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So, the Texas backup buyer has to pay a nonrefundable option fee to buy a backup contract, with very low odds of closing?
Correct. The option period does not start until you become primary but the fee is paid up front. Trick is to make it a very small amount.
Not sure if this is what OP is talking about but I would guess so. She may be misunderstanding her agent. I always discourage Backups from my Buyers unless it's a rare, 1 of a kind property.
Correct. The option period does not start until you become primary but the fee is paid up front. Trick is to make it a very small amount.
Not sure if this is what OP is talking about but I would guess so. She may be misunderstanding her agent. I always discourage Backups from my Buyers unless it's a rare, 1 of a kind property.
Your option fees do tend to be small, don't they?
Like, $50 or $100? And, for a week or so just for inspections?
In comparison to ours, which can be over $1000 due to a sellers' market and provides a full Due Diligence Period encompassing appraisal, inspection and repair negotiation, HOA investigation, zoning, and some etceteras. That DD Period commonly will be 3 weeks or more.
Our backup contract addendum has buyer giving EMD upon acceptance, even in secondary position, with provision for DD Fee to be paid within 5 days of the BU Contract becoming primary, and then the DD Period starts.
We can claim the EMD back at any time during the BU status, or during the DD Period.
Our option fees used to be smaller but in our sellers market a fee of $300-500 is not unusual, I've seen it as high as $1000. I seldom will accept an option period of longer than 8 days. Much of it depends on how long a home has been on the market and possible multiple offers.
I like our option period. It gives the buyer the ability to do whatever inspection they want and walk for any reason in a fairly short amount of time. What I don't like is they can terminate for 3 days once they get the HOA Docs which can take 10-20 days to get. It amounts to an extended option period. Not much way to get around this since HOA disclosures / financials do matter.
Our option fees used to be smaller but in our sellers market a fee of $300-500 is not unusual, I've seen it as high as $1000. I seldom will accept an option period of longer than 8 days. Much of it depends on how long a home has been on the market and possible multiple offers.
I like our option period. It gives the buyer the ability to do whatever inspection they want and walk for any reason in a fairly short amount of time. What I don't like is they can terminate for 3 days once they get the HOA Docs which can take 10-20 days to get. It amounts to an extended option period. Not much way to get around this since HOA disclosures / financials do matter.
Yeah, if the market ever swings back to favor buyers, DD Fees, Option fees, will tumble.
As it is, the fees greatly favor sellers who hope to sneak stuff past buyers, and to profit through fees when the buyer finds stuff the seller didn't want to know about.
I've been backup twice and it was GREAT for the seller because the seller could play hardball and NOT make concessions for inspection items raised for the buyer in contract.
The last time my offer was 100k over accepted, all cash and as-is except for survey to be paid by me.
For 59 days I was in limbo and twice the listing agent called and said get ready to move quickly as she was sending notice to the accepted offer they were out of contract.
Really wanted the property and the seller would have liked to get more... it was just my offer came in one hour after the first was accepted.
I did provide an earnest money check to be held UNCASHED pending acceptance and was returnable on demand up until I was in contract.
Met with the buyer the week it closed and he was at first skeptical I existed and said he had about 12k in concessions I prevented him from getting... his Realtor told him he would lose the property if he asked and the Realtor was correct.
Even offered the buyer the 100k if he would assign his contract or sell to me.
Chance is you will not get a call back even if the deal doesn't fall through. Think about it, they won't refund you the money in the first place, then why bother calling you and let you know that you can purchase the house when they can simply go to other person. I never heard of paying anything for backup, doesn't even make sense.
The Earnest Money does not need to be put up until she becomes the primary contract. What she is probably referring to is the Option fee which usually a lot less.
I'm not fond of being in a back up position. It just gives the Seller more power against Buyer #1 and the contracts usually never are terminated. She is best just to let them know she is interested if it does not work but move on and try to find another house.
That is not what the TREC Addendum for Back-Up Contract says, Rakin. I have it in front of me (I have a client who is in a Back-up Contract position right now, not my choice but they loved the house and insisted, though it ends on Friday and was just for 10 days until it was clear whether or not the First Contract would terminate during the option period). It says:
"The Contract to which this addendum is attached (the Back-up Contract) is binding upon execution by the parties, and the Earnest Money and any Option Fee must be paid as provided in the Back-Up Contract."
It goes on to say that neither party must perform (other than the payment of the Earnest and Option) while the First Contract is still live, and can be terminated up to the Back-up Contract going live, at which time the deadlines contained in it all re-set to the effective date of the Back-up Contract (the date it goes live), and the buyer can get their earnest money back.
We have still been looking for Plan B while being in a Back-up Contract position, of course.
So, the Texas backup buyer has to pay a nonrefundable option fee to buy a backup contract, with very low odds of closing?
In my market, we usually have something nominal like $10 for the Option Fee, and then write into Special Provisions that the fee is increased to $X amount upon being put into first position.
We also do very small earnest money deposits and say $X to be deposited upon being put into first posistion.
The small amounts are so the buyer can still be liquid to continue to look for houses, and potentially terminate the back-up with the title company holding their money for 10-15 days and preventing them from moving forward.
Your option fees do tend to be small, don't they?
Like, $50 or $100? And, for a week or so just for inspections?
In comparison to ours, which can be over $1000 due to a sellers' market and provides a full Due Diligence Period encompassing appraisal, inspection and repair negotiation, HOA investigation, zoning, and some etceteras. That DD Period commonly will be 3 weeks or more.
Our backup contract addendum has buyer giving EMD upon acceptance, even in secondary position, with provision for DD Fee to be paid within 5 days of the BU Contract becoming primary, and then the DD Period starts.
We can claim the EMD back at any time during the BU status, or during the DD Period.
make sure you're not using initial earnest money, just additional.
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