Real estate is handled very different in various parts of the country. In Frisco Texas we are bound by the Texas Real Estate Commission (TREC.) Just like in other areas of DFW and the rest of the great state of Texas, when you are buying or selling residential homes, the contract is critical to understand . In the one to four residential contract on page 8 section 23 is the termination option.
The termination option grants the buyer, for a price called the option fee, the unrestricted right to terminate the contract within a certain number of days after the effective date of the contract. That means that within the time frame of the "option period" (the number of days agreed upon in the contract) the buyer can terminate the contract for any reason at all.
Many people think that the option period is to simply allow enough time for a buyer to have the home inspected and negotiate repairs. This is not correct. It is advisable to have the inspection during the option period. It is also advisable to negotiate the repairs during this time. If you do that then if you were not satisfied with the outcome of negotiating the repairs a buyer could terminate the contract and receive their earnest money back (not the option money as that is non-refundable.)
As a seller there are a number of things to be aware of and that can help protect you.
- Time is of the essence
- Buyer - it is imperative that you deliver the option fee to the seller within three calendar days. If you are late the option period no longer exists. You have lost the opportunity to terminate the contract for any reason and get your earnest money back.
- Seller - during the option period the buyer will most likely have the home inspected. They will then come back and typically, not always, negotiate repairs. If both parties come to an agreement, the option period may still be in effect.
- Repair Amendment
- Buyer - when you agree to the repairs you will need to write an amendment to the contract which will list the repairs to be done. In paragraph 7 of this amendment addresses the buyer waiving the unrestricted right to terminate the contract for which the buyer paid for with their option fee. If you check this box you are agreeing to waive the remaining time you have within your option period to terminate the contract for any reason.
- Seller - when you agree to the repairs, it is advisable to ask for the buyer to waive their unrestricted right to terminate the contract. If they do not, it is also advisable to not perform any of those repairs until after the option period.
When the transaction is going smoothly and all parties are communicating well and everything is focused on moving forward, it may be fine for the buyer to accept the repair amendment and waive their right. However, it is not required. If you feel that you still want to think about the transaction, you have that right up to the end of your option period.
However, please remember both parties need to sign and execute the amendment. If the seller decides they are not going to sign unless you waive your right, and you do not get a signed amendment with agreed upon repairs prior to the end of the option period, you may not receive any repairs. You have several choices: sign the amendment prior to the end of option period agreeing to repairs; sign the amendment prior to the end of the option period agreeing to the repairs and waiving your right; or terminating the contract; or moving forward without an agreement regarding repairs.
Use a Realtor®
In Texas this is a critical part of the process that it is important to understand. Ask your Realtor® to explain your options, any exposure and any consequences of your actions. This is another great reason why you should work with a Realtor®. For additional information regarding the Termination Option, here are some great questions and answers
If you want to buy or sell a home in the DFW area and in particular Frisco Texas, give me a call and find out what all my customers have found out—Your Success is My Focus.