Did you know that in Texas buyers have to pay the sellers for the right to do an inspection and negotiate repairs, I’m Shannon Mangin with the Mangin team in Austin. And I’m going to help you break down what fees you actually need to bring to the table when you’re buying a home here in Austin.
So in the Texas contract, there’s basically two fees that a buyer is responsible for paying upfront, as soon as they go under contract. The first is earnest money. And the second is an option fee, which is something that’s more unique to Texas.
So let’s dive into both of those, we understand the difference. So earnest money is pretty common across other states in the country. And it’s a small percentage of the purchase price that you’re agreeing to put down as a sign of good faith and to also show that you are qualified to make this purchase.
Now, typically, in Austin, we see earnest money deposits of about 1%. So if you’re buying a $1 million home, you can put down about $10,000, that money goes to a title company where it’s held in escrow until the contract actually closes. Now, when it closes, that money is applied to your down payment, it’s not an additional fee that you have to pay, it’s part of your purchase price. In the contract, there are over 30 different ways that you can back out as a buyer and get that earnest money back. But you have to follow the contract guidelines and stick to the timelines, there is a point of no return towards the end of the contract where you have no outs. And if you do terminate, then that earnest money could go to the seller.
Now the option fee is a little bit different. There’s no inspection contingency that’s built into the Texas contract. So the option fee is just a small fee that is also paid to the title company. But if you terminate for whatever reason, you lose that fee, it’s non refundable, and it just goes directly to the seller. Think of it as a way of compensating them for their time and hassle of taking the home off the market while you inspect it. The option fee buys you a certain number of days, that’s referred to as the option period. Now in a more normal balanced market, we would commonly see option fees that may be $250 $300, maybe $500, for more expensive home, and that would typically get you seven to 10 days of period where you can inspect and negotiate repairs.
You can also back out for whatever reason you want during that time and you get your earnest money back. So if you woke up, it was raining, you decided not to buy a house, no questions asked, you get to back out, just like the earnest money, the your option fee goes towards your down payment at closing. It’s not an extra fee, you have to pay it’s all part of your purchase price.
But again, if you terminate, you lose it. Now when the market was more competitive and 2021, we saw some crazy things happening where buyers were offering $1,000 Option B for two days, or the worst I saw was a seller asking for a $10,000 option fee. That is really crazy. And that’s not the norm. And it’s not what that fee was intended for. It was supposed to be just a small amount. Again, paying back the seller for the time and hassle of taking the home off the market. But when when you do have multiple offer situations, sometimes raising your earnest money or your option B can strengthen your offer to show the seller how committed you are.
We help you assess the risk in any situation and help you evaluate what might be the best most reasonable fee to offer so that you can also win the house you love but without putting yourself in huge financial risk.
