In Texas we have a "termination option" clause in our real estate contract that you will want to understand. This clause allows buyers and sellers to negotiate a specified time during which the buyer can fully evaluate the house. For this right, they buyer pays the seller a nonrefundable "option fee". Your option period is typically that period of time where you do your home inspections however you can back out for any reason during this option period.
Everything is negotiable but usually you will have put $100 (plus or minus) down for a 5 to 10 day option period. (These are not business days so time is of the essence.) This option period gives you the time to do your home inspections however as I said you can opt out for any reason during this period and you will only lose your option fee; your earnest money will be refunded. Typically a seller will allow you 10 days but that time can vary.
This option period starts once you have finished negotiations and all parties have signed the contract; you now have a fully executed contract. Prior to this it was called an offer but you are now under a legally binding contract. The option period starts counting the day after the contract is fully executed by all parties.
Foreclosures typically don not ask for an option fee but give you 5 to 10 days to inspect the property. For foreclosures only this is often written in special provisions and it is usually addressed in the foreclosure addendum's. I have found that many foreclosures only allow 5 to 7 days. These are not business days; time is of the essence and strict compliance with the time for performance is required. I know that does not sound like many days but inspector's are use to being on this short notice and I have never had a problem with getting inspections done during that period.
If the inspections uncover more than you bargained for this is the time to back out. Actually you can back out for any reason during this option period and the only money you will lose is the money you put down for the option and the cost of your inspections. The earnest money will be returned to you in full as long as you provide the owner a termination letter in the agreed upon days. Again time is of the essence!
I have heard from clients that there are states where the only ramification of backing out at any time during the process is losing your earnest money but that is not the case in Texas. In Texas you will usually lose your earnest money and you also may be sued for specific performance. In my experience most seller's will just move on but they do have the option of suing. Long story short the time to back out if you are so inclined is during the option period.
I have lived in four states and each state has handled the home inspection process in a different manner. Personally I like this process the best of those I have come across.
Copyright © 2010 Marchel Peterson, All Rights Reserved. *The Texas "termination option" clause!!*