What Is an Option Fee in a Real Estate Contract?

Option fees are money put down that allow the buyer to cancel the contract.

An option fee in a real estate contract is a separate payment---typically $100---for an option clause. The option clause allows the buyer to renege after signing a contract during a certain time period.

Geography

Option fees are almost exclusively used in the state of Texas for real estate sales, according to the Texas Association of Realtors.

Time Frame

The option period on a real estate contract usually lasts about 10 days, but this sometimes varies by a few days.

Benefits

The option fee, although non-refundable if the buyer exercises the option clause, allows the prospective buyer to take a closer look at the home to make sure it does not need any repair or other pertinent problems, according to Realtor Roselind Hejl (See References 2).

Misconceptions

An option fee and earnest money are not the same thing. A potential buyer puts down earnest money on a place as an act of good faith to show he has serious intentions of purchasing the property.

Warning

If a person pays an option fee, she must choose to terminate the sale within the given time or else the real estate contract then goes into effect.

References

• TexasRealEstate.com: Understanding the lingo -- option fee and option period
• WeLoveAustin.com: Real Estate Contract - Option Period