Earnest Money And Option Periods In Texas

Thinking about writing an offer on a home in El Paso? Two small payments can shape your entire deal: your earnest money and your option fee. If you mix them up or miss a deadline, you could risk hundreds or even thousands of dollars. You want clarity before you sign, not a surprise after.

In this guide, you will learn what each payment does, how the Texas contract sets your timelines, what is typical in El Paso, and practical steps to protect your money. You will also get a simple checklist and answers to common questions. 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 part of your contract consideration and is usually held by the title company named in your contract. If you close, it is credited toward what you owe at closing under the contract. If you default after your protections expire, the seller may have a claim to it under the contract.

Option fee is a separate, usually nonrefundable payment that buys you the right to terminate the contract for any reason during a negotiated option period. It is paid to the seller or as the contract directs. If you terminate correctly within the option period, your earnest money is generally refundable under the contract, but the seller keeps the option fee. If you close, the option fee is typically handled as the contract provides, and it is not refundable.

Both amounts and deadlines are negotiated and written into the Texas Real Estate Commission (TREC) One to Four Family Residential Contract (Resale), which is the standard contract used across Texas for resale homes.

How the TREC contract sets the rules

The TREC contract controls your timelines and what happens to funds in different scenarios.

• The contract’s effective date starts the clock. This is the date the seller accepts and both parties have a fully signed contract. Every deadline hangs on this date.
• Your option period runs for the number of days you negotiate. It expires at 11:59 p.m. on the last day unless the contract states otherwise. You must give written notice to terminate within that window to use your option.
• The contract states when and where to deliver earnest money. It also names the escrow agent, usually the title company, that will hold your deposit.
• Disbursement rules are in the contract. Title companies follow the contract’s instructions and Texas rules. If there is a dispute, the escrow agent often holds funds until receiving a written mutual release, a court order, or other contract‑specified resolution.

Timelines buyers need to track

Confirm the effective date

Make sure you and your agent confirm the effective date as soon as the contract is executed. Put every deadline on your calendar the same day.

Deliver the option fee and earnest money

Your contract lists exactly how many days you have to deliver the option fee and the earnest money, and who must receive each one. Confirm accepted payment methods with the seller’s side for the option fee and with the title company for earnest money. Keep proof of delivery.

Use the option period

Your option period is your due‑diligence window. Complete inspections, review disclosures and title documents, confirm lender progress, and negotiate repairs or credits before the deadline. If you choose to terminate, send written notice per the contract before 11:59 p.m. on the last day.

A simple timeline example

• Day 0: Contract is effective.
• By the negotiated deadlines: Deliver the option fee to the seller as the contract directs and deliver earnest money to the title company.
• Days 1–N: Complete inspections and due diligence within the option period.
• Before the option period ends: If you plan to exit, give written termination notice to preserve your earnest money rights under the contract.
• At closing: Earnest money is credited to your funds due at closing. Option fee is typically retained by the seller per agreement.

Typical amounts in El Paso

Texas markets often see earnest money in the range of about 1 to 3 percent of the purchase price, though some entry‑level deals use flat amounts, such as $1,000 to $5,000. In hotter segments, sellers may expect more. In slower conditions, buyers sometimes negotiate lower deposits or staged deposits. These are market‑dependent norms, not legal requirements.

For option fees, many Texas transactions land between $100 and $500. When competition is high, some buyers increase the option fee or shorten the option period to strengthen their offer. Others may consider waiving the option period, which increases risk.

El Paso conditions change by neighborhood and price point. In areas with stronger demand, you may see higher earnest money or shorter option periods. In other segments, you may have room to negotiate longer due diligence and lower deposits. Ask your agent to help you match your strategy to current El Paso trends.

How to use your option period wisely

Treat the option period like a project with clear tasks and deadlines.

• Schedule inspections early. General inspection first, then any specialists if the first report suggests it.
• Coordinate with your lender to clear key conditions and keep appraisal timing on track.
• Review title work for easements and exceptions. Ask questions early so you have time to respond.
• If there is a homeowners association, review documents and fees as soon as available.
• Discuss repair requests or credits with your agent with enough time for back‑and‑forth before the option period ends.
• If you decide not to proceed, send written termination per the contract and keep proof of delivery.

Protect your money: practical steps

A few habits go a long way in protecting both your option fee and earnest money.

• Verify contract details. Double‑check the effective date, option period length, and the exact expiration time. Confirm the deposit deadlines and recipients for both payments.
• Pay on time, every time. Deliver funds using an accepted method. Get a receipt, wire confirmation, or photo of the check delivery.
• Confirm escrow receipt. Call or email the title company to confirm your earnest money was received and deposited to the correct file.
• Keep a paper trail. Save copies of payments, notices, inspection reports, and emails.
• Follow notice instructions. The contract spells out how to send notices and to whom. Use those methods and addresses.
• Clarify deposit methods. El Paso title companies vary on checks, wires, or online payment portals. Confirm before you send anything.

What happens at closing or if plans change

• If you close: Your earnest money is credited toward your cash to close under the contract. The option fee is typically handled as agreed in the contract and is not refundable.
• If you terminate within the option period: You usually preserve the right to a refund of earnest money under the contract. The seller keeps the option fee.
• If you terminate after the option period without a contract right: You may be in default. The seller may claim the earnest money as damages, subject to the contract’s dispute clause.
• If there is a dispute: The title company will often hold the earnest money until receiving a written mutual release, a court order, or other direction allowed by the contract. Many disputes are resolved through the contract’s dispute provisions, which can include mediation. Keep your records.

Negotiation levers that affect risk

You can adjust several terms to balance competitiveness and protection.

• Option period length. Shorter periods are stronger for sellers but give you less time. Many buyers target several to about ten days, depending on access and inspector scheduling.
• Option fee amount. A higher fee can strengthen your offer. Remember it is usually nonrefundable.
• Earnest money size. More earnest money can signal strength. Staged deposits can also be negotiated.
• Deadlines for delivery. Pick realistic time frames that you can meet.
• Escrow agent selection. Name a known El Paso title company and confirm accepted deposit methods in advance.
• Repair and remedy language. Be clear on how you will handle repairs or credits during the option period.
• Financing and appraisal terms. Coordinate these with your option period so you are not caught without protection if timing slips.

First‑time buyer plan for El Paso

Use this simple plan to stay in control.

1. Confirm the effective date as soon as you go under contract and map all deadlines.
2. Deliver the option fee and earnest money early and keep proof.
3. Book inspections right away and order any follow‑ups within 24 hours of the first report.
4. Check in with your lender daily until the appraisal is scheduled.
5. Review title documents with your agent as soon as they arrive. Flag questions immediately.
6. Decide on repairs or credits by day 3 to 5 of your option period to allow for negotiation.
7. If you need to terminate, send written notice per the contract before the deadline and confirm receipt.

When to loop in pros

Your agent and the title company are your first resources on deadlines, payments, and notices under the TREC contract. If an earnest money dispute arises or the other party will not sign a release, consider speaking with a Texas real estate attorney for guidance on next steps.

If you are weighing different strategies for option periods or earnest money in a specific El Paso neighborhood, a local perspective can help you be competitive without taking on extra risk.

Ready to plan a smart offer in El Paso? Reach out to Shawn Jolley for friendly, local guidance that protects your timeline and your deposit.

FAQs

What is earnest money in a Texas home purchase?

• It is a good‑faith deposit held by the named escrow agent, usually the title company, and it is credited at closing or disbursed per the TREC contract.

What is the option period in Texas real estate?

• It is a negotiated window when you can terminate for any reason by sending written notice, in exchange for a usually nonrefundable option fee.

Can I get my option fee back if I cancel?

• Generally no; if you terminate during the option period, the option fee stays with the seller while your earnest money is typically refundable per the contract.

Can the seller keep my earnest money if I back out?

• If you terminate properly under the contract, earnest money is usually returned; if you default after protections expire, the seller may claim it as damages per the contract.

When do my deadlines start on a Texas contract?

• Deadlines, including the option period and deposit delivery, start on the effective date, which is the date the seller accepts and everyone has signed.

Who holds the earnest money in El Paso?

• The contract names the escrow agent, commonly a local title company, which must handle funds under Texas rules and the contract instructions.

What if there is a dispute over my earnest money refund?

• The title company will typically hold funds until a mutual release or court order is received, and the TREC contract includes dispute‑resolution steps such as mediation.