Option Fees, Inspection Periods, and Due Diligence: How Termination Rights Work by State

This guide is part of our state-by-state transaction guide.

Every real estate contract gives the buyer some way to get out of the deal before closing -- but how that exit works varies dramatically by state. In Texas, you buy an option period with a non-refundable fee paid directly to the seller. In most states, an inspection contingency lets you terminate based on what the inspector finds. In North Carolina and Georgia, a due diligence period with a non-refundable fee gives you an unrestricted right to walk. In New Jersey and Illinois, an attorney review period gives lawyers on both sides a window to modify or cancel the contract entirely.

For investors and wholesalers, understanding these termination mechanisms is essential -- not just because they vary by state, but because investment deals often modify or eliminate them entirely. The way you structure your termination rights directly affects your risk exposure, your earnest money, and how seriously sellers and buyers take your offers.

Texas: The option fee

Texas has a termination mechanism that is unique among US states. The TREC (Texas Real Estate Commission) residential contract includes an option period -- a negotiated window during which the buyer can terminate the contract for any reason, no questions asked. The cost of this right is the option fee.

How it works

The option fee is a negotiated amount (typically $100-$500 on investment deals, sometimes as low as $10 for motivated sellers) paid directly to the seller -- not to the title company and not into escrow. It must be delivered within 3 days of contract execution. In exchange, the buyer gets the unrestricted right to terminate the contract during the option period (typically 5-14 days) for any reason. Bad inspection? Terminate. Comps came in low? Terminate. Changed your mind? Terminate. No explanation required.

The option fee is non-refundable. If you exercise the option to terminate, you lose the option fee but your earnest money is returned in full. If you close the deal, the option fee is credited toward the purchase price.

Why it matters for investors

The option period is the single most important risk management tool in Texas wholesale deals. It gives you a fixed-cost window to do everything: run comps, estimate repairs, inspect the property, check for title issues, and start marketing to buyers. Your total risk during the option period is limited to the option fee amount. After the option period expires, your earnest money is also at risk.

Smart Texas wholesalers front-load all their due diligence into the option period. If the deal does not pencil, they terminate and lose only the option fee. This is fundamentally different from an inspection contingency, where you need an inspection-based reason to terminate. The Texas option period requires no reason at all.

Most states: Inspection contingencies

The majority of US states use an inspection contingency (also called an inspection period or inspection clause) as the buyer's primary termination right. This is the standard mechanism in Florida, Ohio, Indiana, Tennessee, Oklahoma, Wisconsin, Nebraska, Maryland, Pennsylvania, Kentucky, Oregon, and most other states.

How it works

The purchase contract includes a clause giving the buyer a specified number of days (commonly 10-15) to inspect the property. During this period, the buyer can hire inspectors, bring in contractors, test systems, and evaluate the property's condition. If the inspection reveals issues the buyer finds unacceptable, they can:

1. Request that the seller make repairs
2. Request a price reduction
3. Terminate the contract and receive their earnest money back

The key difference from the Texas option period is that termination under an inspection contingency is theoretically tied to inspection findings. In practice, most contracts are written broadly enough that almost any inspection finding can justify termination. But unlike the Texas option, you are not explicitly buying an unrestricted right to walk away -- you are terminating based on the condition of the property.

Common inspection period lengths

• Arizona (AAR contract): 10-day inspection period is the standard default
• Florida (FAR/BAR contract): 15-day inspection period is common, negotiable
• Ohio: Typically 10-15 days, specified in the contract
• Indiana: 10-day default in the IAR contract
• Tennessee: 10-day inspection period standard
• Oregon: 10 business days in the standard OREF contract

In competitive markets, buyers sometimes shorten or waive the inspection period to make their offers more attractive. For investment deals, this is common -- experienced investors who have walked the property and understand the condition may waive the inspection entirely.

North Carolina, Georgia, and South Carolina: Due diligence periods

These southeastern states use a due diligence system that combines elements of the Texas option fee and the inspection contingency. The result is a buyer-favorable termination right that is broader than an inspection contingency but similar in structure to the Texas option.

North Carolina

The standard North Carolina Offer to Purchase and Contract includes a due diligence period with two key components:

• Due diligence fee: A non-refundable fee paid directly to the seller at contract execution. This fee compensates the seller for taking the property off the market during the due diligence period. Typical amounts range from $500-$5,000 for retail transactions, less for investment deals.
• Due diligence period: A negotiated window (typically 14-30 days for retail, shorter for investment) during which the buyer can terminate for any reason. If the buyer terminates during the due diligence period, they lose the due diligence fee but their earnest money deposit is refunded.

This is structurally identical to the Texas option period: you pay a non-refundable fee to the seller in exchange for an unrestricted right to terminate during a defined window. The difference is largely in terminology and typical fee amounts -- North Carolina due diligence fees tend to be higher than Texas option fees on comparable transactions.

Georgia

The standard Georgia Association of Realtors purchase contract includes a due diligence period (typically 10-14 days) during which the buyer can terminate for any reason. Georgia's approach is similar to North Carolina's, though the contract language and specific provisions differ. Like North Carolina, the buyer's risk during due diligence is limited to the due diligence fee, while earnest money is refundable if the buyer terminates within the period.

South Carolina

South Carolina uses a similar due diligence framework. The standard contract includes a due diligence period with an associated non-refundable fee. The buyer has broad termination rights during this window.

New Jersey and Illinois: Attorney review periods

These states add an additional layer of termination rights that exists separately from (and typically before) the inspection period.

New Jersey: 3 business days

In New Jersey, the standard residential real estate contract includes a 3-business-day attorney review period. During this window, either party's attorney can disapprove the contract, effectively canceling it. The attorney can also propose modifications. If the other party does not accept the modifications, the contract is void.

The attorney review period begins when both parties have signed the contract and all parties have received copies. It runs concurrently with other timelines. For investors, this means that even after you have a signed contract, there is a 3-day window where the seller's attorney can kill the deal. This is standard practice in New Jersey -- nearly every residential transaction goes through attorney review.

Illinois: 5 business days

The standard Illinois residential real estate contract (particularly in the Chicago/Cook County market) includes a 5-business-day attorney review period. Like New Jersey, either party's attorney can disapprove or propose modifications during this window.

In practice, the attorney review period in Illinois is frequently used to negotiate terms that the agents did not address in the initial offer, or to add protective clauses for either party. It is a routine part of the transaction, not an emergency exit. But it does give both sides a legal right to cancel during that window, which investors need to account for in their timelines.

California: The 17-day contingency period

The standard California Association of Realtors (CAR) residential purchase agreement includes a default 17-day contingency period that covers inspections, appraisal, and loan approval. This is an unusually long combined contingency window compared to other states.

During the 17 days, the buyer can investigate the property, complete inspections, and evaluate all aspects of the deal. If the buyer discovers issues, they can request repairs, renegotiate, or cancel. The buyer must actively remove contingencies in writing. If the buyer does not remove contingencies by day 17, the seller can issue a "Notice to Perform" giving the buyer a specified number of days to either remove contingencies or cancel.

For cash investors in California, the 17-day period is negotiable. Cash buyers often negotiate it down to 7-10 days or waive contingencies entirely for distressed or investment properties. Sellers in competitive situations favor buyers who offer shorter contingency periods or none at all.

Arizona: The 10-day inspection window

The standard Arizona Association of Realtors (AAR) purchase contract includes a 10-day inspection period. During this window, the buyer can conduct any inspections and investigations they choose. If the buyer disapproves of any inspection results, they issue a Buyer's Inspection Notice and Seller's Response (BINSR) requesting repairs or concessions. If the seller does not agree to the buyer's requests, the buyer can cancel and receive their earnest money back.

Arizona's process is relatively streamlined compared to states with separate inspection and appraisal contingencies. The 10-day window covers everything -- inspections, investigations, HOA review, and property evaluation. For cash investors, this is a clean, well-defined window that allows thorough due diligence.

Why investment deals typically waive termination rights

Here is where the conversation shifts from retail real estate to the investment world. In off-market investment and wholesale transactions, the standard termination rights described above are frequently modified, shortened, or eliminated entirely. Here is why.

The property is priced for its condition

Off-market investment properties are purchased at a discount specifically because they need work. The seller is not marketing a move-in-ready home -- they are selling a distressed or underperforming asset at below-market value. The buyer knows the property needs a new roof, has foundation issues, or has not been updated since 1985. That is factored into the price. An inspection period that allows the buyer to terminate because the property "has issues" defeats the purpose of the discount.

Non-refundable deposits replace termination rights

Instead of contingency-based termination rights with refundable earnest money, investment deals typically use non-refundable deposits. The buyer puts up earnest money that goes "hard" (becomes non-refundable) immediately or within a very short window. This gives the seller certainty that the deal will close, which justifies the discounted price. The buyer's protection comes not from a termination right but from their own due diligence before signing the contract.

Speed is a competitive advantage

Motivated sellers want certainty and speed. A 15-day inspection period adds two weeks to the closing timeline and introduces the risk that the buyer will terminate. An offer with no inspection contingency, non-refundable earnest money, and a 10-day close is far more attractive to a motivated seller than an offer with contingencies and a 30-day timeline -- even if the price is slightly higher. For wholesalers, eliminating termination rights makes your offers more competitive.

The buyer is expected to know what they are buying

Experienced investors do their due diligence before they sign the contract. They walk the property, estimate repairs, run comps, and evaluate the deal before making an offer. The inspection period in a retail transaction exists because the buyer is making an offer based on photos and a showing. In an investment transaction, the buyer (ideally) has already done a thorough evaluation. The contract is a commitment, not a starting point for investigation.

When investment deals still have termination rights

Not all investment deals waive termination rights. Here are common scenarios where they remain.

• On-market deals (MLS purchases): Investment properties purchased through the MLS, especially REO or bank-owned properties, often retain standard inspection contingencies. The listing agent or bank expects a normal contract structure.
• Larger commercial or multifamily deals: Deals over $500K or with multiple units typically include a due diligence period for property inspection, environmental assessment, rent roll verification, and lease review. The stakes are high enough to justify the protection.
• The Texas option period on wholesale buy-side: Many Texas wholesalers still use the option period when contracting with sellers. It is cheap ($10-$200), gives unrestricted termination rights, and is built into the standard TREC contract. It is the best of all worlds for the buy-side of a wholesale deal.
• New market or unfamiliar property type: If you are buying in a market you do not know well or dealing with a property type you are less experienced with (commercial, multifamily, land), retaining inspection rights is prudent.

Structuring termination rights in your contracts

Whether you include termination rights and how you structure them depends on your position in the deal and your risk tolerance.

Wholesaler buy-side (you contracting with the seller)

Maximize your termination rights. Use the option period in Texas, the due diligence period in North Carolina/Georgia/South Carolina, or a broad inspection contingency in other states. You want the flexibility to terminate if the deal does not work out -- if comps come in low, if repairs are worse than expected, or if you cannot find a buyer. Your option fee or due diligence fee is the cost of that flexibility.

Wholesaler sell-side (your contract with the end buyer)

Minimize the buyer's termination rights. The end buyer should do their due diligence before signing. Use non-refundable earnest money, no inspection contingency, and a short closing timeline. This protects you from a buyer who ties up your deal for two weeks and then walks away. Read more about structuring end-buyer deposits in our guide to earnest money in investment deals.

Fix-and-flip purchase

For your own purchases (not wholesale assignments), retain some termination rights on the buy-side, especially for properties with significant unknowns. A 7-day inspection period or Texas option period gives you a window to verify structural issues, check for environmental hazards, and confirm your renovation budget before the earnest money goes hard.

Key takeaways by state

• Texas: Option fee (non-refundable, paid to seller) + option period (unrestricted termination right). Best termination structure for buy-side wholesale.
• North Carolina, Georgia, South Carolina: Due diligence fee + due diligence period. Similar to Texas option but typically higher fees and longer periods.
• Florida, Ohio, Indiana, Tennessee, Arizona: Inspection contingency (10-15 days). Termination tied to inspection findings.
• California: 17-day combined contingency period. Cash investors negotiate shorter or waive.
• New Jersey: 3-day attorney review + inspection contingency. Attorney can kill the deal during review.
• Illinois: 5-day attorney review + inspection contingency. Routine part of every transaction.
• Investment deals (off-market): Typically no inspection contingency, non-refundable deposits, short close timelines.

For the full closing process in each state, visit our state-by-state transaction guide. For more on how deposits work in investment transactions, see our guide to non-refundable deposits and earnest money and earnest money in wholesale deals.

Related articles

• Non-Refundable Deposits and Earnest Money in Investment Real Estate
• How Much Earnest Money Do You Need for a Wholesale Deal?
• Wholesale Contracts Explained: Assignment vs Double Close
• Escrow vs Title Company vs Closing Attorney
• Real Estate Closing Costs by State

Disclaimer

This guide is for informational purposes only and does not constitute legal advice. Transaction customs vary by county and municipality, and can change based on market conditions. Consult a licensed real estate attorney or experienced title professional for guidance specific to your transactions.

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• What Happens After the Option Period?
• What If Your Buyer Backs Out?
• How to Handle the Inspection Period