What does a buyer owe the seller to extend the option period?

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Two hands shaking in the foreground with a woman holding a clipboard with a piece of paper that says CONTRACT in the background

12/18/2015 | Author: Editorial Staff

My buyer client is on the eighth day of his 10-day termination-option period, and the seller still hasn’t turned on the utilities to allow the buyer to have the property inspected. The seller promised to have the utilities on next week, so my buyer just wants to extend the termination-option period another 10 days. Will the buyer have to pay another option fee even though the extension is because the seller breached the contract? 

Yes. If the buyer in this situation chooses to request an extension of the termination-option period instead of exercising the default remedies available to him in the contract, then he must agree to offer something of value as consideration to the seller to ensure that the extension is legally enforceable. This is often done by paying an additional termination-option fee. 

Case law in Texas suggests a termination-option period cannot be extended without an additional option fee, so a buyer should pay another option fee to reliably extend the option period. 

Read more legal FAQs on texasrealestate.com.  

Categories: Forms, Legal, Buyers, Sellers
Tags: option fee, option period, termination option, contracts, forms


Comments

Jeanette Roper on 01/04/2016

I would always advise speaking to an attorney.
It seems the logical thing to do would be terminate and ask that the seller refund the option fee that was paid if the buyer wanted to move on to another property.  The buyer paid the fee to inspect but the seller did not do what he agreed to do in order for inspections to be done so that fee should be returned.
I know the contract does not allow for this but the buyer can request anything he wants from a seller.

Tony Romero on 12/31/2015

The easiest thing to do is exercise the original option to cancel.  Why negotiate with an irresponsible agent, agency or seller?  Isn’t that what the “Option” affords the consumer the right to do?

Gayle Rosenthal on 12/31/2015

The headline of this blog article does not reflect the true fact setting or the question at hand.  You have a seller already in breach for not having the utilities turned on, and somehow the main concern of all the commentators and the author seems to be the appropriate consideration for an extension.  With a breaching seller, it would be hard to say a buyer has a problem by not supplying adequate consideration.  If both parties sign an extension in this circumstance, the seller is not likely to raise the issue of appropriate consideration for the extension.

The moment you have a breach of contract you are in “legal advice” giving territory and this is a risky place for a realtor to be.  However , if an extension is signed, and utilities are turned on, the contract proceeds - problem solved.  Lawyers are trained to analyze the particular facts and respond accordingly. That doesn’t mean file a lawsuit.  It means they know how to solve the problem.  Many non-lawyer brokers could solve this, but with a non-compliant seller who does not want to turn on utilities, any realtor would be better off if their broker were an attorney who has an understanding as to how to resolve the problem for the client.

Chris on 12/31/2015

I certainly do not want my clients to end up in Court. That is why I have questioned the differences in case law. This post has gone from stating cash is needed from the buyer to extend the option, to someone stating one dollar may not be enough in the eyes of the court, with case law stating that a promise for a promise is consideration, to other case law in regards to bi-lateral vs. unilateral contracts.  It is not a case of this will keep you out of court. The fact is that our judicial system such that a person can be sued under what could be considered frivolous cause but be forced to settle because the economics of taking the case further, even to summary judgment, is often more expensive than settling. Not to mention the fact that our state bar and state judicial conduct commissions are so weak and non transparent that nothing happens when lawyers sue their own clients to breach their agreements and Judges go as far as making their opinions fit by taking words out of laws.  Sad but true.

Stuart Scholer on 12/30/2015

I am frequently amazed at how many Realtors are in such a hurry to bring attorneys into the “show”.  Are we not facilitators? Are not we supposed to keep the process moving? Why would any Agent want to bring an attorney into a transaction unnecessarily? That was the point of this TAR Article in the first place. I think the Title of the Article was:  “Take these small precautions to avoid big trouble”... am I correct???
  Come on guys…  get the right perspective here… properly represent your Client, get the deal done as smoothly as possible,  get it closed, and then have a drink afterwards and… then…  tell it to the Bartender! And you know what he tells me after I cry and slam my fist on the bar and scream “buyers are liars” ??? You know what he tells me???!!!  He says,  “Stuart…. Stuart….. that’s Real Estate!”. And then I feel better:)

Gayle Rosenthal on 12/30/2015

I’m surprised this discussion has focused so heavily on how to extend the option period rather than how to handle a non-compliant seller who does not turn on
utilities by the end of the option period.

If a buyer’s agent faced with a seller who is in breach of contract, the non-lawyer, buyer agent, realtor should advise the buyer/client to get the assistance of an attorney. 

An equally useful discussion could be focused on the question of what ought a listing agent/ broker do with a client (the seller) who will not comply with his or her contractual obligations.  I would like to raise the question about the competency of a listing broker who allows agents to list a property without utilities being turned on from day one.

Ward Lowe on 12/30/2015

A few comments have called for further information to support the TAR position about paying an additional option fee to extend the option period. That information is too long for a blog comment; however, if you would like to receive the explanation with case citations put forth by Texas Association of REALTORS® attorneys, please email me at .(JavaScript must be enabled to view this email address).

Mark Eberwine on 12/29/2015

A close examination of the RE sales contract, and how it has evolved, reveals that many aspects of the contract are designed to protect the Realtor.  In addition, recent changes reveal TAR’s wish to not allow certain aspects of a property’s defects to be revealed.
Notice how the ‘mediation’ agreement is now ‘non-negotiable’ in that the consumer isn’t alerted that they have an option of not agreeing to mediate prior to other forms of dispute resolution.
TREC and the Texas Legislature don’t fart without TAR’s say-so.
You are correct to assume that TAR’s ‘answers’ are not accurate or not totally accurate.

Chris on 12/29/2015

Sadly I have learned to take anything TAR says with a very big grain of salt and also have asked for precedent to support their statements.
“A promise for a promise is sufficient consideration in Texas” Copeland v Alsobrook, 3 SW 3rd, 598 (Tx 4th Court 1996)

Bill Bradshaw on 12/29/2015

please direct me to the cites for the case law to which you refer. Thanks

Dustin on 12/29/2015

Far too many agents on here commenting about offering $1 to extend.  You all need to read up on the consequences of such an offer.  If you offer a token amount or an amount deemed a symbolic gesture (such as $1) your option period may be deemed invalid.  This information is right here on TAR FAQ’s.  Q&A link below

Is it really necessary for the buyer to pay an additional option fee to extend the option period? (Oct. 29, 2012)

Yes. The amount of the option fee is negotiable, but it would be wise to pick a number that does not appear to be simply a symbolic gesture. For instance, a court may find that payment of $1 does not satisfy legal requirements.

- See more at: https://www.texasrealestate.com/for-texas-realtors/legal-faqs/category/option-period-and-fees#sthash.GzrEJ8Ae.dpufhttps://www.texasrealestate.com/for-texas-realtors/legal-faqs/category/option-period-and-fees

Gayle Rosenthal on 12/28/2015

This is just one of the many ways that realtors are called upon to practice law without a license. I continue to advocate that they every real estate office have a broker who is also an attorney. These situations are varied and need quick responses to protect a clients’ earnest money and interests in the property.

To answer Bill Bradshaw’s question about agreement not to terminate as consideration for an extension of the option, this might be adequate consideration for the extension but better to offer $1 and a promise not to exercise the option to terminate.  But adequacy of consideration is not helpful if the seller refuses to sign and the buyer is approaching the end of the option period in limbo.

I can imagine many scenarios where the reasons a seller might not be able to turn on utilities could be outside his/her/its control. Maybe there’s no gas meter. The City of Austin and Texas Gas make it extremely hard to get a gas meter after a couple of years of the property being vacant, and the removal of the meter.  This can be a huge stumbling block for a seller, requiring extra money, time and effort to complete.

What if the buyer is planning a total remodel or has been advised that the utilities will not be turned on ?  Is there clear evidence that the seller is not cooperating as buyer expected ?

“Better option” above also gets deeper into an evidence-based response situation which realtors-who-are-not-lawyers will want to avoid.

I have had a realtor refuse to sign an extension he verbally agreed to.  I sent an email to title and to that realtor that the client considered the extension to have been signed and effective, and that we would not be terminating.


I know a few realtors who consider lawyers to be deal-killers, however their primary objective is to keep their clients out of trouble, and far too many realtors appreciate this fact.

Bottom line is that when there is an ongoing breach of contract, the consequences and responses benefit from the analysis and assistance of an attorney.  The TAR legal hotline is not always sufficient, and rote responses will seldom suffice.

Frank Adame on 12/28/2015

Rick,
You’re absolutely correct in that inspectors should not be part of the negotiations.  That’s why I hate it when buyers and agents ask me to advice them on what repairs should be paid for by the seller.  I have documented several hundreds of these requests that I have complied with but I always end it with the caveat:  “But, you the buyer, have the last choice.”  I have also on countless inspections been asked by the buyers “Is this house worth buying?”, “Would you buy this house?”, “Is this a good price?” “What will the repair costs be?” “What do you mean the seller doesn’t have to make repairs?”  And the best question is “What’s an option period?”

Rick Taylor on 12/27/2015

Personally, I don’t think it is an inspector’s job to advise a buyer as to what he should or should not ask a Seller to pay for. I think an inspector’s job is to simply complete the inspection and provide a report of what he found. At that point, it’s the buyer agent’s job to advise the buyer how to proceed with it. An inspector has not been, and will not be, a part of the negotiations with the Seller/Seller’s agent and should not try to be an agent. Just my opinion.

Stuart Scholer on 12/25/2015

Hey Mark…. “facts” and truth don’t always work in court. That’s is only one reason why I (and my Clients) avoid them if we can.  That is definitely my ilk view.
BTW… My Clients do not hire me for my ideology.

 

Chris on 12/25/2015

I would respectfully ask for case law precedent when TAR gives us their opinion, such as this opinion, on an issue that involves my profession as a Realtor.  This way we may keep up with the precedent so we can know who it affects and why.  What may be prevailing case law in Houston may not be the law in San Antonio’s 4th Court of Appeals. Two different court opinions may be working their way to the Texas Supreme Court, which at some point, may make one opinion void. Changes in TAR forms also make our jobs more interesting in how we need to keep our clients informed and how they apply to current laws.  I respectfully don’t agree with the change in the option period to 5pm and think everyone should lobby to get this changed back to midnight. Currently I am having to work a system out with my clients so they will know that while 5pm is the deadline, calling me at 4:45pm may not work. I have many more clients calling me at 4:45 than 11:45 pm. At 11:45 I don’t have to answer the phone because it is far past business hours but do answer all calls until at least 5pm.

Mark Eberwine on 12/25/2015

Stuart,
You musta missed the earlier version of the article that misstated/overstated the existing case law concerning the validity of Option Period extensions that lack a valuable consideration.  Chris was simply challenging TAR’s Author.  If yer gonna write something, get it right and back it up with facts.
Frank, you’ve been spanked!  Obviously, Frank brings no value to this conversation.  Frank should just take his toys and go home.  And on the way home, maybe stop by Chris’ house and learn about how real estate transactions should really go down.
When the water service is ‘OFF’  and the buyer is forced to take off work for an incomplete inspection, can’t afford to pay for the Inspector to return to complete the plumbing inspection, closes on the house, moves in, and discovers the main drain is broken under the house in five places, and backs raw sewage into the house, what is the ‘cost’ of the Inspection now?  Well Stuart, it can be many times your commission.  Will the Realtor make it right?
Stuart, your chiding of Frank Adame is a perfect example of how you and your ilk view Inspectors as second class citizens.
Chris and Frank have probably forgotten more than you will ever come to understand about how real estate transactions carried- out - See more at: https://www.texasrealestate.com/advice-for-texas-realtors/article/what-does-a-buyer-owe-the-seller-to-extend-the-option-period#sthash.mbSMnH3i.dpuf

Stuart Scholer on 12/24/2015

Mark E.,
I prefer playing it safe with MY Clients…. $10 is worth a good night’s sleep. I have been taught by several good attorneys that “staying out of court is much better than winning IN court”. I’ll go with TAR on this one.
BTW…. why are you beating up on Chris?

Mark Eberwine on 12/24/2015

Stuart,
You musta missed the earlier version of the article that misstated/overstated the existing case law concerning the validity of Option Period extensions that lack a valuable consideration.  Chris was simply challenging TAR’s Author.  If yer gonna write something, get it right and back it up with facts.
Frank, you’ve been spanked!  Obviously, Frank brings no value to this conversation.  Frank should just take his toys and go home.  And on the way home, maybe stop by Chris’ house and learn about how real estate transactions should really go down.
When the water service is ‘OFF’  and the buyer is foced to take off work for an incomplete inspection, can’t afford to pay for the Inspector to return to complete the plumnbing inspection, closes on the house, moves in, and discovers the main drain is broken under the house in five places, and backs raw sewage into the house, what is the ‘cost’ of the Inspection now?  Well Chris, it can be many times your commission.  Will the Realtor make it right?
Chris, your chiding of Frank Adame is a perfect example of how you and your ilk view Inspectors as second class citizens.
Chris and Frank have probably forgotten more than you will ever come to understand about how real estate transactions carried- out

MARYELLEN KERSCH on 12/24/2015

Re. inspectors charge for re-inspection of items in need of repair; I’ve never had an inspector charge for such reviews in the 20+ years I’ve been in the business.  My current (and longtime) favorite inspector is not only very thorough, he is also competitively priced.  I have clients who use him repeatedly and refer him extensively.  It’s become the basis of his business.

Stuart Scholer on 12/24/2015

Re: Chris ...  note that the TAR Author, with wisdom, gives us an answer that is not absolute. 
**** Case law in Texas suggests a termination-option period cannot be extended without an additional option fee, so a buyer should pay another option fee to reliably extend the option period.**** 
But….. there ARE two key words here that we should note;  “suggests”  and “reliably”.
In our job as an Agent, we must demonstrate competence. So instead of trying to argue case law and precedence we Agents should be playing it safe with our Client’s position within the Contract.  If necessary I will pay the $10 and deliver it to the Seller to make double sure that my Client has a RELIABLE Extension to the Option Period. I sleep better at night and have a certain assurance that my Client will not end up in some court trying to test the idea that he really did have an Option Period (or not).
  As to our Inspector, Frank:  Although I also believe that the Seller should bear the cost of that re-inspection….  It may not be appropriate nor beneficial to the Buyer to get into a dispute over a $125 when there is something much bigger going on…. the purchase of a house that is probably at least a 1000 times the $125. So please keep your Opinions and Advice within the scope of what your expertise and what your job is. Think about it…. if your advice causes a blow up between Buyer and Seller and results in a Termination because of emotions….  are you going to fix it? Can you make it right again? You know what it takes to fix stuff like this (if it is even possible)? Money…. big chunks of commission…. I know… I have done it, more than once. And I am talking about more than any inspection would cost.  I make a mistake, I try to make it good. Would you be willing to do that? Please think about it Frank.

Frank Adame on 12/24/2015

As for the utilities problem:  As an Inspector, I always warn my buyers before an inspection that an additional fee will be collected if I have to return to finish an inspection because some or all of the utilities are not on in time for the inspection.  When I do collect a return inspection fee from my buyer, I tell them they should get reimbursed from the listing agent.  That’s where the fun begins.  I have had listing agents argue with me, call me dirty names and actually cheat me out of the fee when they promised to pay me direct.  I have had several brokers and agents stop referring me because of my practice of not doing free return inspections for their clients.  Ugly!

Mark Eberwine on 12/23/2015

Why don’t we hear about the many ways the seller is in breach of contract.
So often, the buyer has to delay inspections due to the seller not allowing a day, or time, or length of time for the inspection.
Additionally, sellers fail to have the utilities on for at least some portion of the option period or contract period.
If the house is not able to be accessed during the inspection, is the seller in breach of contract?
If a portion of the house is not accessible for inspection, is the seller in breach?
If one or more utilities are not ‘on’, is the seller in breach?
If the seller utilizes unagreed upon, non-licensed vendors for repairs, is the seller in breach.
C’mon, who writes these question and answers?
The answers always seem to be a distraction and not completely true.

Chris on 12/23/2015

I noticed that you changed your article from “extensive case law” to “case law suggest” but have not replied to my request to cite said case law.

Bill Bradshaw on 12/23/2015

What if the extension is based on the buyer’s agreement not to cancel?

Sue on 12/23/2015

Option extension requests occur fairly often and I enter $1.00 in the amount since I have been told that money has to change hands. Surely between the agent & buyer, someone can pay the dollar.

Hank Braunstein on 12/19/2015

Better option-Discussed this issue with TREC legal years ago. If known that utilities are off, it is allowed to state in Special Provisions that “The option period will not start till 24 hrs, after buyer & their agent are notified that ALL utilities have been turned on.”

Johnny Willis on 12/18/2015

What if the seller agrees to extend the option period to allow for repair bids on HVAC equipment which was found to be inoperable during the inspection?

Lane Mabray on 12/18/2015

What if the seller needs more time in order to get bids for repairs and the buyer agrees?

Chris on 12/18/2015

I would love to see the “extensive case law” showing money has to change hands because in the Tx 4th Court states “A promise for a promise is sufficient consideration in Texas” Copeland v Alsobrook, 3 SW 3rd, 598 (Tx 4th Court 1996) Google Scholar incorrectly states 1999.


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