Allen Markel, REALTOR® · Texas Premier Realty

General

What is an option period in Texas and how long should mine be?

Answered by Allen Markel, REALTOR®, Texas Premier Realty ·

Short answer

In Texas the option period is something the buyer pays for. Under Paragraph 5 of the TREC resale contract, the buyer pays an option fee in addition to the earnest money, and both are due within three days after the effective date of the contract. In exchange the seller grants the buyer the unrestricted right to terminate within a negotiated number of days. Both the length and the fee are negotiated. If the buyer terminates in time, the seller keeps the option fee and the buyer gets the earnest money back. If the buyer closes, both the earnest money and the option fee are credited to the sales price. It is the window for inspections and for negotiating repairs.

Paragraph 5 of the TREC One to Four Family Residential Contract (Form 20-19) sets it out. Within 3 days after the effective date, the buyer delivers earnest money and the option fee to the escrow agent. The contract then says that, for nominal consideration and the buyer's agreement to pay the option fee on time, the seller grants the buyer the unrestricted right to terminate by giving notice within the number of days written in the blank (the Option Period). Notice must be given by 5:00 p.m. local time where the property is located on the date specified.

If the buyer gives notice in time, the option fee is not refunded and any earnest money is refunded to the buyer. If no dollar amount is stated as the option fee, or the buyer fails to deliver it on time, the buyer does not have the unrestricted right to terminate under Paragraph 5. Paragraph 5E adds that time is of the essence and strict compliance is required. Paragraph 5A(4) also says the option fee will be credited to the sales price at closing, so if you close, you get it back as a credit.

There is no legal default. The contract leaves both the number of days and the fee as blanks, and the parties negotiate them. I will not give you a magic number, because the right length depends on what you need to finish inside the window: the general inspection, any specialist inspections, insurance quotes, review of association documents, and the repair negotiation itself.

Here is the practical logic. The option fee buys a right, so the fee and the days are both bargaining points. A shorter period or a larger fee can make an offer more attractive to a seller, and a longer period gives you more room to work. Whatever you choose, count the days from the effective date, remember weekends count, and put every task you need on a calendar working backward from the deadline.

After the option period ends, you no longer hold the unrestricted right to walk away. You can still terminate for reasons the contract specifically allows, such as certain financing or title paragraphs, so read those paragraphs with your agent.

While you hold the right to terminate, an inspection finding is a real conversation. You can ask the seller for repairs, a credit or a price change, and the seller knows you can walk. Once the period expires, that leverage is gone. That is why I treat the option period as the time to inspect, price the repairs, get insurance quotes and negotiate, not as a formality.

If the buyer and seller agree on repairs, they should put them in a written amendment, because Paragraph 7D of the contract provides that the buyer accepts the property As Is unless specific repairs and treatments are listed. TREC's own form warns that general phrases like subject to inspections do not identify specific repairs.

This is education about the standard form, not legal advice. Your contract can be changed by the parties, so read your own. If you are the buyer, put your inspector on the calendar before you sign, and if you are the seller, expect requests during this window and decide in advance which items you would repair, credit or decline.

Common follow-up questions

Do I get the option fee back if I close on the house?

Yes, as a credit. TREC Form 20-19 Paragraph 5A(4) says the option fee will be credited to the sales price at closing. If you terminate inside the option period instead, the seller keeps it.

What happens if I miss the option deadline?

The unrestricted right to terminate under Paragraph 5 ends. Notice must be given by 5:00 p.m. local time on the date in the contract, and Paragraph 5E says time is of the essence.

Can I skip the option period in Texas?

Buyers and sellers can negotiate the terms, but if no option fee amount is stated or it is not delivered on time, the buyer does not have the Paragraph 5 termination right. Talk with your agent before choosing that.

Sources

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