Earnest Money vs. Option Fee In Texas

Buying or selling in Afton Oaks and trying to decode “earnest money” versus “option fee”? You’re not alone. These two payments carry different rights, risks, and timelines that can make or break your deal. By the end of this guide, you’ll understand how each one works in Texas, what’s typical inside the Loop, and how to use them to strengthen your offer or evaluate one with confidence. Let’s dive in.

Earnest money vs. option fee

Earnest money is a good‑faith deposit that shows you intend to complete the purchase. It is usually placed in escrow and applied to the purchase price at closing. Whether you get it back depends on the contract and how contingencies play out.

Option fee is a separate payment that gives you an unrestricted right to terminate the contract within a set option period. It compensates the seller for taking the home off the market during that window. It is typically not refundable if you use that right to terminate.

How these payments are handled in Texas

• Earnest money is commonly delivered to the title company named in the contract and held in an escrow account. In some cases a broker may hold it in a trust account.
• The Texas residential contract sets deadlines for delivery. Many deals call for earnest money to be delivered within 1 to 3 business days after the effective date, but follow the exact timing in your signed contract.
• The option fee is paid as directed in the contract, often to the seller or to the title company. Keep written proof of payment.
• Title companies and brokers follow Texas Real Estate Commission rules for prompt deposit and record keeping. Always get a receipt.

Refundability and risk

• Option fee: Normally non‑refundable. You are paying for the right to walk away during the option period for any reason.
• Earnest money: Refundable if you terminate within a valid contract contingency window. Common examples include the option period, financing or appraisal protections, and certain title objections as defined in the contract.
• After contingency windows expire, if a buyer fails to perform, the seller may be entitled to claim earnest money under the contract. Title companies typically need joint instructions or a final resolution before releasing funds if there is a dispute.

What’s typical in Afton Oaks

Afton Oaks is an established inner‑loop neighborhood where homes often trade at higher price points. In this environment, buyers and sellers pay close attention to the size of the deposit, the length of the option period, and the speed of financing.

• Earnest money: In many Texas markets, 0.5% to 2% of the purchase price is common. In competitive Afton Oaks offers, buyers often lean toward the higher end of that range to show commitment.
• Option fee: You will see small fixed amounts in some areas, but inside the Loop it is common to see higher option fees or shorter option periods to make an offer stand out.

Example scenarios for clarity:

• On a $900,000 home, 1% earnest money equals $9,000. A buyer might pair that with a 5 to 7 day option period and a modest option fee for a standard pace.
• On a $1,500,000 home, a competitive buyer might offer 1.5% earnest money ($22,500), a 24 to 48 hour option period, and a higher option fee to signal strong commitment and move quickly on inspections.

There is no one‑size‑fits‑all number. The right approach depends on price, competition, and your risk tolerance.

Timelines that protect you

Every Texas contract sets the specific dates. Here is a simple flow you can adapt to your deal:

Example A: Standard inspection option

• Earnest money delivered within the contract’s 1 to 3 business‑day window.
• Seven‑day option period with a modest option fee.
• You inspect, negotiate, and either proceed or terminate before the option period expires. If you terminate in time, the seller keeps the option fee and your earnest money is typically returned.

Example B: Competitive Afton Oaks offer

• Earnest money at 1.5% or higher, a 24 to 48 hour option period, and a larger option fee.
• You move fast on inspections or accept greater risk if issues arise after the option period. The stronger terms can make your offer more attractive in multiple‑offer situations.

How to choose your amounts

For buyers:

• Align deposit size with your confidence in the property and your financing strength. A larger deposit can help your offer stand out.
• Keep the option period long enough to inspect thoroughly, schedule key contractors, and receive reports. If you shorten it, plan inspectors in advance so you can meet the deadline.
• Balance your option fee with the option period length. A higher option fee can sometimes offset a shorter period in a competitive situation.

For sellers:

• Evaluate the full offer package. A larger earnest deposit and shorter option period can reduce your risk of a late‑stage termination.
• Weigh financing strength and timelines alongside fees. Fast underwriting milestones and proof of funds can be as meaningful as deposit size.
• Confirm who will receive funds and that the title company is ready to receipt them quickly.

Pro tips for smooth delivery

• Follow the contract’s written deadlines precisely. Late delivery can create avoidable issues.
• Use the title company named in the contract whenever possible to reduce confusion about where funds go.
• Always obtain a receipt for both payments and keep it with your contract packet.
• Send any termination notices in writing, through the method allowed in the contract, and before the deadline.
• Coordinate inspections immediately after acceptance, especially if your option period is short.

Work with a local strategist

In Afton Oaks and the surrounding inner‑loop neighborhoods, small contract choices can carry big consequences. You deserve an advisor who helps you structure the right combination of earnest money, option fee, and timelines to match your goals and the market’s pace. If you want a hands‑on, project‑managed approach that keeps you on schedule and protects your leverage at every step, let’s talk.

Ready for a thoughtful strategy tailored to your next move? Connect with Kasteena Parikh to Request a Pre‑List Consultation.

FAQs

What is the difference between earnest money and the option fee in Texas?

• Earnest money is an escrowed deposit applied to the price at closing and refundable only under contract contingencies. The option fee buys a short, unrestricted right to terminate and is normally non‑refundable.

Who holds earnest money and how fast is it deposited?

• The title company named in the contract typically holds it in escrow. Delivery is often due within 1 to 3 business days of the effective date, per the contract.

Is the option fee refundable if I terminate during the option period?

• No. The option fee is generally non‑refundable and compensates the seller for giving you an unrestricted termination right during that window.

What earnest money amount is common in Afton Oaks?

• Many buyers offer around 1% of the price, but competitive offers in Afton Oaks often increase earnest money and adjust the option period or fee to stand out.

How long should my option period be in a competitive offer?

• It depends on your risk tolerance and scheduling. Some buyers choose 24 to 48 hours in competitive scenarios, but you must have inspections lined up immediately.

What happens to earnest money if I terminate properly during the option period?

• If you give timely written notice before the option period expires, your earnest money is typically returned. The option fee is kept by the seller.

Can the seller keep my earnest money if I default after contingencies expire?

• Possibly, depending on the contract. Many contracts allow the seller to claim earnest money as damages if the buyer defaults, subject to the agreement’s terms.

What proof should I keep after paying these fees?

• Keep written receipts showing who received the funds, when, and where they were deposited or delivered. Store them with your signed contract and amendments.