When you make an offer on a home, especially in Texas, you often see two separate payments in the contract: earnest money and an option fee (also called option money). Earnest money is your good-faith deposit that shows the seller you are serious and lets them feel comfortable taking the home off the market. The option fee is what you pay for a short, no-questions-asked exit window so you can inspect the home and walk away if it does not feel right. Many buyers are unsure about the option money vs earnest money difference, so here is a quick guide to how each one works and how they can help you write a stronger offer.
How Earnest Money Works
- When it is paid: Usually within 1–3 days after the contract is signed
- Where it goes: To a third-party escrow holder like a title company, attorney or broker, not directly to the seller
- Typical amount: Often about 1–2% of the purchase price, sometimes higher in very competitive or luxury markets, and new construction earnest money amounts can be different based on the builder’s policies
- At closing: If the sale closes, your earnest money is credited toward your down payment or closing costs
When You Keep or Lose Earnest Money
You usually keep your earnest money if you cancel under a clear contingency, for example:
- Major issues show up in the inspection, and the seller will not reasonably address them
- The appraisal comes in low, and you and the seller cannot agree on a solution
- Your loan is denied, and you have a financing contingency
- There are serious title problems that cannot be resolved
- A required home sale contingency on your current home fails
If you follow the contract and meet all deadlines, earnest money is typically refunded when you terminate for one of these reasons.
You can lose your earnest money if you:
- Miss key deadlines like inspection, financing or closing
- Cancel for a reason not covered by a contingency or after waiving protections
- Agree in writing that some or all of it is nonrefundable
These situations are the most common reasons for forfeiture of earnest money in a typical contract. In some cases, the seller may still agree to release the money to avoid a dispute, but you should not rely on that if you are the one backing out.
What Is an Option Fee
- The option fee is money you pay for the unrestricted right to terminate the contract during a short option period for any reason.
- In Texas, it is delivered to the escrow agent, is for the seller’s benefit, and is almost always nonrefundable if you terminate.
- If the sale closes, the option fee is usually credited back to you on your closing statement.
- Typical option fees in Texas are often in the 100–500 dollar range or roughly 0.05–0.1% of the price.
- Both the amount of the option fee and the length of the option period are negotiable.
How the Option Period Protects You
The option period is your built-in safety net. During this time, you can schedule inspections, review reports and HOA documents, get repair estimates and try to negotiate repairs or credits. If the condition, costs or your comfort level are not where you want them, you can walk away for any reason as long as you give notice before the option period ends. If you terminate in time, the seller keeps the option fee, but your earnest money is usually refunded if you have followed the contract.
How to Use These Deposits to Your Advantage
Use Earnest Money to Strengthen Your Offer
In a competitive market, earnest money can help your offer stand out. You might offer a slightly larger deposit or agree to deposit it quickly, as long as it fits your budget and risk tolerance. Some buyers make a portion nonrefundable after key contingencies are met, which can make the offer more appealing, but also puts more of your money at risk if you cancel for a reason that is not covered.
Make the Most of Your Option Period
Treat the option period or inspection window as a thorough review of the property. Schedule inspections early, review the results and get bids for any major issues. Then decide whether to move forward, ask for repairs or credits or walk away before the deadline. A reasonable option fee is often a small price for the ability to say no to a home that does not feel right.
Stay on Top of Deadlines
Deadlines are where many buyers lose money. Your contract will list dates for the end of the option period, inspection responses, financing or loan approval and closing. Missing those dates can cost you important protections and possibly your earnest money. A simple calendar or checklist shared with your agent and lender can prevent expensive mistakes.
Common Questions About Option Fee and Earnest Money
How long does it take to get earnest money back?
In a simple cancellation where both sides agree and sign the required release, earnest money is often returned within a few business days to about two weeks, depending on local rules, how you paid and how fast the escrow holder processes refunds.
Can I pay earnest money with a credit card?
Usually no. Most lenders and escrow companies expect earnest money to come from your own funds by wire, cashier’s check, certified check or ACH. Many will not accept credit cards.
Is earnest money the same as a down payment?
No. Earnest money is a smaller good-faith deposit you pay upfront to secure the contract, while your down payment is the larger amount you bring at closing as part of your financing. The difference between earnest money and down payment is that earnest money shows commitment early in the process, while the down payment is what funds the loan. If the sale closes, your earnest money is usually applied to that total.
What is the difference between a due diligence fee vs earnest money?
A due diligence fee is usually a smaller, nonrefundable payment to the seller that buys you time to inspect the home and decide if you want to move forward, and in some markets, it may be credited to you at closing depending on the contract. Earnest money is a larger good-faith deposit held in escrow that may be refundable if you cancel under a valid contingency and follow the contract deadlines.
Do I have to pay both earnest money and an option fee?
In Texas, buyers usually pay both, with earnest money plus a separate option fee that buys an unrestricted right to terminate during the option period, while in many other states, you only see earnest money with an inspection or due diligence contingency instead of a separate option fee.
Still have questions about the option fee vs earnest money and how it fits into your offer strategy? Talk with a local REMAX agent who can walk you through the numbers in plain language and tailor a plan to your budget and risk level.
