Earnest Money vs. Option Fee in Texas

When your offer is accepted in Texas, you usually put down two separate deposits. They sound similar, but they do very different things.

The option fee

The option fee is paid to the seller in exchange for your option period, the window where you can terminate the contract for any reason. It is typically a smaller amount. If you terminate during the option period, the seller keeps the option fee. If you close on the home, it is usually credited back to you at closing.

Earnest money

Earnest money shows the seller you are serious. It is deposited with the title company, not handed to the seller, and it is credited toward your down payment and closing costs when you close.

Your earnest money is refundable in specific situations spelled out in the contract. For example, if you terminate during the option period, or if a financing or appraisal contingency in your contract allows you to terminate. If you back out for a reason the contract does not allow, the seller may be entitled to the earnest money.

How much earnest money is typical?

There is no fixed rule. In Austin, buyers often put down around 1% of the price, though it varies with the price point and how competitive the situation is. A larger earnest money deposit can make an offer stronger, but only offer what you are comfortable having held while the deal is pending.

When are they due?

The contract sets the deadlines, and they come fast, usually within a few days of the effective date. Missing the deadline can cause real problems, so plan to send funds right away. Always verify wiring instructions by calling the title company at a number you know is real. Wire fraud is a real risk in real estate.

Quick summary

• Option fee: goes to the seller, buys your right to terminate, credited at closing
• Earnest money: held by the title company, shows good faith, credited at closing
• Both: due within days of your contract, so have funds ready before you offer

If you are getting ready to make an offer and want help deciding on the right amounts, I'm happy to walk through it with you.