Legal FAQs for REALTORS®
— Contracts and Forms
Option Period and Fees
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? (Updated Dec. 18, 2015)
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.
Extensive 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.
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.
Does a buyer have to complete his inspections during the option period? (updated April 18, 2014)
No. The right to inspect the property is in Paragraph 7A of the contract and is not contractually tied to the termination option in Paragraph 23. However, most buyers will want to complete their inspections during the termination-option period so they can exercise their right to terminate if they are not satisfied with the condition of the property after receiving the inspector’s report.
The buyer also has a right to re-inspect the property at reasonable times, according to the contract. A seller who refuses to permit inspections at reasonable times would be in breach of the contract.
I know my buyer’s termination option ends on Thursday, but at what time? (Updated Jan. 8, 2016)
The termination option ends at 5 p.m. local time to where the property is located. The Texas Real Estate Commission revised its contracts effective January 1, 2016, to implement this time deadline.
How does Paragraph 21, which states that notices can be effective when mailed, affect payment of the option fee under Paragraph 23? (Updated June 3, 2014)
It doesn’t. Payment of the option fee is not a notice. Rather, the payment is a performance requirement if the buyer wants to have an option period. Paragraph 23 details the time for that performance, stating that if the buyer fails to pay the option fee to the seller within three days of the effective date of the contract, the buyer does not have an option period. Paragraph 23 emphasizes that time is of the essence and that strict compliance with the time for performance is required.
Can a buyer’s agent just mail the option check to the seller? (Updated June 3, 2014)
Yes, but remember that the buyer must pay the seller within three days after the effective date of the contract. Therefore, overnight delivery may be necessary to ensure that the buyer has an option period.
I represent a buyer who wants to make an offer on a home. If the buyer tenders a check for the option fee with the offer when I present the offer to the seller’s agent, has the option fee been tendered to the seller? And could the seller’s agent sign the receipt for the option fee on the last page of the contract? (Updated June 3, 2014)
Absent any statement by the seller’s agent that he does not have authority to accept the check for the option fee for the seller, the seller’s agent could accept the check for the option fee and, if the seller does accept and sign the offer, the seller’s agent could then sign the receipt for the option fee on behalf of the seller. The last page of the contract shows that either the seller or the listing broker could sign the option fee receipt. Buyers should always tender their option fees with their offers to ensure that the termination option becomes part of the binding contract, should the seller accept and sign the contract. The risk to the buyer who doesn’t timely tender the option fee is that the seller might sign and accept the offer, and the contract will not include an enforceable termination option. While the contract permits the buyer to pay the option fee within three days after the effective date of the contract, the safer practice is to tender the option fee with the buyer’s offer.
On the fourth day of a 10-day option period, my seller client started fixing five items that he agreed to repair in an amendment (TAR 1903). On the sixth day, the buyer sent the seller a notice terminating the contract under his termination option in Paragraph 23. My client is upset because he already repaired two of the five items. Is a buyer allowed to terminate during the option period even after the seller has started making repairs? (Updated Dec. 3, 2014)
Yes. A buyer does not automatically give up his right to terminate the contract under the termination option when the seller agrees to make repairs. However, if the buyer checked Paragraph 7 of the amendment, he would have waived his right to terminate the contract under the option period once the amendment was effective.
Remember that under Paragraph 7F of the TREC contracts, the seller is obligated to complete all agreed-upon repairs prior to closing unless the parties have otherwise agreed in writing. A seller might want to wait to do repairs until after the buyer’s right to terminate under the termination option has expired or has been waived according to the terms of the contract.
What time does the option fee need to be paid by under Paragraph 23 in the One to Four Family Residential Contract (Resale)?
The buyer is required to pay the option fee within three days after the effective date of the contract. As no time deadline is specified, the option fee must be paid to the seller no later than 11:59 p.m. on the third day after the effective date. For example, if the contract effective date is October 1, the option fee must be paid by 11:59 p.m. October 4.
The 5 p.m. deadline for the option period in Paragraph 23 applies only to the notice of termination and does not affect when the option fee must be paid.
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