What is an Option Period?

Buying a home should not be a hasty decision. It is a fast-paced, hectic, and overwhelming process. You need the home inspected thoroughly and you have an opportunity to consider several things before making your purchase if your state allows option periods.

Purpose of an Option Period 

An option period gives a buyer enough time to complete appraisals and inspections. They get finance approvals for the mortgage and negotiate for contract adjustments. The seller gets a nonrefundable fee from the buyer, called an option fee. It charges the review period.

A buyer can terminate the contract during the option period without losing their earnest money. Backing out during this period has no penalties outside the option fee. You can pull out and get your earnest money back, no matter your reason for backing out. Hence, the option period must be limited. 

An option period allows you to take your time and review contingencies before making your final decision.

What Takes Place During an Option Period?

Below are the things that happen during an option period:
 

• Home inspections - A licensed home inspector will thoroughly inspect the home. The inspector will then issue a report about the condition of the home. They will assist you to know if there is a need for repairs or any concerns. You can address the issues with the seller before you finalize the purchase contract.

• Home appraisals - Your mortgage lender will order the home appraisal. An unbiased and independent appraiser will assess the potential home’s reasonable value. 

Your mortgage lender will then determine how much they can lend you for the home.

How Option Period Impacts the Process of Buying a Home

The status of the home changes from active to option pending during the option period. As a result, another buyer cannot buy the property during that period. However, sellers can still take offers from other interested buyers.

How Long Does an Option Period Take?

Typically, option periods last between seven to 10 days. However, the seller and buyer can ultimately make the decision. Sometimes, both parties can agree to extend the time after the option period ends. 

Once the option period ends, the purchase of the property becomes binding. You cannot terminate your contract without forfeiting the earnest money once the option period ends. After the active option period ends, the seller will list the sale as pending as the closing processes are underway. After that, the property is officially sold, and you will be a new homeowner.

For more on option periods, visit Team Prehoden at our Del Mar, California office. Call 858-217-5400 today to schedule an appointment.