Earnest Money Vs. Option Fee In Texas

Are you getting ready to write an offer in Memorial Villages and wondering what to put toward earnest money or an option fee? You are not alone. These two payments serve different purposes in Texas, and understanding both can help you write a stronger, safer offer. In this guide, you will learn what each payment does, how timing and refunds work, what amounts are common in Memorial Villages, and how to decide on a winning strategy. Let’s dive in.

What these terms mean

Earnest money

Earnest money is a good‑faith deposit that shows you are serious about buying. It is part of the consideration for the purchase and is usually credited to you at closing. If the sale does not close, what happens to the earnest money depends on the contract and the timing of any termination.

Option fee

The option fee is a separate payment that buys you an unrestricted right to terminate the contract for any reason during the option period. This right exists only if you and the seller agree to it in the contract. If you terminate within the option period, the seller typically keeps the option fee. If you close, the option fee is usually credited to you at settlement.

Contract basics in Texas

Texas uses standard residential contract forms published by the Texas Real Estate Commission. These forms include spaces for both earnest money and an optional option period with an option fee. The contract controls the details: amounts, deadlines, who holds the funds, and how notices must be delivered.

Keep this in mind as you plan your offer: the option period is a contractual right that you negotiate. It is not automatic. The contract sets the number of days, how much you pay for that right, and when the fee is due.

Timing and custody

Deadlines and delivery

Your contract will state when earnest money must be delivered. Many Texas agents target delivery within 1 to 3 business days, but the only deadline that matters is what you write in the contract. The option fee deadline is also stated in the contract, and the option period begins and ends based on the dates you negotiate.

To preserve your option right, you must give written notice of termination before the option period expires. If you miss the deadline, the unrestricted right to walk away usually ends.

Who holds the funds

Earnest money is usually deposited with the title company or other escrow agent named in the contract. In the Houston area, the title company for the closing commonly holds the earnest money in escrow. The option fee can be delivered as the contract instructs, which may be to the seller, the seller’s agent, or the title company.

Refunds and credits

At closing, earnest money is ordinarily applied to your purchase price or closing costs. If you terminate properly within a valid option period, the seller typically keeps the option fee and your earnest money is returned. If you default after the option period and do not have a contract right to cancel, the seller may have remedies that can include keeping the earnest money, depending on the contract.

Receipts and disputes

Always get a written receipt for any funds you deliver. Title companies and brokerages customarily issue receipts and confirm escrow. If there is a disagreement about who gets the earnest money, the escrow agent will hold the funds until the parties sign a release or the contract’s dispute process plays out.

Typical amounts in Memorial Villages

Memorial Villages includes Bunker Hill Village, Hedwig Village, Hunters Creek Village, Piney Point Village, and Spring Valley Village. Price points tend to be higher than the Houston median, and desirable homes can attract competition.

Here is what buyers often see in practice:

• Earnest money: for mid to high six‑figure and seven‑figure homes, deposits often fall around 1 to 3 percent of the price, or several thousand to tens of thousands of dollars. In competitive situations, some buyers offer more to signal commitment.
• Option fee: amounts vary widely. In many Texas resales, you will see $100 to $1,000. In Memorial Villages, buyers sometimes offer more or shorten the option period to strengthen their offer when inventory is tight.
• Option period length: commonly negotiated at 3 to 10 days. Shorter periods can appeal to sellers on high‑demand listings.

Exact numbers are always negotiated. The right approach depends on the home’s condition, market activity on that property, your risk tolerance, and how much time you need for inspections and financing steps.

Strategy examples

Example 1: Terminating during the option period

• Facts: Price $800,000. Earnest money $16,000. Option fee $750 for a 7‑day option period.
• Outcome: You inspect, find major issues, and deliver written notice within 7 days. The seller keeps the $750 option fee. Your $16,000 earnest money is returned.

Example 2: Waiving the option period

• Facts: You waive the option to be more competitive, deposit $20,000 earnest money.
• Outcome: You still inspect, but without an unrestricted right to terminate. If you walk away without a contract right, the seller may claim the earnest money based on the contract.

Example 3: Default after the option period

• Facts: You complete the option period and proceed, then fail to close without a contract excuse.
• Outcome: The seller may keep the earnest money as liquidated damages if the contract allows.

Example 4: Closing and credits

• Facts: You pay both earnest money and the option fee and proceed to closing.
• Outcome: The title company credits your earnest money and typically credits your option fee per the contract.

How to choose your numbers

Use these factors to calibrate earnest money and the option fee for a Memorial Villages offer:

• Price point: higher prices often come with higher earnest money to match seller expectations.
• Competitiveness: multiple offers and low inventory can favor larger earnest money and a shorter option period or higher option fee.
• Inspection needs: if a property is complex or older, you may prefer a longer option period, which can require a higher option fee to win acceptance.
• Financing and timelines: match the option period to how fast you can inspect and review results with your lender.
• Risk tolerance: larger earnest money can help you stand out but increases your exposure if you default.

Illustrative approaches:

• Conservative: 1 to 2 percent earnest money, option fee of $500 to $1,500, and a 5 to 7 day option period.
• Aggressive: 2 percent or more earnest money, a higher option fee or a shorter option period to compete with multiple offers.

Buyer checklist for Memorial Villages

Before you make an offer:

• Review recent activity around your target streets in each Village to gauge competition.
• Decide how much earnest money you can comfortably set aside, and have the funds ready to deliver on time.
• Decide whether you need an option period. If so, choose the days you need for inspections and set an option fee that fits the market.

When drafting and executing the contract:

• Write exact deadlines for earnest money and option fee delivery, and clearly state the option period start and end dates.
• Identify the title company to receive earnest money and confirm delivery instructions.
• Get written receipts for both earnest money and any option fee.

During the option period:

• Schedule inspections immediately. Treat the option period as your guaranteed window to walk for any reason.
• Use inspection findings to negotiate repairs or price changes. If you decide to terminate, send written notice before the deadline.

Recordkeeping and disputes:

• Keep copies of the contract, amendments, receipts, inspections, and any notices.
• Know the contract’s dispute process and the title company’s escrow policies.

When to involve counsel:

• If you are dealing with large deposits, unusual instructions, or a dispute over earnest money, consult a real estate attorney.

Common pitfalls to avoid

• Missing delivery deadlines for earnest money or the option fee.
• Assuming the option period exists without it being written into the contract.
• Delivering funds to the wrong party or without getting a receipt.
• Letting the option period expire before inspections are complete.
• Expecting a refund of the option fee after termination. The seller typically keeps it when you use the option.

Local guidance that fits the Villages

Each Village has its own pace and micro‑market dynamics. A well‑calibrated offer considers recent comps, current inventory, and how sellers in that pocket view option periods and deposits. With founder‑led, concierge support, you can decide on amounts that protect you while still helping your offer rise to the top.

If you are planning a move into or within Memorial Villages, we can help you structure your offer with precision, coordinate inspections on your timeline, and manage every detail through closing. Schedule a Consultation with Lynn Tohme to get a tailored plan for your next step.

FAQs

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

• Earnest money is a good‑faith deposit credited to you at closing. The option fee buys you a short, contractual right to terminate for any reason during the option period.

When do Texas buyers get earnest money back if they terminate?

• If you terminate within a valid, written option period and follow the notice rules, the seller typically keeps the option fee and your earnest money is returned, subject to the contract.

How much earnest money is typical in Memorial Villages?

• Many buyers use 1 to 3 percent of the purchase price, or several thousand to tens of thousands of dollars for higher‑priced homes. Competitive listings may see even higher deposits.

Is the option fee credited at closing in Texas?

• Yes, if you close, the option fee is typically credited toward your purchase per the contract, even though it would have been non‑refundable if you had terminated during the option period.

Who holds earnest money and the option fee in Memorial Villages sales?

• Earnest money is usually held by the title company named in the contract. The option fee is delivered as the contract instructs, often to the seller, the seller’s agent, or the title company.