In a real estate context, an option fee is money paid by a Buyer to a Seller for the option to terminate a real estate contract. Option fee funds should not be confused with earnest money. The residential real estate industry in Texas is unique in that the real estate sales contract forms used in most transactions in the state are developed through a state agency, the Texas Real Estate Commission TREC. While the forms are public records and available for anyone to use, they are intended for use by those persons holding licenses to practice real estate in Texas.
Though the use of these contract forms and addenda is voluntary, they are used in most transactions. One distinctive feature of residential real estate contract forms promulgated by the Commission is the "termination option. Option fees are paid directly to the seller and are only refundable at closing, while earnest money in Texas is typically paid to and held in escrow by title insurance companies for the seller; earnest money is either paid to the seller or refunded to a potential buyer, depending on a number of factors.
The termination option is popular among homebuyers in Texas because it gives a potential buyer time to fully evaluate the condition of the property and perhaps renegotiate the initial offer based on inspections, needed repairs, or other considerations.
During the option period, buyers may either terminate the contract or proceed to purchase the home. In addition, during the option period, the seller can continue to negotiate and accept back-up offers from other potential buyers. From Wikipedia, the free encyclopedia.
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