Texas Agent Telling me I have to put up $200 for option to get out of bad inspection?

31 Replies

According to my agent  if I want the option to get out  of my buy contract if  inspection report bad, then I would need to  pay $200 or more.    Otherwise   I would lose my ernest money .  She says it is not mandatory but most seller agents will  discourage  seller from  taking offer unless that money is there for them.  Is this true?

I told her everything is negotiable and is not part of my negotiation  but she is still pretty insistent.  What am I missing?  

Not sure in Texas, but around here that's not the case. The inspection contingency is just part of the procedure. If something isn't up to your standards by the inspection deadline then you can pull out and get your money back. You can use it or not use it, but I personally haven't heard of having to pay out to get out of the contract based on inspection. There may be something I'm missing, but that's how I'm reading it.

found out it is called termination-option period .  So even if it take you inspector longer to show up for inspection,  you still have to pay the fee.  It is actually part of the contract that you turn over w/ your contract and earnest money.  

 It says in Texas RE guidelines   have to pay something to hold up in court and $1 is frownd   upon?  Crazy    I hope Texas agents can help with this.  

@GL L.

Consideration must be given for the Termination Option to be effective in the TREC contrat form. Typically, it is a minimum of $10 per day but can be much more when dealing with a listed property. 

Not like that in Ohio.

Heck, if the inspection report is that bad then tell the seller you want X number of dollars so you can fix all the items on the inspection report (be sure to have estimates).  You don't want to say for the seller to fix items because they'll do it as cheaply as possible.

And, they won't give you the money you want for ALL the repairs to be made, if it really is that bad, so then you should be able to get out of the contract because you and the seller can't come to an agreement.  But, if they do decide to give you all the money then fine.

That's what I'd do... just not sure what your laws are out there, so be sure to ask your agent or consult a lawyer.

@David Hunter

@GL L.

David-  It is basically the same here in Texas.  The Buyer pays $XXX for a period of time xxx, usually 7-10 days but could be more or less depending on circumstances and how competitive the market is.  It gives the buyer the right to terminate anytime and for any reason during that period.  So the buyer does their inspections during that period they can submit an amendment to seller asking for repairs, $$, or whatever

GL-  I would say $50-100 is pretty standard and may be higher for a higher $$$ property.  7 days is usually more than enough time to do inspections

@Greg H.

  Why is paying necessary?   Isn't it expected that it will take an amount of time  to get inspection?   Why are you paying to have that time?  

That is typical in Texas, how it's generally done, and what is expected.  You don't have to do it, unless of course you want to get a signed contract.  You're not in Utah(Kansas) any more.  As we often to have say down here, "we don't care how they do it up North".

@GL L.

Every state has their respective contract law and contract forms.  The option payment is tendered so the earnest money is not at risk.  This fee is also a very small consideration for the seller taking the home off the market while the buyer determines if the property meets the buyer's needs.

Funny how things re different from state to state.

Like, here in Cleveland, we have escrow closings so the title company closes the deal.  No lawyers, no buyer/seller meetings (rarely do the two ever meet).

@GL L.

The Termination option in the TREC contract allows the buyer an unrestricted right to terminate the contract.  The seller is taking the property off the market, potentially missing another buyer so that the you can shop the deal or rethink your decision or any other reason that you would want this out for.  It is reasonable to think the seller might want some compensation for that to make sure you are a serious buyer.

Many Texas deeds are written with the clause for $100 and other consideration, so that should be enough to make a contract valid.  Whether it's enough for the seller or agent to hold the property for you to make a decision is up to them.

when I bought my property in the Houston area I had 10 days to get an inspection and decide to buy or not to buy. If I choose not to buy it would cost $200 but I would get the 2k I put down for earnest money. 

@GL L.

Both Guy and myself are Broker's as well as investors and had nothing to do with setting up this "game".  The contracts are provided by the Texas Real Estate Commission 

Not knowing the circumstances of your deal, we both agreed that $200 was on the high side for a 7-10 day option period unless there are some extenuating circumstances.  If you are not in a competitive situation with other offers, offer $50 for 7 days

I have no idea whether you are new to investing or not, but my suggestion is instead instead of complaining about the system find a way to make the system work for you.  Look at it this way, you are paying $xx for 7-10 days for the option to back out of a deal for ANY reason.  Use that time to get your inspection, double and triple check your numbers and maybe even float an ad or two on Craigslist for rent to see if their is interest in your area

Personally, I buy HUD homes that may be as far away 6-7 hours from my house. I put up $500 earnest money on a sub $50k home site unseen and it gives me 30-45 days to view and further evaluate the property and I end up losing $3000 or so every year in EM when the deals do not make sense. $3000 is a small price to pay to avoid bad deals when you are buying $1Mil+ of real estate every year

@Greg H thanks for the info, but it is not that kind of a deal where I need to double and triple check #s or getting it rented out. 

Also I have every intention in putting a decent amount of earnest money to show good faith.  I just don't like being nickeled and dime to death  

I wish I was where you were at in you REI portfolio and business where money is no object.

Originally posted by @GL L. :

@Greg H thanks for the info, but it is not that kind of a deal where I need to double and triple check #s or getting it rented out. 

Also I have every intention in putting a decent amount of earnest money to show good faith.  I just don't like being nickeled and dime to death  

I wish I was where you were at in you REI portfolio and business where money is no object.

Personally, I can't think of a deal where I haven't double and triple checked the numbers.  Maybe that's why I have been doing this 25 years

Money is always an object in this business and I will say one of my biggest issues is that I do what the numbers too closely in some instances

FYI- Something I did forget to mention.  There is a box on the contract that can be checked that credits your option fee back to you at closing.  So if you go through with the purchase , your option period costs you $0

So if the numbers don't need to be double checked and all you are concerned about is the inspection, have the inspector lined up for the next day and ask for a 2 day option period for $5.  I would imagine that would fly with most sellers

Greg - great educational points.

Gi Lin - I think your thinking in nickels and dimes may cost you in the long run - Greg gave some great alternatives that your agent probably should have come up with - but IMO a lot of agents are not the brightest bulbs and do everything as they always have, and often they havent always done everything basic either. This is a great resource and basically, as in life, if it needs to be done, you probably better do it.

There isnt any mandatory cost for an inspection contingency in CT, IIRC,  when I sold our house, it was CTS right up until the mortgage contingency was fulfilled, then it went pending. If not, and partly even so, I think that is tough on the seller - the seller is automatically losing money if  he ties up the property.

GL.

When you negotiate the contract, you can check the box where the option fee "will be credited to the sales price at closing."

So if you go through with the deal, you lose nothing.

Coming from a business background, I hate it when I buy a HUD home and they say no consideration is needed for a 10 day option. Even though they tell me to put $0, I still try to put $10 in there, because from a business standpoint (not RE), you really do not have an option period unless consideration is given.

From my standpoint on inspections, the inspection is really for items that is not visible when your're viewing the house with your agent.  Understanding that there is a seller's disclosure, but we check to see how old the A/C unit is, if it's still on R22, we ask if both the condenser and air handler was changed at the same time, we walk to see if there's any foundation issues, and look at the roof.

If you buy the house they usually give you back the earnest money check uncashed. I always paid either $50 or $100. You can still back out after the option period but it will cost you. 7 to 10 days is typical. If you have never done this try to get 10 days because it might take several days or more to get your inspector out there. You could always call a different inspector if yours is booked up but it is a lot cheaper to find one you like and use them all the time. The guy I use only charges me $250 per inspection (sometimes less) but I have hired him to inspect at least a hundred houses. 

The reason I say go for as long an option as possible is that several times there were things I didn't realize until after 7,8,9 or 10 days even after the inspection. Sometimes you talk to different people and find out things you didn't know before and it changes your mind. One time I was going to buy a house really cheap that had foundation problems. I have a great foundation guy. After about 7 days I found out that the entire neighborhood was built on top of a landfill so it is likely that the foundation would have to be repaired over and over and over. I passed on that one. I have only actually bought 7 houses but had over 100 under contract. Many realtors will try to pressure you into a short option period. Some will say 2 or 3 days. I wouldn't do that unless you have a lot of experience. 

A good realtor is great but a bad realtor is really bad. One way to try to get an idea if they are good or bad is mention bidding on a house without looking at it first. A really good buyers agent will advise against doing that and a bad one will be all for it or maybe even suggest doing it. There are some buyers agents who actually look out for the best interest of the seller rather than the buyer. Stay away from them.

It might be different if you are getting a mortgage. I have always paid cash until now. Now I have a home equity line of credit with Spirit of Texas Bank but I haven't found the right house yet. So I am still actually paying cash for the house I am just borrowing the money. There are not nearly as many houses for sale now as there were last summer. At least in Tarrant County anyway.

Hi GL Lin,

I'm a Realtor in the DFW area but also an investor. Maybe I can make this simple for you. It’s not a scam. 

On the TREC (Texas Real Estate Commission)1-4 Contract to purchase a “Single Family Residence”, the Buyer is purchasing property "As Is". (There is a space under the “As Is” box where you can ask for repairs upfront: things you already know you want done; say the carpets are trashed, and you want them replaced but otherwise, it’s an “As Is” contract.)

There is no such thing as an “inspection period” unless you are buying an REO. REO’s and bank foreclosures are a different breed. They use their own contracts in conjunction with the TREC 1-4. (if you want more Info. I can follow up)

On the TREC 1-4 though, you can choose to ask for an “Option Period” during which you put up a nominal amount of money. (just like stock market, you when you buy “Options”)

It is for the buyer's protection & I would never recommend you purchase a property in this area, without one. It's a low cost, legal "Out" that could save them thousands. 

It benefits you 1) because you can change your mind for any reason during that period. Say you discover the railroad is running right behind the property … & 2) it protects your earnest money.

In a hot market like we’re having here in Texas, $200 is perfectly reasonable, although normal markets, $100 is typically the norm. In the N Dallas area, option money can be $1000… This is because you are asking the seller to remove the property from the market while you “decide”. They are losing market time and other buyers. Should you decide to, “Opt Out”, all they’re getting for their compensation is that 100 or $200.

Should you decide to move forward with your purchase, your “Option” can go toward your purchase price.

Hi GL,

I'm in the Dallas/Fort Worth Market here in Texas.   I am an investor, but not a Realtor.  Recently, my Realtor who lists my houses for me spoke at my Women's Investing Club last month.

She even said to us that night that the OPTION MONEY is going up around here.  Why? Because most "Listing Agents" are protecting their seller from tying up their property for any length of time.  They think down here that due to our current market, the people who are buying can afford a higher OPTION FEE.  Even 7 to 10 days in our market right now is a long time "in their opinion" to hold up the seller from getting their house to closing.

You can certainly do any amount you want to do for the Option Period.  But, if you are really serious about buying that particular property and have the money to buy it, then it's the price of doing business.

Also, there is a place on the TREC where you can put that $200.00 towards the purchase price.

Hope this helps you.  

The option fee allows you to walk away from the contract for any reason whatsoever during the option period. It could be something you don't like on the inspection. It could be because you changed your mind. Who wouldn't want that peace of mind?

Here in Texas the typical option fee is $100 for 10 days, but the seller could demand a higher option fee or fewer days.

On the TREC contract you can also ask that the option fee be applied to your closing costs. Again, the seller could reject that.

From the seller's point of view, he's taking the property off the market and giving you a certain number of days to change your mind. If you bail, he should get a little something for his trouble.

Originally posted by @Greg H.:

Personally, I can't think of a deal where I haven't double and triple checked the numbers.  Maybe that's why I have been doing this 25 years

FYI- Something I did forget to mention.  There is a box on the contract that can be checked that credits your option fee back to you at closing.  So if you go through with the purchase , your option period costs you $0

If you must know (which you really shouldn't and has nothing to do with my question)  Is I have been waiting for a house to come on the market on that street for years!  And if you must know,  It will be used as a owner occupied, high end vacation rental investment not as a low income rental or a flip.  Please do not judge me or my knowledge just because I ask a question that should not require every detail of type of purchase.  Thanks

Yes I understand   I get the money back  if past terms of option fee.  But her terms of how  they get this option  money back  include :, "does not pass inspection past  the 14 day option deadline" and other crazy   terms  that she can come up with that only  benefit the seller. 

I also understand  I have the option to put zero  in the field but my real estate agent  all but told me she would not submit if less than $200.  Consequently She is not my agent anymore, for this and other reasons.