Answer:
Think of an option period as a get-out-of-jail-free card for buyers about to purchase a property.
Basically, an option period allows a buyer to walk away from the sale with no penalties and no explanation without being held liable for breach of contract.
In order to use the option period, the buyer pays an option fee to the seller. Once enacted, the option period allows the buyer to terminate the contract for any reason within the stated number of days simply by giving notice to the seller.
This way it allows the buyer to take more time evaluating the property as well as re-negotiate the contract if any repair issues come to light.
The seller can continue to market the property and take back up offers in case the first buyer’s deal falls through.
The option period usually lasts between five to ten days, but can last as long as thirty days.
It can also be extended (by mutual agreement) for a negotiated amount.
The fee is paid directly to the seller and is non-refundable (it is not sent to the title company). Option period money must also be paid within 48 hours.
The amount of the fee is usually determined by negotiation, but tends to be between $100 to $200 dollars.
How it works:
The buyer makes an offer on the home. The offer includes an option period of a set number of days for an agreed upon fee. If there’s a buyer’s agent, he or she will deliver the written offer to the seller (or their real estate agent) with a photocopy of the check (made out to the seller) to cover the cost of the option fee.
Assuming the offer is accepted, the seller signs the contract and the buyer’s earnest money is sent to the title company within 48 hours. The buyer then has however many days (specified by the option agreement) to look over the property, perform inspections and decide if they want to continue to closing.
The Buyer Requests an Amendment
In the event that the buyer finds an issue such as a damaged roof, foundation or other repairs, they will send over an amendment to the contract for the seller to review. Usually there is a lot of back and forth as the negotiations continue. If the buyer and seller can work out the details (who pays what and any changes to the sales price), the sale will go through.
If the Negotiations Fail
If, however, the buyer and seller cannot come to an agreement, the buyer must give notice in writing that they wish to terminate the contract. Once the contract is canceled, there is no liability for the buyer. They lose the fee, but are completely free of any other obligations. This is only true however, if the buyer serves notice and cancels the contract within the previously set timeline. Failure to do so means that they are still bound by the contract.
