Are you trying to figure out how much cash you need once your offer is accepted in Justin? You are not alone. For Texas buyers, the difference between earnest money and the option fee can be confusing, especially on your first purchase. In this guide, you will learn what each payment does, what’s typical in Denton County, when they are due, and how they protect you. Let’s dive in.
Earnest money vs. option fee
Earnest money: good‑faith deposit
Earnest money is a deposit you make after the seller accepts your offer. It shows you are serious about buying the home and is held in escrow. If you close, this money is credited to your cash due at closing.
Its key role is to signal commitment and provide funds that can be applied at closing. If you back out without a valid contract right, your earnest money can be at risk.
Option fee: your right to walk away
The option fee is a separate, usually smaller payment that buys you an unrestricted right to terminate during the negotiated option period. You can cancel for any reason during this window.
If you end the contract within the option period, the seller typically keeps the option fee. Your earnest money is usually returned to you in that scenario.
The big picture
- Earnest money is refundable only if you terminate under a valid contract right.
- The option fee is generally nonrefundable and compensates the seller for taking the home off the market during your option period.
- Both amounts are negotiable and written into the contract.
How Texas contracts handle these payments
In Texas, most resale purchases use Texas Real Estate Commission (TREC) promulgated contracts, like the One to Four Family Residential Contract (Resale). These contracts include specific blanks for the earnest money amount, the option fee amount, the length of the option period, and who holds the funds.
- Escrow holder. Earnest money and often the option fee are delivered to an escrow holder named in the contract. In Denton County, buyers commonly use a local title company to hold these funds.
- Delivery and timing. The contract sets the deadline for delivering both payments. It is common to see the option fee due immediately or within 1 to 3 days of the effective date, and earnest money due within a similar short period. Always follow the contract.
- Remedies and refunds. If you terminate within the option period, the seller keeps the option fee and the escrow holder typically returns your earnest money. If you terminate after the option period without another valid contract right, you risk losing earnest money and may face other seller remedies provided in the contract.
Typical amounts in Justin and Denton County
Amounts are negotiable, but here are common ranges used across Texas and in many DFW suburbs, including Justin:
- Earnest money: often a few hundred to several thousand dollars. A common planning figure is 1 to 2 percent of the purchase price in many markets. For standard offers on lower‑priced homes, you may see $1,000 to $3,000. In competitive situations, some buyers offer more to strengthen their offer.
- Option fee: commonly $100 to $500. For routine single‑family resales, $100 to $200 is very common. In hotter markets or when you need more time for inspections, the option fee can be higher.
- Option period length: often 3 to 10 days. Seven days is a frequent starting point, then adjusted based on your needs and market conditions.
Market shifts matter. In a tight, low‑inventory market, sellers may expect higher earnest money and shorter option periods with larger option fees. When inventory rises, buyers often negotiate more conservative earnest money and longer option periods.
What to budget upfront
When your offer gets accepted, plan to have funds ready for both payments. A simple planning checklist helps:
- Option fee: plan for $100 to $500, with $100 to $200 common in typical situations.
- Earnest money: plan for $1,000 to $5,000, or about 1 percent of the price on higher‑priced homes.
- Timing: both are usually due within a few days of the effective date. Confirm exact deadlines in your contract.
- Separate from down payment: these funds are separate from your down payment, closing costs, and any lender reserves.
Keep receipts and confirmations from the title company or escrow holder for every payment.
Buyer protections and real‑life scenarios
During the option period
Your option fee buys you time to inspect, review documents, and make decisions. You can terminate for any reason during this period. If you do, the seller keeps the option fee, and your earnest money is typically refunded.
Example: You discover major roof issues during a 7‑day option period and decide to terminate on day 5. The seller keeps the option fee. The escrow holder returns your earnest money.
After the option period
If the option period expires and you do not have another contract right to terminate, you risk losing your earnest money. The contract will outline any default and remedy options for the seller.
Example: You waive the option period and later find defects. Without a separate contractual protection, you may not be able to recover earnest money if you terminate.
Financing and appraisal interplay
Financing protections are separate from the option period. If your contract includes a financing contingency and you follow its terms but ultimately cannot obtain financing, your earnest money is usually returned even if the option period has ended. Appraisal shortfalls are typically handled through financing or appraisal provisions, which may require negotiation or proper termination under the contract language.
Example: Your lender denies the loan after the option period. If you comply with the contract’s financing terms, your earnest money is typically refunded.
Step‑by‑step: writing a strong, protected offer
Use this checklist with your agent when drafting your offer in Justin:
- Set the amounts and holder
- Specify the earnest money and option fee amounts in the contract.
- Name the escrow holder, typically a Denton County title company.
- Define the option period
- Choose the number of days that fits your inspection needs.
- Understand that more days often require a higher option fee.
- Clarify delivery and handling
- Write in the delivery timeline for earnest money.
- Confirm who holds the option fee and how it is handled if you terminate.
- Decide on strategy
- In a seller’s market, consider increasing earnest money and shortening the option period to compete.
- If you need more time for specialized inspections, request a longer option period and be prepared to offer a higher option fee.
- Document everything
- Get receipts for every payment to the title or escrow company.
- Track deadlines so you do not miss your termination window.
Common mistakes to avoid
- Missing payment deadlines. Late delivery of earnest money or the option fee can create contract issues. Deliver promptly per the contract.
- Paying the wrong party. Confirm the escrow holder and follow the contract’s instructions for both payments.
- Assuming earnest money is always refundable. Refunds depend on valid termination rights in the contract.
- Skipping the option period without a plan. Waiving the option period may strengthen your offer but limits your ability to cancel for inspection issues.
- Not documenting delivery. Keep confirmations and receipts from the title or escrow company.
Local logistics in Denton County
In Justin and across Denton County, buyers generally use an established title company to hold earnest money and often the option fee. Your contract will name the escrow holder and define how long funds are held. Title companies expect prompt delivery, and your agent can coordinate digital or in‑person payment options. Always save written confirmations from the title or escrow holder.
Wrap‑up: make confident choices in Justin
When you understand how earnest money and the option fee work together, you can structure a competitive offer without giving up important protections. Plan your upfront cash, choose the right option period for your inspections, and follow every contract deadline closely. If you want a local guide to help you choose amounts that fit Justin market conditions and your budget, connect with Edson Miranda for step‑by‑step support from contract to closing.
FAQs
What is the difference between earnest money and the option fee in Texas?
- Earnest money is a good‑faith deposit credited at closing and refundable only if you terminate under a valid contract right. The option fee buys you an unrestricted right to terminate during the option period and is generally nonrefundable.
How much earnest money and option fee should I expect in Justin?
- Many buyers plan for $1,000 to $5,000 in earnest money or about 1 to 2 percent of price, and $100 to $500 for the option fee, with $100 to $200 common in routine resales. Exact amounts depend on market conditions and negotiations.
When are earnest money and the option fee due in Texas?
- The contract sets the deadlines. It is common for both to be due within a few days of the effective date, and sellers expect prompt delivery to the named escrow holder.
Is the option fee ever refundable to the buyer?
- Generally no. The option fee compensates the seller for the option period. It may be credited at closing only if your contract states that.
Can I get my earnest money back if financing falls through after the option period?
- If your contract includes a financing contingency and you properly follow it, earnest money is typically refunded even if the option period has ended.
Who holds earnest money in Denton County purchases?
- A title company or escrow agent named in the contract commonly holds earnest money and often the option fee. Your agent will identify the holder in the offer.
What happens if the seller refuses to release my earnest money after I validly terminate?
- You can ask the escrow holder to release funds per the contract’s procedures. If there is a dispute, the contract’s dispute resolution clause or legal action may be needed. Consult your agent and, if necessary, an attorney.
