There’s a lot of jargon involved in real estate, and it’s not always easy to understand.
Sometimes buying a property can make you feel like you’re studying for a law degree! There are tons of legal terms and information that you need to understand to ensure you know exactly what you’re getting yourself into.
One such legal term is an option period (also known as a contingency period). If you’ve never bought a house, you’ve probably never heard of it before – and have no clue what it means! Luckily, we’re here to help.
Take a look at our guide answering what is option period when buying a home? and how it could affect your purchase.
What is an Option Period When Buying a Home?
Before understanding what an option period is, let’s first take a quick look at what an earnest money deposit is.
Earnest money is the deposit you make to the seller of the property you’d like to buy. It essentially shows the seller that you have all the intentions of purchasing the home, you’re a serious buyer, and it prevents other home-seekers from swooping in and taking your dream home. But, what happens if you drop out of the sale and need that deposit back?
This is where the option period (or contingency) comes in. An option period is the time specified in your contract that you can terminate the purchase within and receive your earnest money deposit back. This period usually lasts between 7 to 14 days, starting the day after the home buyer signs the purchase contract and ending at 5 PM on the end date giving the buyer time to schedule home inspections.
For home buyers, the option period is a time to check that the property you’ve been looking at is really what you want. Most buyers will carry out a property inspection at this time, as well as independent appraisals, and gather quotes for any repair works. If you haven’t been pre-approved for your mortgage, this is the perfect time to apply for one, too, so make sure your finances are in order!
How is Buying and Selling Property Impacted?
When buying a home, the option period is a stressful time for both parties. As the buyer, you’ll only have a short period of time to arrange your inspections and organize repair quotes and then wait for the results of both to come back. If there are any issues, you’ll also have a brief window to negotiate with the seller, but be quick!
Sellers are also going to be a little stressed during this time. They’re waiting to see if their buyer is going to take their property or if the sale will fall through, so they’ll be keeping their fingers crossed! If there are any issues, they’re also going to have to deal with them which is never fun.
Why Should You Have an Option Period?
You should never buy a property without being completely sure you know what you’re getting into, which is why an option period is vital. This gives you the time to inspect the property without worrying that anyone else will buy it, preventing buyers from rushing into a bad sale. It’s rare that a buyer would want to pass up a property inspection before signing the contract!
Home inspections are essential for uncovering any issues your property may have. These could take a large amount of money to fix, which you may not have after taking out a mortgage, pushing the price of the property over your budget. If an issue is found, the seller will often be open to negotiations about lowering the price of the property, so it’s well worth getting an inspection done!
How to Optimize Your Option Period
Usually, you don’t have long in an option period. If you have only have a day or two, it’s going to be a busy time! Thankfully, you can optimize your option period by being prepared beforehand, reducing the amount you’ll have to do in this short time.
For example, getting pre-approved for a mortgage is a brilliant way to make your option period less stressful. You should also find reputable property inspectors in advance, creating a list of a few different options that you’ve researched in case one of them is already booked. Ensure they’re licensed, have good reviews, and are within your budget.
You’ll also need to schedule a time to negotiate with the seller if needs be. There could be a number of things you need to negotiate, from lowering the sales price if the appraisal thinks its too high, to ensuring the seller will sort out any repairs before they hand over the keys. Once everything is ironed out and you’re happy, it’s time to move forward with buying your new home!
Of course, if you’re not happy then you need to cancel the contract at the end of your option period.
Learn More About Buying and Selling Property
Learning what is an option period when buying a home is just one of the many things you need to know for a smooth sale. If you’re feeling a little lost, be sure to take a look at our property guides. We have a step by step Home Buyers Guide, as well as a Home Selling Checklist, so take a look and learn everything you need to know!