Perhaps one of the most important (and frequently asked about) sections in the One to Four Family contract is Section 23, the Termination Option. More of a benefit to a Buyer than a Seller in most cases, this section allows the prospective buyer the unrestricted right, given an agreed upon time frame and fee, to terminate if they meet the following criteria.
The first step is to negotiate the time frame and the fee amount during the offer phase. The fee is given directly to the seller in lieu of the time frame the buyer receives. Both fields within the section must be filled out and the in order for the option to be valid, the seller must receive the agreed upon fee which is generally paid within 2 days.
The termination option then gives the buyer three rights; to do nothing and simply close, to terminate the contract, or to amend the contract.
With out the first right, simply closing would be your only option with out a termination option in the contract. This is a risky option not to have because if during an inspection you found repairs that needed attention on the home, you would basically be left with little remedy and can end up with an as is home.
The second right gives you the option to terminate unconditionally. This is beneficial if there is a blatant defect in the property found during inspection or if you can’t hammer out negotiations with the seller for repairs or otherwise. Also say you found out that there was a convenience store being built on your back porch having a termination option could assist you in saying “no thanks”. Finally if you found out that you dream house has hit the market after you entered a contract, being able to go after the home you have always wanted can be attained.
Amending the contract can help you in many ways. The most notable is for repairs request/compensation stemming from an inspection. This gives a slight advantage to the buyer in some cases especially of the seller wants the house sold and doesn’t want to lose a buyer. Here in Austin we have an abundance of buyers so this is not necessarily advantage buyer. Other changes that can be negotiated is price adjustment, movement of closing date, and other options covered by the Amendment Addendum.
Most importantly is time is of the essence. The clock starts when the offer turns into a contract. The first full days starts the day after execution of the contract and is valid for the time period stated.
For example, if you have purchased 7 days of option period starting on Jan 1st, the period is valid until 11:59 Jan 8th. If you are going to terminate be sure to have the termination document turned in to the seller’s agent during that time frame or you will lose the termination option rights. If this is overlooked you could lose your earnest money if you terminate afterwards and the seller could seek performance (rare but possible) and you could end up buying the house anyway since the contract is a binding legal document.
Note that if you do terminate you will lose the option fee paid to the seller, although if you do not exercise your termination option it will be credited to you at the closing table.
If have any questions, please feel free to email me.
Tags: Buyer Advice, New Home Contract Termination, Seller Advice, Terminating Real Estate Contract Texas, Termination Option
January 8, 2008 at 11:29 pm |
I have been receiving a lot of email questions regarding the topic of termination options on new home contracts. Thank you and keep the questions coming!
To be honest new home contracts are a different beast. If you have ever noticed, new home contracts are much longer in terms of verbiage than the Texas 1 to 4 Family residential contract. A good reason to have representation when purchasing a new home to have someone actually decipher all that literature! They are designed to be air tight. The honest answer is that each contract from each home builder contains different terms and penalties. Some of those penalties involve loss of earnest money or a percentage of if you decide to bail out for lack of reason. In most cases if you can not qualify for the loan through the builder’s preferred lender, you are usually entitled to a refund of the earnest and released from the contract. Bottom line if you went in it alone carefully read and understand the contract before leaving the sales counselor’s office. If you are simply unhappy, most times the builders will do anything they can to retain you. If there is no happiness in sight, you may have to climb the latter.
One thing that I do for clients since this is a touchy area is to read the full contract from builders ahead of time and fully review them prior to clients signing (they change all the time).
Hope that helps answer some of those questions.
Christopher
September 10, 2009 at 3:53 pm |
Hi! I was surfing and found your blog post… nice! I love your blog.
Cheers! Sandra. R.