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What is an option period in a real estate contract?

On Behalf of | May 3, 2024 | Real Estate Law

When you find a home in a Tennessee neighborhood that seems perfect for you, you probably want to conclude the sale as soon as you can. However, giving careful consideration to your purchase may be wise if you later have second thoughts about committing to the residence.

Fortunately, your real estate contract can give you time to work through all the motions to make sure your new home meets your hopes and expectations.

The option period

When you negotiate a contract with the seller, you should make sure an option period is in your agreement. Also known as a due diligence period, this is a scheduled allotment of time during which you may decide to walk away from your purchase if you find a major defect with the property.

An option period generally involves some kind of fee. Should you decide that the home is not right for you, you would lose the fee, but this is the only loss you should incur. You may also negotiate for a fee you think is fair to you.

Setting up the option period

You could include your terms for an option or due diligence period in your offer as well as the option fee you wish to pay. Though you may want to keep the option period as long as possible, the seller might go with a different buyer if that person offers a shorter period.

When you sign the contract, the option period goes into effect. During this time, the seller can accept other offers only as backups in case you terminate your purchase. You might also negotiate for a period extension if events warrant, though you may need to pay a second fee in exchange.

Working out an option period, in addition to contingencies for your purchase to depend on, can help you create a solid real estate agreement that works toward your goal of finding a new home without significant defects or cost problems.