Thank you so much, Texas Realtor Association (TAR), for your article in the August 2017 edition of the Texas Realtor magazine which covered paragraph 23 – the Termination Option.  This is a unique paragraph that our residential contracts contain which most states do not offer.   For some reason, the language of the paragaph seems confusing to many licensed real estate agents.  If it is confusing to the agent, it MUST also be confusing to the actual parties to the contract – the buyer and seller! 

Here are some key points to note regarding the Termination Option:

1. If a buyer does not pay the Option Fee, they do not have the right to terminate.

2. If the Option Fee is not delivered – DELIVERED – to the seller or the listing agent/broker by 11:59 on the third day after the effective date of the contract, the buyer does not have a right to terminate under the Option Period.For example, if the contract is executed on Oct 1, the option fee must be received by the seller by 11:59 p.m. on Oct. 4.

3. If the Option Fee is mailed, it still must be delivered to the seller by the end of day 3.Mailing an Option Fee is a huge risk. Putting an Option Fee in the mail, and assuming that the stamp on the envelope which indicates when the fee was mailed will constitute receipt by the seller is completely invalid.  Any agent who believes this is true (as I have had several lately give me this argument) is incorrect, and putting the buyer at risk by providing bad advice.  If the Option Fee must be mailed, consider overnighting with a tracking number.  It is well worth the $30 to protect the Termination Option.

4. Unless the seller has instructed otherwise, the listing agent or broker may accept and receipt the Option Fee on behalf of the seller.  However, the TITLE COMPANY does not have the authority to accept or receipt the Option Fee.  Agents, for the love of Mary, stop leaving the Option Fee at the title company along with the Earnest Money. You are risking your buyer’s Termination Option by doing so.

5. Buyers do not have to complete inspections during the Option Period.  However, it may be in the buyer’s best interest to do so in case there are deficiencies uncovered that would cause a buyer to terminate.  Inspections after the expiration of the Option Period do not leave room for repair negotiations with the seller.

6. The Option Period terminates at 5 p.m. local time on the last day indicated in paragraph 23 of the contract.  For example, if the effective date of the contract is Feb. 1, and the buyer has a 10 day Option Period, that Option Period ends at 5 p.m. on Feb. 11.If an amendment has been executed and Paragraph 7 of the Amendment form has been checked, then the right to terminate has been waived.

7. If an Option Period is extended, the buyer must pay an additional Option Fee.  Without consideration, there is no extension on the time allowed for a buyer to terminate.

I have witnessed a few cases in recent months where the buyer has attempted to terminate the contract with the “unrestricted right to terminate”, only to discover the Option Fee was not delivered within the time prescribed by the contract.   They did not even realize they were operating without an Option Period.  In a couple of instances, the Option Fee was not delivered to my office until day 7 or even day 9!   In both cases, the checks were immediately returned to the buyer’s agent with a notation on the envelope as to when the checks were received.  One agent argued that she couldn’t mail the Option Fee until day 5 because it was over a weekend.  Ummmm….. I would recommend DRIVING across town to deliver it.  Seriously, we are talking about 20 miles in this case.   Or ask the buyer to deliver the check.  Most of the time, they would be happy to do so, especially if they know it will save their right to terminate! 

I seriously hope every agent reads the TAR article.  And I hope this little blog will help shed some light for any unassuming buyers who do not know the significance of Paragraph 23.   Agents, hold yourself accountable!  Deliver the Option Fee, and get it receipted. Buyers, make sure you are delivering that check to your agent as soon as the contract is signed.  That is one of the better ways to ensure you are doing your part to adhere to the contract and protect your right to terminate.  And in the end, hopefully you will not have to use it.