right to back out of the deal for a certain period. It is almost entirely restricted to Texas and is negotiated between the buyer and seller for around $100 to $200 USD for a duration of around 10 days. The primary purpose is to give the buyer time to further examine the property without the risk of someone else making an offer. It should not be confused with cash, which is a payment made to show seriousness about purchasing a property.
An option fee is an additional payment made by a buyer to a seller in a real estate sale. In exchange for payment, the buyer gets the right to back out of the deal for a certain period, even after formally agreeing to the sale. The use of an optional fee is almost entirely restricted to Texas.
The existence of the option fee in Texas stems from the fact that most real estate sales there involve a standard form developed by the Texas Real Estate Commission, a state government agency. These forms include the provision of a default option fee. It is not mandatory to use the option fee, nor indeed to use the commission forms, but they are widely used on a regular basis.
An option fee is normally around $100 to $200 United States Dollars (USD), although the amount is negotiated between the buyer and the seller. The two parties also negotiate a duration for the option clause to be traded: this is most commonly around 10 days. During this period, the buyer can cancel the deal without having to give a reason and without further consequences.
The primary purpose of an option fee is to give the buyer time to further examine the property without the risk of someone else making an offer. This purchased time can include both carrying out inspections and waiting for expert advisor evaluations. It can also allow time to renegotiate the sale price in case the inspection turns up any surprises. Supporters of the concept say it can also benefit sellers, as it prevents potential buyers from being put off by the risk of buying a property without a chance to fully inspect it.
The option fee should not be confused with cash, which is a payment, usually in the range of a few thousand dollars, by the buyer to show that he or she is serious about purchasing a property. The money is not paid directly to the seller, but is placed in escrow with an outside company. If the seller decides to back out of the deal, the money is returned to the buyer; If the buyer backs out of the deal, the money is lost to the seller. If the deal continues, the money goes to the seller and becomes part of the buyer’s total payments.
Smart Asset.
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