Question about Purchase offer in Texas

15 Replies

I just had a Texas Realtor send me purchase contract for an offer I want to make.  I was surprised to see the usual  inspection clause encumbered with the language that says the buyer needs to pay a non-refundable "option" for the right to cancel the contract if his inspection turns up problems he doesn't like.  The agent says most people pay $25-100, which is supposedly "compensation" to the seller for removing the property from the market during the inspection period. I thought this was crazy, and know the California Realtor purchase contracts are not like that.  The agent confirmed to me that regardless what my inspection turns up, even if the roof is falling in and the foundation is crumbling, if I cancel the deal for any reason, I still lose the "option" money paid up front. She said I could make the offer without this money committed, but said most other buyers are offering it, and if mine doesn't the offer may not be seriously considered. I  still think it's a big crock. Any thoughts from people in Texas on how they handle this?  Do you pay the option money or leave it off your purchase offers?

Option money is standard.

Put another way, what incentive does a seller have to give your a 'free look' at an inspection report. To the lawyers in the room, what 'consideration' would have been given to constitute a contract if no money was changing hands for the option period.

We all know California is backwards anyway, Texas doesn't do it wrong, you guys do! :)

All Contracts that I have been under either buyer or seller has a NONREFUNDABLE option ($2-500) and Earnest which is refundable.

Why doesn't a nonrefundable option make sense?  You are asking the seller to take him home off the market so you can decide if you really want it in 7-10 dys.  Without an option, you have no skin in the game.  A buyer without an option cost, could literally go under contract with 10 homes and pick the one that he really liked without any cost to him/her.

Without an option money, a buyer could literally send out contracts on every home he sees online that looks decent, and then tie up hundreds of homes.

I agree, if Cali doesn't have option, its pretty backwards.  I would never sell a home without an option to make sure buyer is serious.  Once people start to abuse it, Cali will surely start an option clause.

Not from Texas but it sounds as if it is another way to keep people who have no intention of buying the property i.e. wholesalers from tying it up for ridiculous amounts of time while they hop around trying to find a buyer.  If you are serious about buying the property $25-$100 is nothing.  So, if you are serious pay it, if not or if it's not a good deal don't waste your money.

If I were a seller in a hurry to sell and it was costing me $XXX per day while someone had it tied up while they shopped a buyer I would want assurances they were going to close and  one way is by having a nonrefundable fee.  Does that sound like a reasonable explanation?

No California contracts do not have that clause, but the State  added a few others  to keep people from saying they were making an all cash offer when they do not have a dime to their name.

Originally posted by @Ed B. :

I just had a Texas Realtor send me purchase contract for an offer I want to make.  I was surprised to see the usual  inspection clause encumbered with the language that says the buyer needs to pay a non-refundable "option" for the right to cancel the contract if his inspection turns up problems he doesn't like.  The agent says most people pay $25-100, which is supposedly "compensation" to the seller for removing the property from the market during the inspection period. I thought this was crazy, and know the California Realtor purchase contracts are not like that.  The agent confirmed to me that regardless what my inspection turns up, even if the roof is falling in and the foundation is crumbling, if I cancel the deal for any reason, I still lose the "option" money paid up front. She said I could make the offer without this money committed, but said most other buyers are offering it, and if mine doesn't the offer may not be seriously considered. I  still think it's a big crock. Any thoughts from people in Texas on how they handle this?  Do you pay the option money or leave it off your purchase offers?

I would never personally consider an offer without an option payment if an option period was requested as serious. Your agent is correct.

Thanks for the responses. I understand the need for a seller to avoid buyers who are not serious, but they could easily keep marketing and accept back up offers during the 1st buyer's due diligence phase  in case the buyer flakes on them.  A crooked seller could abuse the process, too, by not disclosing defects that he knows will be uncovered by the buyer, knowing full well the buyer will probably cancel the contract once the inspection items are discovered, yet the seller gets to keep the option money. How fair is that? Granted, maybe not many sellers would do that, because it seems counter productive if they are sincerely trying to consummate a sale.

You shouldn't need the option period if you are using the standard TREC contract.  They need supply you with a seller's disclosure.  Under Section 7, B select option (2).  It says you have 7 days to cancel the contract for any reason once you receive the disclosure.  If for some reason they aren't required to give you a disclosure then you could use the option.  FYI, I'm not an attorney nor did I stay at a Holiday Inn last night.  Ask the broker/agent.

The option money may be non-refundable but the amount will or will not be credited back to you if you do close on the property.

Another item you mention is disclosing a defect-Texas has implemented some very harsh wording that states the Seller has to disclose, and if by chance the Realtor is aware of the defect they need to make sure the Seller has disclosed-lets face it we are all scared of any legal action.  In Texas, with most Sellers, a disclosure is required and this is where any defect can be noted. Once a Seller becomes aware of a defect, they have to disclose.

@Ed B.

Sounds like you have an inexperienced agent. As a seller, I love to see offers without a termination option as it means the buyer is giving up one of their "outs" in a future contract. And since few agents really understand all the other "outs" the TREC contract affords a buyer, it betters my position as a seller when there is no termination option period. Time to find an agent with a better understanding of contracts. 

Regarding "consideration", I buy most of my properties without any earnest money, but granted I seldom buy homes listed with agents. Earnest money is not a "requirement" to have a legally binding contract.

Guy, if I may clarify, the agent is not recommending that I  delete the termination option from the contract. I understand it gives me a valuable "out" just in case. I'm just objecting to having to pay for it. I'm used to making offers in California and Oregon, where all earnest money paid is refundable in full if the property fails buyer's inspection requirements. Would you mind telling me what other outs a TREC contract offers a buyer? FYI, my offer is all cash, so I can't claim a loan contingency. It's only contingent on me liking the property well enough after my inspection, but I'm also hesitant to give the seller any non-refundable money when all I want is a few days to conduct a normal due diligence inspection. I'm not out to play games with the seller by tying it up while I fool around with trying to find financing or another end buyer.

I realize I can always  refuse to pay the termination option,  and insist on the right to cancel after inspection without paying for that "right," and it's up to the seller to accept that or not. If they really want to sell, they will accept it that way.  

@Ed B.

First, let me say that I am not giving you real estate advice since you disclosed you're being represented by a broker...this is simply general real estate information and not an intent to interfere with your legal relationship.  

TAR as well as Texas case law makes it clear that you cannot have a termination option without option consideration. Of course this does not mean you cannot have other contract termination points including those included in the promulgated form and any provisions/contingencies (including an inspection contingency) added by a principal. 

I would love to add more clarity regarding the contract form, but again, I'm not looking to step on your broker's (or agent's) toes and draw a complaint.

Best of luck Ed.

Fine, to heck with that silly termination option clause. I will simply include my own clause that the offer is subject to my inspection and approval of the results within X days or the offer is void. I'm not paying for that right to inspect and reject, and the TREC is not going to tell me what I can or not have in a contract. And with all due respect, I think you're being unnecessarily cautious by  worrying about stepping on the broker's toes. You're simply responding to a question for advice which I solicited. You're not doing anything wrong by giving it. I know she wouldn't have a problem with it.

Just a heads up Ed. When you ask for someone's opinion, you shouldn't degrade them when you don't like their opinion. 

While I have no doubt you believe you're better versed in TREC/TRELA/COE rules and regs than me, your belief does not trump reality. And since it's apparent you're not interested in either my opinion or in learning, I won't bother with further follow up.

One of the popular sayings here is "we don't care how they do it up North".  You can insist on doing it "your" way, ignoring local customs, to your own detriment.

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