Texas Option Period Explained
In the standard Texas residential contract, the option period is a negotiated number of days during which the buyer can terminate for any reason by giving the seller notice, in exchange for an option fee paid to the seller. If the buyer terminates in time, the buyer gets the earnest money back but does not get the option fee back. Missing the deadline means losing the unrestricted right to walk away.
How it works
The Texas Real Estate Commission (TREC) promulgates standard contract forms that Texas real estate licensees must use for most residential transactions. The One to Four Family Residential Contract includes an optional period during which the buyer may terminate for any reason. The buyer pays an option fee, directly to the seller, and the amount and length of the period are negotiated and written into the contract. During the period the buyer typically does inspections, reviews the survey and title and negotiates repairs.
What happens to the money
| Money | If buyer terminates within the option period |
|---|---|
| Option fee | Kept by the seller. It is the price of the right to terminate. |
| Earnest money | Refunded to the buyer, under the contract's terms |
If the buyer closes, the option fee is usually credited toward the purchase price. Check the specific contract language.
How to terminate properly
- Deliver written notice to the seller within the option period, using the notice method the contract specifies.
- Pay attention to the deadline, including the time of day if the contract states one.
- Keep proof of delivery, such as a signed receipt or email confirmation allowed by the contract.
- Remember that the clock runs by the contract's definition of days, which may include weekends.
After the option period ends
The buyer loses the free walkaway right. Backing out may still be allowed in limited circumstances, such as a financing contingency or title objection, but otherwise the buyer risks losing the earnest money. A seller who has the buyer's earnest money may keep it if the buyer defaults, subject to the contract's terms and a dispute process. See earnest money disputes in Texas.
Common mistakes
- Paying the option fee to the title company instead of the seller, when the contract calls for payment to the seller.
- Missing the notice deadline by a few hours.
- Assuming an extension without a signed amendment.
- Using an option period on commercial or land contracts without checking whether those forms have one. Many commercial and land contracts use different forms and different terms.
See also title commitments reviewed during the option period.
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Book Free ConsultationFrequently asked questions
Can the seller refuse an option period?
The option period is negotiated. A seller may reject a long period or a low fee, or agree to one only in a competitive market.
Is the option fee refundable?
Generally no if the buyer terminates under the option. It is typically credited at closing if the buyer closes.
Can I extend the option period?
Only by a written amendment signed by both parties.
Does the option period apply to commercial deals?
Not automatically. Commercial and land contracts vary and may use a due diligence period with different terms.