The Option Period
The option period is usually about 10 days, but may be longer or shorter, depending upon the circumstances. During the option period, you may terminate the contract and receive a refund of your earnest money. The seller does not have an option period, and is obligated to close under the terms of the contract.
You must pay a nominal fee ($100 is fairly typical) for the right to have this option. If you decline the property during the option period for any reason (including major defects in the property), you forfeit the option fee. The option provision is contained in the TREC contract for resale homes. It is not found in most builder contracts.
During the option period, buyers usually get inspections and address any other concerns they may have. It is a good idea to apply for your home insurance during the option period to be sure that it is obtainable for normal cost. To protect your interests, we recommend addressing any and all concerns during your option, or "walking away", period.
When the option time period has passed, you will become fully bound by the terms contract. The contract does allow other specific "outs" for the buyer, such as loan contingency and the right to object to title issues.
Inspections
In nearly every case, buyers hire licensed inspectors to inspect the home they are buying. Besides the general inspection, you may obtain a termite, septic, mold, structural and other inspections. I will help facilitate the inspections for you.
Buyers usually submit to the seller a list of repair requests based on their findings. Essentially, this is a re-negotiation and fine tuning of the contract. The seller is not obligated to agree to repair requests. However, you may terminate the contract if repair issues cannot be resolved, as long as you are still in your option period.
Click here for a list of some typical items that come up on inspection reports.
Home Service Contracts
You may ask the seller to pay for a one year home service policy. Sometimes called "home warranties", these policies have helped to reduce the number of disputes after the sale, and protect the interests of both buyer and seller. The policy covers the cost of certain repairs to systems and appliances during your first year of ownership.
To receive service, you must call the home service company. They send out a local repairman. You must pay the repairman a "deductible" of about $50. Additional charges are billed to the warranty company.
The cost of the basic policy is about $350, but may be more if a pool or other items are added. The policy may be paid by the seller or buyer. Costs and coverage vary between companies. There is no standard coverage. I can provide the names of several home warranty companies.
Appraisal
An appraisal of the property will be ordered by your lender. The appraiser represents the interests of the lender, and must verify that the property supports the value in the contract. He will measure the house and compare it with other recent sales in the area. He does not act as a house inspector. (For FHA and VA loans, the appraiser will require that the home meet certain standards set by the FHA and VA.)
If the appraisal does not support the value, and this prevents you from getting the loan specified in the contract, we have several choices:
- Get a second opinion from another appraiser.
- Re-negotiate the contract with the seller.
- Close on the house with a higher loan to value ratio.
- Terminate the contract.
Survey
A survey is required when a loan is obtained, and is highly recommended if you are paying cash. It is possible to use the seller's old survey if no additions have been made to the house since that survey was done, including decks, pools or fencing. We will need to discuss the risks of using a survey done for the seller.
The survey is usually ordered by the title company. The survey will measure the land and exterior components of the property. Buyers often see the survey at closing (or shortly before). If there are any title issues revealed on the survey, you may choose to accept the encroachment and proceed with closing or terminate the contract. Although small encroachments are not uncommon, I will recommend that you get the opinion of an attorney before accepting any title issues. (Examples of encroachments are: house additions, pools, patios, decks built in utility easements or over building lines.)
Title Insurance
The title company will conduct a title search of deeds, mortgages, liens, deaths, divorces, etc. in the county property records relating to the property. They will issue a "commitment" to provide title insurance. You will receive the commitment with copies of deed restrictions within about 2 weeks after contract. If there are going to be any exceptions to your title coverage (other than the "standard exceptions") you will receive documents showing these items.
If an unexpected title issue (exception from coverage) comes up, I will recommend that you consult an attorney. You must deliver your objection to the title exception in writing within the time required by the contract.
Title insurance insures against events which happened in the past, and which affect the title to the property. The title company agrees to defend the insured or pay losses if the title is challenged or defective. Some examples of hidden defects are: forgeries, lost wills, undisclosed marriages, clerical errors, etc.
Title insurance rates are set by the State of Texas. Generally, in resale contracts, the seller pays for your owner's policy of title insurance, and you pay for your lender's policy. However, builders often do not include the title policy in the price of their homes.
Deed Restrictions
Deed Restrictions are usually written at the time of platting of the subdivision, and are part of the deeds for all the lots. It is possible that the property you are buying has no deed restrictions. It is important to read the deed restrictions. They may obligate you to certain standards of construction and maintenance.
Do you want to add an office or apartment on your property? Do you plan to give classes at night at your home? These questions may get into "gray areas". As a Realtor, I may not attempt to interpret the deed restrictions or zoning laws to decide whether a certain activity on your property will be acceptable. Start by reading the deed restrictions. They tell you what is allowed in the subdivision.
If you are in the City of Austin, a free resource is the Development Assistance Center at 505 Barton Springs Rd., Suite 100. They are open for walk-ins. A zoning site planner will tell you what is allowed by city ordinance, and may have a sense of what the neighborhood groups want. In historic areas, neighborhood groups may oppose certain kinds of development.
Another question we are sometimes asked is: What is going to happen on the vacant tract next to my house? Again, if this is in the city of Austin, or extra territorial jurisdiction, the Development Assistance Center can help. For vacant tracts of land, they can tell you who owns it and what development has been submitted for approval through the city.
Mandatory Homeowner's Association
If the property you are buying is in a subdivision with a mandatory home owner's association, we will require a "resale certificate" plus other information about the HOA. This may include bi-laws, annual dues, cash reserves, insurance, etc. You will have 7 days to review this information and, based on this review, you may terminate the contract if you wish.
Real Estate Taxes
The real property taxes vary in the Austin area according to the taxing jurisdictions in each location. Generally rates total between 2.3% and 3.3% of the appraised value.
Each year, on January 1, the County Appraisal District sets a value for each property for the current year. This valuation is sent to you in April. You have until May 31 to file a protest. If no protest is filed, this value will stand. Tax rates are set in September, and bills are sent out in October.
Here are some local tax links:
Homestead Exemption
After you have purchased your home, and have lived in it on January 1 of the following year, you become eligible for a "homestead exemption". You must file for this exemption by sending in a form to the Appraisal District. I will remind you to do so. This will entitle you to a reduction in property tax for as long as you live in the home. It does not apply to any other real estate that you may own. On a $100,000 valuation you would save about $300 per year. Other exemptions include the "over 65," "disabled homeowner" and "disabled veteran."
Since 1997, Texas homeowners have enjoyed a 10% cap on annual tax increases during their ownership (of their home only). Each year the Appraisal District will set a "market value" of your home, plus a "taxable value." The taxable value cannot increase by more than 10% under your ownership.
You can see that it is very important to send in your homestead form, so that you get the tax reduction and start the 10% cap.
What is a MUD? (It has nothing to do with mud!) Municipal Utility Districts are quasi-governmental bodies created under the state laws of Texas to provide utility service. They are typically created by real estate developers to provide water and wastewater service to major developments when city utilities are not available. The districts issue municipal bonds and have taxing authority to raise money to repay the bonds. If you select a home within a Municipal Utility District, you will receive a disclosure form, stating the bond amounts, tax rate and stand-by fees for lots.
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