Note: This is a chapter in my new ebook called The Ultimate Guide to Buying (and then Selling) Your First Home. I will post a chapter a week. If you like what you read, you can pick up a copy here for the price of a candy bar! Buy a candy bar or be a real estate guru! This chapter details some good reasons to walk away from the option period. The last chapter to be shared on this blog you can find here.
I decided to call Steve, so we could discuss more fully why buyers should consider walking away from a property during an option period. I first reminded him what it was. When buying your first home in Texas, it is important to understand the option period and the rights that come to you because of the option period. The option period gives a buyer a chance to do some due diligence on the property to ensure it is what the buyer wants in a home and to make sure the home is not safe and comfortable. Some other things to know about the option period. The option period begins the day the contract is executed and ends on the last day of the agreed upon time period. For example, if you have a ten-day option period that begins on August 1st. The option period will end August 11 at 5 pm. The non-refundable check must go directly to the seller (or through the seller’s agent) within 48 hours of the execution date. Finally, it can be extended for more time if both parties agree and money must be exchanged for the extension. Please know that the option period does allow you to end the contract for any reason as long as it falls within the designated agreed upon time. Steve said he appreciated the reminders, but if he walked away from the property, he wanted to make sure he did it for the right reasons. I told Steve about three solid reasons for a person to terminate during an option period.
1. Too many repairs – I reminded Steve that he had an inspection done on the home and the inspector found some issues with the property. As we had already discussed, the number of repairs needed for the property must be in the comfort level of the buyer. Buyers looking for a move in ready property might not tolerate many repairs while some buyers will be fine with a fixer upper. Too many repairs is a great solid reason to terminate a contract during an option period. Steve’s challenge is to figure out what is his limit on the number of repairs needed. If the repairs mention a wide array of structural challenges (foundation, roof), he must decide whether to stay in the contract or walk away from the property. If you decide to pursue it further by submitting a repair amendment, what is the minimal you will accept from the seller. Will you accept the seller do a bare minimal on the repairs? If you are asking for an allowance or sales price correction, what is the bottom figure you will accept from the seller? What about the small repairs like leaky faucets, or carpets with holes in them? Steve grunted his acknowledgment and confessed he felt a little uncomfortable with the repair amendment we submitted because he felt it didn’t do enough. I told him that they could always walk away from the contract if the repairs the seller will do does meet his expectations. After all, there are other houses.
2. Buyer’s Remorse – I told Steve the following about buyer’s remorse. “When buying your first home, you should never feel buyer’s remorse. If you are not a 100% sure that this is the property for you, you probably need to walk away from it. It is fine to have buyer’s remorse if you buy something small from a store. You can just take the item back to the store for a refund. Once you get through option period with Texas real estate, you won’t be able to get out of the contract because of buyer’s remorse without defaulting on your contract (in most cases), which means you stand to lose your earnest funds and even face the possibility of legal action.” I went on to tell Steve that is he is feeling any kind of buyer’s remorse; the option period is the only time you can act on it without causing a lot of trouble for yourself. On the other side of the coin, however, I told Steve it is important to look at where they are in your house hunting. We got lucky with getting a house so quickly in this tight seller’s market. Is buyer’s remorse really enough of a reason to back out during the option period? “If you want to get a house, you might have to swallow the feeling of regret that sometimes comes with large purchases. “I told Steve. Steve grunted his acceptance of this fact.
3. Life Changes – My last solid reason to walk away during an option period is if you encounter any life changes that mean you will not be able to move forward with the purchase of the home. If you have a job loss or any other an event that causes your finances to change dramatically, you will need to walk away from the property. Why? Steve asked. They had already been qualified for their mortgage by the lender. I nodded before I remembered we were on the phone and told him “When buying your first home, this is often misunderstood. The preapproval, or prequalification, process only initially qualifies you for the mortgage. The mortgage company will look at your information again as you draw closer to the closing date to ensure nothing has changed about your financial situation. This is also why you should not go out and buy furniture for your new home before you close on it. These types of purchases will be noticed by the mortgage company, which might change your situation enough that you no longer qualify for the mortgage. It is always best to be honest about what happens to you. If this situation does occur during your option period, it is always best to terminate the contract, so you can get your earnest funds back more easily and the seller can put the home back on the market.” I went on. “There are still other life changes that are solid reasons for walking away during the option period like the unexpected additional to your family, like a child or a parent moving in. You might need to get a larger home to accommodate the new family members. A death to a spouse or other loved one might take too much time away from your ability to carefully look over the property during the option period, which means you will need to walk away.” Steve paused on the other end of the phone. He said he was feeling some remorse as it was such a large purchase and he was not a 100% satisfied with the level repair work we submitted. I advised him to talk it over with Sally and wait to see how the seller responded. If he still felt the same after hearing back from the seller, it might be best for them to terminate the contract. We could always locate another home for them. He hung up telling me he would do exactly that….
I was happy the next day to get a call from the listing agent saying the seller had his estimates and was fine with the repairs my buyers wanted done. I called my clients with the good news, wondering if Steve was still going to back out due to buyer’s remorse. After he heard how reasonable the seller was being with the repairs, he felt better about moving forward. He asked about next steps. I told him we need to let the lender know that they were moving forward so they could schedule an appraisal.