One Way A Buyer Can Escape From A Real Estate Jail Sentence

Real Estate Agent with Coldwell Banker D'Ann Harper REALTORS® TX License #0566780

One Way A Buyer Can Escape From A Real Estate Jail Sentence

One way a buyer can escape from a real estate 'jail' sentence is by using the unrestricted right to terminate the contract as agreed to by the Buyer get out of real estate jail with a termination optionand Seller in the Residential Contract. 'Jail' in this sense is figurative, not literal. This post describes the process for Texas real estate transactions. I understand other states have rules that may be similiar in some respects but my comments are regarding only Texas real estate matters.

Texas Residential Contract

Typically the Buyer's agent prepares the offer using the One To Four Family Residential Contract as approved by the Texas Real Estate Commission. The Buyer should understand and appreciate this is a binding contract once both the Buyer and Seller sign off on the terms. If the Buyer engages the services of an attorney, a contract covering the specific fact situation may differ from the standard contract language.

But let's back up a moment. It takes four things, or elements, for an agreement be a contract. The four elements are: an offer, acceptance, contract imagean intent to create a legal relation, and consideration.

When the Buyer and their agent determine which house is the focus of their offer and decide the offer price, earnest money deposit, financing terms, and Closing Date, they also should consider if they will use one of the standard terms of the Texas Residential Contract, the Termination Option.

Termination Option

Below is the language for the Termination Option, Paragraph 23, of the standard Texas Residential Contract.

"TERMINATION OPTION: For nominal consideration, the receipt of which is hereby acknowledged by Seller, and Buyer's agreement to pay Seller $ (Option Fee) within 2 days after the effective date of this contract, Seller grants Buyer the unrestricted right to terminate this contract by giving notice of termination to Seller within days after the effective date of this contract (Option Period). If no dollar amount is stated as the Option Fee or if Buyer fails to pay the Option Fee to Seller within the time prescribed, this paragraph will not be a part of this contract and Buyer shall not have the unrestricted right to terminate this contract. If Buyer gives notice of termination within the time prescribed, the Option Fee will not be refunded;
however, any earnest money will be refunded to Buyer. The Option Fee will __will __not be credited to the Sales Price at closing. Time is of the essence for this paragraph and strict compliance with the time for performance is required."

Remember the four elements required for an agreement to be a contract? One thing a Buyer and Buyer's agent must understand is there is a time element involved in establishing your ability to use the unrestricted right to terminate the agreement. If the Buyer's agent fails to deliver the consideration for Option Fee within two days of the Contract being executed, you don't have an enforceable Option Period.

Why Failing to Provide the Option Fee Within Two Days Can be A Problem

If the Option Fee is not paid within two days, as stipulated by the Termination Option paragraph, the consideration is missing. The Buyer cannot exercise the unrestricted right to terminate the contract because the paragraph does not apply. The fourth element, consideration,  required for a contract to be enforced is missing. Consideration is something of value and typically, money is the consideration used in this context.

It is the Buyer's agent's responsibility to get the funds to the Seller's Agent within the two days. Some Buyer's agents delegate or allow third parties to get the Option Fee to the other agent. I prefer to deliver them myself. I don't want to try to explain to my Buyers why they cannot terminate an Contract during the Option Period because I failed to get the Option Fee where it needed to be in time.

My First Sale

A young couple came to an Open House I was holding for another agent. I had no listings at the time. They were first time home buyers and eager to get into a place of their own. They did not particularyl like the house I was holding open, but I had a list of other nearby homes so we made arrangements to meet after I closed up.

We looked at a few homes on that day and subsequesnt days. We eventually found a home they really liked, wrote an offer, got it accepted, got the earnest money escrowed, and submitted the Option Fee to the Listing Agent.

In this case the Option Period was ten days at $10 per day. The Option Fee is non-refundable but can be applied to Buyer's Expenses or fees if the transaction proceeds to completion. Around day three of the Option Period, the husband called and said they wanted to withdraw from the deal. The wife fell  was injured and they were not sure if the two-story home was going to be a good fit because of her health situation.

So they were able to able to terminate because they were within the time frame agreed to between the Buyer and Seller, and the consideration was received and signed for by the Seller's agent. Also by doing this within the appropriate time frame their escrowed funds were returned.

What would have happened if the Termination Option had not been used or if the Option Fee or consideration had not been provided in a timely manner? Short answer is agent Wayne failed to represent client's best interests, possible sanctions by local real estate board and or the state real estate commission and maybe a civil lawsuit. Fairly easy way to avoid all that-just do the job correctly.

They purchased another house with me the following month. 


Usually the due diligence you and your agent use in finding the right house and arriving at terms and conditions that are good for all parties will make the need for the Termination Option to be exercised quite rare. But termination option-do it right for a soft landingit's like insurance: better to have it and not need it, rather than need it and not have it.

-If you use the Termination Option get the fee to the Seller's Agent within two days of the contract execution date.
-The Buyer's Agent is the party responsible for getting the Option Fee to the Seller's Agent.
-If the Option Fee is not provided within two calendar days of contract execution days, there is no Option Period.
-Sometimes when an agent gets really busy, something really important takes priority and and due dates and commitments are missed. Don't forget "time is of the essence" phrases are in contracts for a reason. Miss them at your peril.

Buyers and Sellers have options on the agents with whom they choose to work. I'd be glad to meet with Buyers or Sellers in the San Antonio area to give you reasons to consider using my expertise in your next real estate transaction.

My Networks:

Wayne Johnson
18756 Stone Oak Parkway
San Antonio Texas 78258

Coldwell Banker D'Ann Harper Realtors®
Texas Real Estate License # 0566780

210.483.6329 (Tel)
210.483.4729 (Fax)

Texas Law requires all real estate licensees to give the following information about brokerage services:

©All rights reserved, August 2012, One Way A Buyer Can Escape a Real Estate Jail Sentence


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Carl Winters
Canyon Lake, TX

Wayne: Good job with your explanation to help the consumer understand the process and their rights. This one definitely deserves a suggest.

Have a great week.

Carl Winters

Aug 05, 2012 07:40 AM #1
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Wayne, great information for Texas buyers.  Our Florida contracts have some similarities and differences.

Aug 05, 2012 08:43 PM #2
Wayne Johnson
Coldwell Banker D'Ann Harper REALTORS® - San Antonio, TX
San Antonio REALTOR, San Antonio Homes For Sale

Carl-Thanks for the read and suggest.

Gabe-Thanks for commenting.

Aug 05, 2012 09:00 PM #3
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Wayne Johnson

San Antonio REALTOR, San Antonio Homes For Sale
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