An option fee is an additional payment made by a buyer to a seller in a real estate sale. In return for the payment, the buyer gains the right to pull out of the deal during a certain period, even after formally agreeing to the sale. The use of an option fee is almost entirely restricted to Texas.
The existence of the option fee in Texas comes from the fact that most real estate sales there involve a standard form developed by the Texas Real Estate Commission, a state government agency. These forms include provision for an option fee by default. It is not mandatory to use the option fee, nor indeed to use the commission forms, but they are widely used as a matter of course.
An option fee is normally around $100 to $200 US Dollars (USD), though the amount is negotiated between the buyer and seller. The two parties also negotiate a duration for the option clause to be negotiated: this is most commonly around 10 days. During this period, the buyer can cancel the deal without having to give reason and without any further consequences.
The main purpose of an option fee is to allow the buyer time to further examine the property without the risk of somebody else making an offer. This time bought can include both carrying out inspections and waiting for the assessments of expert advisers. It can also allow time to renegotiate the sale price in the event of the inspection throwing up any surprises. Supporters of the concept say that it can also benefit sellers as it averts potential buyers’ being deterred by the risk of buying a property without having a chance to fully inspect it.
The option fee should not be confused with earnest money, which is a payment, usually in the range of a few thousand USD by the buyer, to demonstrate that he or she is serious about his or her intention to buy a property. The money is not paid directly to the seller but rather put into escrow with a third-party company. If the seller decides to pull out of the deal, the money is returned to the buyer; if the buyer pulls out of the deal, the money is forfeited to the seller. If the deal goes ahead the money goes to the seller and forms part of the buyer's total payments.