When Does the Option Period Start in Real Estate?
Demystify the precise start and accurate calculation of the real estate option period, crucial for buyer due diligence.
The option period in real estate transactions protects the buyer. It allows the buyer to conduct due diligence on a property and, if necessary, terminate the contract without losing their earnest money deposit.
Understanding the Option Period
The option period offers a buyer a negotiated window, typically 7 to 10 days, to assess a property without forfeiting their earnest money. During this time, the buyer pays a non-refundable option fee to the seller, granting them the exclusive right to terminate the contract. This fee, often ranging from $100 to $500, can sometimes be credited toward the purchase price at closing if the transaction proceeds.
During this period, buyers conduct property inspections, including assessments for the roof, foundation, or pests. They also use this time to conduct an appraisal, finalize loan applications, and review neighborhood rules or zoning laws. This allows buyers to make an informed decision and potentially negotiate repairs or price adjustments based on their findings.
Pinpointing the Commencement
The option period begins the day after the contract’s effective date, which is when both the buyer and seller have signed and agreed to all terms. For instance, if a contract is fully executed on November 7th, the option period would commence on November 8th. This start time is triggered by the buyer’s delivery of both the fully executed contract and the non-refundable option fee to the seller or their authorized agent.
The option fee needs to be delivered within a specific timeframe, such as three days after the effective date, to an escrow agent or directly to the seller. Confirmation of receipt is important to establish the precise start of the option period. This documentation helps prevent disputes regarding the exact commencement time, ensuring all parties are clear on the timeline.
Counting the Days
Once the option period commences, days are counted using calendar days, not just business days. This means that weekends and holidays are included in the count. For example, if an option period begins on November 1st and is for ten days, it would conclude on November 11th.
The option period expires at a specific time on its final day, commonly 5:00 PM local time where the property is located. Buyers must provide written notice of termination to the seller by this deadline if they decide not to proceed with the purchase. This end time helps ensure all parties understand when the buyer’s unrestricted right to terminate expires.
Influencing Elements
Several factors can influence the calculation or duration of the option period. While weekends and holidays are counted, some contracts may have specific provisions for deadlines falling on these days. For instance, the deadline for delivering the earnest money and option fee might be extended to the next business day if it falls on a weekend or holiday. However, this exception does not always apply to the termination deadline of the option period itself, meaning buyers must still adhere to the specified end date and time.
Extensions to the option period are possible but require negotiation and formalization. Buyers can request an extension, often in exchange for an additional option fee, which must be paid directly to the seller. This agreement should be documented in writing, typically through a contract amendment, to be legally binding. Factors such as scheduling inspections, unexpected repair findings, or delays in financing can lead to a buyer seeking an extension.