I hate it when buyers get cold feet. Today I got, via email, a copy of the TAR 1902 form, the Notice of Termination of contract. Exactly 9 hours before the option period for the contract was to expire, I got an email from the buyer’s agent with a link to a Docusign form signed by the buyers.
Here’s how it went down. About a week ago I had some buyers for one of my listings. This particular house had been on the market for only 4 days, and I’d already received one low-all offer for the home from a flipper (71% of the asking price) that I presented to my sellers, and they of course rejected it. I was informed that the couple who put in the offer were first time homebuyers, and I even got a letter from the agent saying how excited they were to be able to buy this house.
Cool. This is exactly the kind of people I like to be able to work with. A family who wants to move into the area, and fix up the house. This is the best kind of client as they become proud home owners, and make upgrades that are in line with what is in style, and eventually increase the value of both the home, and the neighborhood
My sellers accepted the offer, and they buyer exercised their right to an option period. An option period is basically buying a way out of the contract if they need it. I like to do this for most buyers, as it gives them the ability to make an offer on a home, but get a little more time to do some inspections and research to see if it is priced correctly, or if there is a lot of work. Option checks range from $250 – $1000+ (depending on the price of the house), and generally last for a week.
When you get an option check as a seller, you should immediately give it to your client, and tell them to cash it as it is their money, The buyer is buying a way out of their contract. They paid you money to do it. It’s your money.
The seller immediately scheduled an inspection for the house, and it came up with the usual items that needed fixing. Most old homes have some issues, and in this section of Austin, there were the usual problems. Nothing I didn’t see when I priced the house, and nothing unusual for the age and style of the home. No surprises here.
But the inspection took a little longer than they wanted and they needed to get some repair estimates from some contractors. So they asked for an additional 2 days for the option period. I talked it over with my clients, and although I was reluctant to offer it in this market , we decided that it was OK, and granted them the extra time.
Well, they came back with a reasonable list of repairs, and wanted a credit to the overall price of the house. I didn’t see anything unusual about this, and this is a normal part of negotiations. No worries. Again I went back to my clients and they asked me about the requested repair credits, and we came up with a number as a counter offer. I had them sign the amendment, and as I was on my way back to the office to present it to the sellers, I got an email with an attached TAR 1902 form. This is the paperwork needed to exercise their ability to back out of the contract during the option period, and get back their earnest money, but they loose their option fee.
I was shocked! I didn’t even get the chance to negotiate! They never got to see the reply to their counter offer. They just got cold feet, and wanted out. And they had spent a pretty penny, too.
So now the seller was out $250 for the option period, and probably another $300 or more for an inspection, plus all the time and effort of making an offer.
There really is nothing that I as a realtor selling your house can do when a buyer decides to use this procedure during the option period. It’s the way the system is set up, and if the buyer is willing to pay (which they were), they have the right to get out of the contract. If they were to wait until the end of the option period and wanted to back out, they would forfeit their earnest money, which is a more significant sum.
Again I’m not worried. The Austin market is a seller’s market, and I expect to get another qualified offer on the home in the next day or so.
Stay tuned! and be sure to subscribe to my blog to learn what happens next.