An option period is a period of time that may be negotiated in a contract to allow a buyer time to back out of the contract if necessary. This is generally used to provide time for buyers to hire inspectors and take a closer look at the property before becoming locked into a deal.
Local real estate agent Bob Alexander with ERA Steve Cook said approximately 90 percent of the contracts he deals with have an option period.
“In general, it’s an opportunity for the buyer to research the property,” Alexander said. “They can do an inspection to determine whether it’s got structural issues or termites etc. It’s a period of time to analyze the property.”
Deborah Powell with Trinity Realty Group said she encourages all of her buyers to negotiate for an option period.
“It gives you the right to change your mind in a few days,” Powell said. “If you don’t have that, you’re bonded to the terms of the contract. The contract says I promise to purchase and the seller is saying I promise to sell. If you don’t have an option period, it is difficult to get out of the contract.”
Alexander went on to explain once inspections are completed, the buyer and seller often re-enter into negotiations to discuss whether anything will be fixed prior to closing day.
“What happens is the buyer does the inspection, depending on the outcome of that, they can decide whether they want to go forward with the contract or not,” Alexander said. “They can go back to the seller and ask the seller to do repairs that they feel are necessary. There can also be an adjustment of price at that time. There’s several different avenues they can take in negotiations.”
Powell said it is best to work with a real estate agent so they can guide you through the inspection process.
“You want an expert working with you so they can help you recognize what types of inspections need to happen,” Powell said. “For example, in rural areas there are inspections regarding wells. If you’re planning to remodel, you might want an asbestos inspection if the home was built prior to 1978. There are just a lot of different kinds of inspections.”
Powell went on to explain the option period is usually negotiated to last between five and 10 days. A fee is provided from the buyer to the seller in exchange for the period and the price is usually negotiated between $100 to $200 depending on the price of the home and length of the period requested.
Alexander said although the terms are fully negotiable, they tend to remain within that range.
“It’s a courtesy to the seller because the seller is having to advertise as under option contract,” Alexander said. “If they decide they don’t want to go through with it, the seller gets to keep the money. If the buyer does continue with the contract after the option period, that money is credited back to them at the time of close.”
Powell said occasionally an investor who is purchasing with cash will not request an option period.
“But I never recommend skipping an option period,” Powell said. “It is a standard part of the contract negotiation and I would have an option period if at all possible. If the seller is denying you an option period, then that’s a red flag.”