Real Estate 101: What is an Option Period?

Buying a home can be an intimidating process. You’ve probably heard a horror story or two of someone who bought a house, only to find out a few weeks or months later that the home becomes a money pit that needs major repairs.

In those cases, there’s a good chance that the homebuyer — or their real estate agent — didn’t do a thorough job to ensure the property was up to snuff before their option period closed.

An option period is a negotiated time frame, typically a week or two, after the potential buyer’s written offer has been accepted by the seller, in which the buyer gets to check out the house and decide whether to go ahead and buy the home.

For most potential buyers, the option period is a mix of professional inspections and decision-making. Inspectors come in and train their expert eyes on the property, create a list of recommended repairs and make suggestions to ensure quality.

Buyer has Three Options

Here’s where the homebuyer’s Option comes in.

If the property needs significant repairs, the potential buyer has the option to take it “as is,” get repair estimates and request repairs or an adjustment to the home’s price, or back out of the deal and look for a different property.

Potential buyers pay for the Option Period to compensate the seller for the time the property is taken off the market, although the seller can typically accept backup offers during this period. The non-fundable option cost is often 1 percent or less of the listing price, but it’s a negotiable number.

Though there is plenty of room for legal actions, the potential buyer usually loses the money spent on inspections if they back out of the home sale. But, for many home buyers, that’s a relatively low cost to avoid problems that could prove much more expensive in the long run.