situation: "The last time we purchased
a home in Texas, we agreed to a repair limit (such as $500) when we wrote the contract. We
didnt know what shape the home was in, the seller disclosed no problems, we guessed
at the amount of repairs the home might have and put that figure into our offer. After we
did our inspections, the amount actually came to $1500. The seller refused to do them, per
our contract for $500, but we had to move quickly so we bought the home and have had to do
Texas no longer has an
Earnest Money Contract, but rather an "option contract." It does NOT provide
agreed dollar limit on what the seller will spend toward repairs.
2. Designation of repairs from inspections.
3. Obtaining repair estimates.
4. Allowing seller or buyer to back out if
repairs run over budget.
5. Setting time limits to make the choices.
6. Arranging and completing repairs before
Texas now offers two
sided - an OPTION to buy, favoring the buyer.
Seller sided - an "as is" sale, favoring the
exception of homes sold by a Relocation Company, almost all offers are
now an OPTION offer, giving the buyer an option to purchase the home. The seller agrees to
sell, IF the buyer wants to buy. The buyer does not make a firm promise to purchase the
home. With a promise on the sellers side and no commitment on the part of
the buyer, this could not be a contract unless the buyer pays for this option. An
option contract requires option money.
The option money is usually
in the form of a check made payable to the seller. The seller keeps the money if the buyer
decides not to purchase the home. The buyer is purchasing a period of time, during which
presumably the buyer will inspect the property, get repair estimates, negotiate any items
of major concern with the seller, and then make a decision to buy or not to buy the home.
This cannot be done for free, because the seller suffers a loss by keeping the property
tied up in contract and not really on the market.
How long is the
option period? In practice, about 10 days. Less than this has proven to make it
difficult to have inspections scheduled, report received and still leave time to work out
any repair problems. More than this amount of time keeps a home off the active market for
How much is the
option fee? In practice, about $100 (less if a seller will accept it; more if a
buyer wants to strengthen the offer). There is little doubt that the amount should be much
greater, but the buyer is seldom willing to pay more than necessary. The option money
needs to be enough to make the contract binding and enforceable between the seller and
The option fee is NOT
earnest money. Earnest money is refundable during the option period, then "goes
hard" at the end of the period.
How are repairs
handled? In practice, the buyer may request that certain repairs identified by
the inspector be completed. The seller is under no obligation to complete them, but then
the buyer might refuse to buy the home. The seller must disclose the inspection report or
repair information to subsequent buyers.
Heres a likely
The buyer and seller sign
The buyer has inspections
and (buyer or seller) gets repair estimates.
The buyer writes the
seller, requesting certain repairs, at the sellers expense.
The seller agrees to all
(or a portion) or the request. This is put into a new agreement.
The option period is
concluded and the sale is closed.
There is no pre-agreed
amount of funds the seller is committed in advance to spend on repairs. Therefore, the
buyer cannot be too sure the seller will agree to pay for anything at all. The seller may
refuse to pay for them. However, the seller will not be able to pay for repairs from a
position of know what the buyers inspectors say, and based on repair estimates. All
of this information will be received during the option period of the contract (usually the
first 10 days), which is a much more knowledgeable position from the old
days, when the seller and the buyer were just shooting in the dark and guessing what might
be needed in repairs. The seller will also be able to see more clearly the disadvantage of
not paying for repairs that are really needed, and the seller who refuses to close will be
stuck with making these same repairs for the next buyer.
How do we know that the
option period is over? IF the buyer does not give WRITTEN NOTICE to kill the option, then
the buyer will be deemed to have accepted the property as agreed in writing by both
parties, or "as is."
(Above information by Jim Wiedemer,