Understanding Real Estate Terms: Option Money

Understanding Real Estate Terms: Option Money

The Real Estate world is filled with terms and sayings that can easily confuse buyers and sellers. From closing costs to days on market, due diligence, escrow holder, as-s, earnest money and more, you may think you’ve finally got a grasp on the terms surrounding your home sale or purchase, however, a term that isn’t as commonly used: option money. Option Money? What’s option money?

Related: Should You Wait to Buy a House Until You Have a 20% Down Payment? 

It is important to note that option money is different than earnest money, and in some cases, it might be a better option for buyers. There are a few differences between option money and earnest money, a few of the most important being:  

  • Option money is often a much smaller amount than earnest money, for example earnest money is generally 1-3% of the home’s sale price whereas option money, rarely exceeds $500
  • Option money goes directly to the seller vs. an escrow account and is generally deposited immediately vs. help
  • Option Money doesn’t help cover closing costs or go toward the purchase price of the home but is rather an additional fee
  • Unlike earnest money, option money is nearly always non-refundable outside of a 10-day window after payment which means you want to be sure you are ready to move forward with the home purchase prior to paying the fee 

It can be difficult to try and decide if earnest money or option money is the best option for you. While option money is nonrefundable outside of the 10-day window, this fee allows buyers the chance to get their affairs in order, arranging for inspections prior to moving forward with the sale. Make sure to discuss your concerns with your realtor® and ask questions until you reach a decision. Here are some questions you could ask yourself to help determine if option money is a good option for you: 

  • Am I ok with losing my option money if we decide to pull out of the purchase?
  • Are we serious about this purchase?
  • Do I have any doubts about the condition of the home?
  • Can we afford to pay earnest money?
  • Am I really “saving” money, or would using earnest money be a better option?
  • Am I comfortable with paying closing costs on top of option money? 

Related: 2 Pros and Cons When Buying a Home in a Cul-de-Sac

If you’re currently searching for a new home, are ready to sell your home and need a qualified seller’s agent to assist you, or if you have any further questions regarding Texas Real Estate, please feel free to contact our office at any time. 

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