The TREC option period is a negotiated window in the standard Texas residential contract during which the buyer has an unrestricted right to walk away from the deal. To activate it, the buyer must pay a non-refundable option fee to the title company within three days of the contract’s effective date. Miss the payment or the deadline, and the termination right never exists in the first place.
The Option Fee and Where It Goes
Paragraph 5 of the TREC One to Four Family Residential Contract (Resale) sets out the option period and its fee. The amount is whatever the buyer and seller agree to. There is no statutory minimum or maximum, though fees in the $100 to $500 range are common in most Texas markets.
Under the current form, the buyer delivers the option fee to the title company acting as escrow agent, not to the seller directly.1Texas Real Estate Commission. Changes to Delivery of Option Fee Delivery must happen within three days after the effective date.2Texas Real Estate Commission. We Are Selling Our House and Buyer Never Paid Option Fee: What Happens Now?
One quirk catches buyers off guard. The three-day delivery window for the fee does extend if the last day falls on a Saturday, Sunday, or legal holiday. In that case the buyer has until the end of the next business day to pay.1Texas Real Estate Commission. Changes to Delivery of Option Fee That extension applies only to fee delivery. The option period itself has no such grace, as covered below.
If the fee is not delivered on time, or if the contract leaves the dollar amount blank, the buyer loses the unrestricted right to terminate. The rule is unforgiving: no fee, no option.3Texas Real Estate Commission. We Are Selling Our House and Buyer Never Paid Option Fee: What Happens Now?Changes to Delivery of Option Fee If the buyer terminates, the seller keeps it.
Option Fee Versus Earnest Money
The option fee is not the same thing as the earnest money, and conflating the two is one of the most common mistakes in Texas transactions. Both go to the escrow agent inside the first few days, and both are credited toward the purchase price at closing if the deal goes through.2Texas Real Estate Commission. We Are Selling Our House and Buyer Never Paid Option Fee: What Happens Now? From there they diverge.
Earnest money is a good-faith deposit, usually 1% to 3% of the purchase price, and it is refundable if the buyer terminates for a valid contractual reason such as a financing or appraisal contingency. The option fee is smaller and non-refundable. It is the price the buyer pays for the freedom to cancel for any reason at all. If the buyer terminates during the option period, the earnest money should be returned while the option fee stays with the seller. Getting the earnest money released typically requires both sides to sign a release through the title company.
How the Days Are Counted
The effective date, meaning the date the last party signs, is day zero. The count starts the next calendar day.4Texas Real Estate Commission. How Are Days Counted in a TREC Contract? Every day counts, weekends and holidays included. The option period does not extend if the final day happens to fall on a Sunday.
If the effective date is November 1 and the parties negotiated a ten-day option period, the period runs through November 11. Written termination notice must reach the seller by 5:00 p.m. local time at the property on that final day.5Texas Real Estate Research Center. Option Period Basics Missing by minutes ends the termination right.
Length is entirely negotiable. Sellers tend to prefer shorter periods because the property is effectively off the market during the option. Buyers usually want enough days to schedule an inspection, gather repair estimates, and review HOA documents. TREC sets no standard length; the parties write the number of days into the form.5Texas Real Estate Research Center. Option Period Basics
The Unrestricted Right to Terminate
During the option period, the buyer can walk away for any reason or for no reason.2Texas Real Estate Commission. We Are Selling Our House and Buyer Never Paid Option Fee: What Happens Now? A bad inspection, a change of heart, second thoughts about the price, cold feet the morning of day nine — any of these will do. The buyer does not have to explain the decision to the seller, produce an inspection report, or point to a specific defect. The option fee purchases that freedom.
Most buyers use the time to get a professional home inspection, but the inspection has no bearing on the legal right. A buyer whose inspection comes back clean can still terminate. This is what separates the option period from other contract contingencies, which require a specific triggering event.
How to Deliver the Termination Notice
To terminate, the buyer delivers written notice to the seller before 5:00 p.m. on the last day of the option period. The standard document is TREC’s Notice of Buyer’s Termination of Contract, currently designated Form 38-8.6Texas Real Estate Commission. Notice of Buyer’s Termination of Contract The buyer checks the box for termination under the unrestricted right in Paragraph 5.
Delivery has to use a contact method the seller listed in Paragraph 21 of the contract. Paragraph 21 is where each party lists the addresses, email addresses, and other channels they agree to accept for official notices. If the seller listed an email, a scanned copy of the signed form sent to that email is valid delivery. Hand delivery and courier work as well. Fax is acceptable only if a fax number was listed in Paragraph 21.7Texas Real Estate Commission. Make Sure Paragraph 21 Is Filled Out
The riskiest habit is assuming a notice was received. Sending an email at 4:58 p.m. on the last day is a gamble. If the message bounces or goes to spam and you can’t prove delivery, the termination may not be effective. Experienced agents send notices well before the deadline and keep proof: an email read-receipt, a courier tracking number, a text confirming the seller or listing agent received it.
Extending the Option Period
If the buyer needs more time, the parties can agree in writing to extend. TREC’s Amendment to Contract, Form 39-10, is the standard tool.8Texas Real Estate Commission. Amendment to Contract Both parties have to sign for the extension to take effect. Sellers are not required to agree, and in competitive markets they often refuse or ask for additional option fee money in exchange for the extra days.
If the Option Period Expires With No Notice
Once the option period ends without a termination notice, the contract stays in full force and the buyer is committed to the purchase. Backing out after that point without a valid contractual reason, such as a financing contingency denial or a title defect, puts the earnest money at risk and can expose the buyer to a breach of contract claim.
This is why counting matters. A buyer who thought the window ran through Monday but whose period actually ended Saturday at 5:00 p.m. has lost the exit permanently. Confirm day zero, count every calendar day, and get the notice out well before the cutoff.
Tax Treatment of the Option Fee
If the sale closes, the option fee is folded into the sales price on the closing statement and is taxed to the seller as part of the capital gain or loss calculation. If the buyer terminates and the sale never happens, the seller reports the retained fee as ordinary income on Schedule 1 (Form 1040), not as capital gain.9Internal Revenue Service. Publication 523, Selling Your Home For the buyer, a forfeited option fee is a personal expense with no deduction available.