What is Option Money? Why is it Good?

In the state of Texas, option money can be a very important part of a buyer’s contract. If a buyer pays an option fee, they are purchasing an unrestricted rate to cancel the offer contract on a property in the specified time laid out in the contract. This is a timeline used for buyer due diligence and if during this time a buyer finds something that could cause them to rethink their offer they are able to do so for any reason whatsoever as long as it is within the specified timeframe.What is Option Money Why is it Good

An example of contract wording for a termination option

Often in a buyer contract offer, there is language in what is known as paragraph 23 that discusses the key points. This is what most buyers will find in a standard offer contract for real estate in Texas concerning option money:

23. TERMINATION OPTION: For nominal consideration, the receipt of which is hereby acknowledged by Seller, and Buyer’s agreement to pay Seller $_____________ (Option Fee) within 3 days after the Effective Date of this contract, Seller grants Buyer the unrestricted right to terminate this contract by giving notice of termination to Seller within ____________ days after the Effective Date of this contract (Option Period).

There are a few key items to focus on from this part of a standard real estate offer contract. These are that the fee needs to be delivered within three days of the effective date if any funds are delivered past this time there is no option under the contract. This sentence also obligates a buyer to pay this fee to the seller this can be done through delivery to the listing agent or a person representing the seller. This allows the unrestricted right to cancel until the timeline is conditioned upon payment of the option fee.

Some frequently asked questions about option money

Can option money be delivered to a seller through electronic payment?
This is permissible as long as this is an unconditional payment. This can be a good means for paying the option money if the person is out of town.

Is there an extension to the payment deadline for option money if the third day after signing the contract falls on a weekend or holiday?
With the paragraph above in the standard offer contract, there is no provision for extending option money payment because of the third-day deadline landing on a weekend or holiday. The due date does not change it is always due on the third day after signing.

Who signs the option fee receipt on a contract?
A seller or their representative signs the receipt for the option money in a contract. It is not allowed to be signed by anyone else in the transaction of the property sale.

Is it allowed to deliver option money to the title company?
This can get a little tricky the answer to this question is yes but it leaves the buyer’s agent with a lot of liability upon delivering the option money. This is because the language in the contract does not provide for the delivery of option money to the title company rather it requires delivery to the seller.

What happens if there is an issue in the options fee delivery process?
If option money is not properly handled it could wind up with the buyer not being protected or having an option period under their offer contract.

For more information on purchasing real estate in Granbury Texas and surrounding areas please contact us anytime.

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