Heard both “earnest money” and “option fee” and not sure which one actually protects you in a Texas home purchase? You are not alone. These two payments do very different jobs, and understanding them can save you stress, time, and money during negotiations. In this guide, you will learn what each deposit does, when they are due, typical East Austin amounts, and how to structure your offer with confidence. Let’s dive in.
Earnest money vs. option fee: What each does
Earnest money is your good‑faith deposit that shows you intend to close. It is usually held by the title company and is typically credited to you at closing if the sale goes through.
Option fee is a separate, smaller payment that buys you a short, unconditional right to terminate the contract during the agreed option period. If you terminate within that window, the seller usually keeps this fee. Many contracts provide that the option fee is credited to you at closing if you proceed.
Who holds the money
- Earnest money: Typically deposited with the title company named in the contract, which holds it in escrow under the contract’s instructions.
- Option fee: Paid to the seller or delivered to the title company per the contract. Local practice varies, so confirm where to send it before funding.
When each payment is due
- Effective date: The day all parties sign the contract and it becomes binding.
- Earnest money: Commonly due within 1 to 3 business days after the effective date. Check your contract for the exact deadline.
- Option fee: Due as specified in the contract, often at or right after execution. Delivery must follow the contract instructions.
If you terminate within the option period by giving written notice before the deadline, you typically receive your earnest money back, and the seller keeps the option fee.
Typical East Austin amounts
- Option fee: Often in the range of about 100 to 500 dollars, with many routine offers at 100 to 300 dollars. In competitive situations, some buyers offer 500 to 1,000 dollars.
- Earnest money: Varies by price and competition. In East Austin, you may see 1,000 to several thousand dollars or 1 to 3 percent of the price. In multiple‑offer scenarios, many buyers offer 5,000 to 20,000 dollars or more, or 1 to 3 percent.
These are ranges, not rules. Your exact numbers should match your price point and the level of competition.
How the option period works
The option period is a short window you negotiate in the contract, often 3 to 10 days. During this period, you can terminate for any reason if you deliver written notice before the deadline. If you terminate in time, the seller usually keeps the option fee, and your earnest money is typically returned under the contract terms. After the option period ends, your ability to cancel without risking earnest money is limited to other contingencies in the contract, such as title or financing.
Offer strategies in competitive markets
- Longer option period for older homes: Gives you time for inspections on foundations, roofs, electrical, plumbing, and HVAC. Risk is limited to the option fee if you terminate during the period.
- Shorter or waived option period: Can strengthen your offer but increases risk, since your inspection exit is limited or gone. Consider only if you have high confidence in the property.
- Increase earnest money: Signals strength to the seller. Remember, earnest money is more at risk after the option period than the option fee.
- Balanced approach: A moderate earnest deposit with a short option period and a reasonable option fee is common in bidding wars. The exact mix depends on your risk tolerance and the property.
Example structures
- First‑time buyer, conservative: Option fee 200 dollars for a 7‑day option period; earnest money 2,000 dollars. You gain time to inspect and negotiate.
- Relocating buyer in multiple offers: Option fee 300 dollars, 2‑day option period, earnest money around 10,000 dollars or 2 percent. You show strength but must move fast on inspections.
East Austin considerations that affect timing and risk
East Austin includes many older bungalows, duplexes, and new infill homes. Older properties can present foundation settlement, roof age, cast iron or galvanized plumbing, and older wiring. Remodels may include work that needs permit history review. Drainage and floodplain exposure can vary by block and may affect insurance and survey needs.
Given these factors, a slightly longer option period can be helpful to schedule general and specialized inspections, confirm permit records, and review flood maps and surveys. Your title company can also issue an early title commitment so you can review easements, covenants, or liens within your option window.
Steps to stay on track
- Confirm the effective date once all signatures are in place.
- Deliver earnest money to the named title company within the contract deadline, typically 1 to 3 business days.
- Pay the option fee to the seller or title company exactly as the contract directs.
- Schedule inspections immediately. Add specialized inspections if the home is older or shows potential issues.
- Review the title commitment as soon as it is issued and raise any objections within deadlines.
- If you plan to terminate, send written notice before the option period expires.
- Track all dates with your agent to protect your earnest money.
Common mistakes to avoid
- Missing deposit deadlines: The seller may have remedies if earnest money or option fee is late.
- Assuming the option fee extends your time for everything: It only covers your unconditional right to terminate within the period, not other deadlines.
- Ignoring title and survey timing: Title objections and survey issues have their own timelines.
- Waiving the option period without a plan: Only consider this if you have strong property knowledge or a pre‑inspection.
What happens if timelines slip
If you fail to deliver earnest money or the option fee on time, the seller may have contractual remedies, including termination for default depending on the contract language. After the option period ends, if you cancel without a valid contractual reason, the seller may pursue the earnest money as damages. Always follow the timelines and notice requirements in the contract.
Bottom line for East Austin buyers and sellers
Your option fee buys flexibility early. Your earnest money shows commitment and is more exposed after the option period. The right combination depends on the property’s condition, market competition, and your risk tolerance. A clear plan, fast inspections, and precise timing protect your leverage.
Ready to tailor a strategy to your goals and the specific home you love in East Austin? Connect with the owner‑led team at Local Color Realty Group for clear guidance on deposits, timelines, and negotiations.
FAQs
In Texas real estate, is the option fee refundable?
- No, the option fee is normally nonrefundable; it buys you the right to terminate during the option period and may be credited to you at closing if you proceed.
In East Austin, how much earnest money is typical?
- You will often see 1,000 to several thousand dollars or 1 to 3 percent of price; in multiple‑offer situations, 5,000 to 20,000 dollars or more is common.
When are earnest money and option fees due in Texas contracts?
- Earnest money is commonly due within 1 to 3 business days after the effective date; the option fee is due as the contract specifies, usually at or right after execution.
How does the option period work in Texas purchases?
- It is a negotiated 3 to 10 day window when you can terminate for any reason with written notice before the deadline; the seller keeps the option fee, and earnest money is typically returned per the contract.
What if I miss the earnest money deadline in a Texas deal?
- The seller may have contractual remedies, including termination for default, depending on the contract language, so timely delivery is critical.
Who holds earnest money and the option fee in Travis County closings?
- The title company typically holds earnest money in escrow; the option fee goes to the seller or through the title company as directed by the contract.
