There are basically two deposits a buyer makes when they enter into contract on a home: the earnest money deposit (refundable to the buyer if they terminate during their inspection period) and the option period deposit (non-refundable deposit).
In this article, I’m going to focus on the “option period” or sometimes called an “inspection period” deposit.
There’s also another name for it: buyer’s remorse. This 7 to 10 day (average) protection period for the buyer is standard in our industry and can’t be negotiated out of the deal unless the buyer chooses to waive this right. It’s an unrestricted option period in which the buyer has control over whether or not they want to back out of the deal while still being able to receive their earnest money deposit back. They don’t have to give an explanation why; they can simply terminate and receive their earnest money back in full. If that happens, the seller keeps the option period deposit which is generally much less than the earnest money.
Sounds pretty harsh for the seller, doesn’t it? Keep in mind that the standard real estate industry contracts we use are written to protect both the seller and buyer. This is just one of the areas written to give the buyer adequate time to inspect the home and make a final decision based on the findings. What I want to do here is give you, as the seller, some tips on how I try to protect my seller clients and reduce the chances of a buyer backing out of the deal. You can’t win them all of course. Sometimes buyers simply get caught up in emotions and have true remorse. There’s not much you can do about that.
But let’s look at what you can do:
1) Increase the option period fee. This is the fee the buyer pays you for their right to get the home under contract and proceed with their inspections. This is not the earnest money deposit. The option period fee is a separate deposit given to the owner within 3 days of having a completed contract and it’s yours, as the seller, to keep. Even if the buyer backs out of the deal, the seller keeps the option period fee as liquidated damages. Generally the buyer pays $100 to $150 dollars for their option period fee. You can try and negotiate a higher fee, such as $500 for example. That way if the buyer backs out you’ll be able to pocket a little more for time lost on the market. However, be aware that you can’t increase this too much because then the buyer will feel like you’re trying to “trap” them into the deal and they won’t have a way out. For example, if a buyer agrees to pay you a non-refundable $2,000 option fee and then the inspection report comes back with several major issues, if they back out they’ll lose $2,000. Most buyers won’t put themselves in that position so you have to find a comfortable fee that everyone can agree to.
Josh Hayles | 409.739.7709 | Josh@MyDailyHomes.com