Confused about the difference between earnest money and the option fee in Dallas? You’re not alone. These two payments work together to move your offer from accepted to closed, and getting them wrong can cost you time and money. In this guide, you’ll learn what each one does, who holds it, typical amounts in Dallas, when they’re due, and how to protect yourself from avoidable disputes. Let’s dive in.
Quick definitions
- Earnest money: Your escrow deposit that shows good faith. It’s held by a neutral escrow agent, typically a title company in Dallas, and applied to your purchase at closing per the contract.
- Option fee: A separate, usually smaller payment you make to the seller for the right to terminate the contract during a short, negotiated option period. It’s generally non-refundable, but it’s often credited back to you at closing if the deal closes.
- Option period: A defined window in the contract when you can terminate for any reason with written notice.
How the Texas contract handles both
Most Dallas resale homes use the Texas Real Estate Commission (TREC) One to Four Family Residential Contract (Resale). This contract has specific blanks for earnest money, the option fee, and the option period. The amounts, who holds each payment, and exact deadlines are defined in the contract you sign. For timing and delivery, always follow your signed contract and your agent’s written instructions.
Key differences at a glance
- Purpose
- Earnest money shows commitment and secures the contract.
- The option fee buys you the unilateral right to terminate during the option period.
- Who holds it
- Earnest money is usually held by the named title company or escrow agent in Dallas.
- Option fees are commonly paid to the seller or delivered to escrow, depending on the contract.
- Refundability
- Earnest money is typically refundable if you terminate properly under the contract, including during the option period.
- Option fees are generally non-refundable. If you close, they’re often credited at closing.
Who holds the money in Dallas
- Earnest money: In Dallas, it’s standard to deposit earnest money with the title company or escrow agent named in your contract. Your agent will tell you where and how to deliver it and will often request a receipt to confirm deposit.
- Option fee: Practice varies. Many contracts call for the buyer to deliver the option fee to the seller or the seller’s broker. Others route it to escrow. Your contract controls the delivery method.
Typical amounts in Dallas
There isn’t a statewide “rule,” but here’s what you’ll commonly see in Dallas. Your offer should reflect current market conditions and your pricing tier.
Earnest money
- Lower-priced homes (under $300,000): typically $1,000 to $5,000.
- Mid-priced homes ($300,000 to $700,000): typically $3,000 to $10,000.
- Higher-priced homes (over $700,000): often closer to 1 percent or more, or a negotiated amount.
Option fee
- Balanced markets: often $100 to $500 for a short option period.
- Competitive markets: higher option fees, sometimes several hundred to a few thousand dollars, or buyers may waive the option period.
These are examples, not caps. Your contract sets the actual numbers.
Example scenarios
Balanced market, $350,000 home
- Earnest money: $3,000 delivered to the title company within 3 days.
- Option fee: $200 for a 7-day option period paid to the seller.
- Outcome: You inspect and terminate before the 7th day. You typically get your earnest money back, and the seller keeps the $200 option fee.
Competitive situation, $650,000 home
- You offer $10,000 earnest money and a 2-day option with a $2,500 option fee to strengthen your offer.
- Outcome: If you waive the option period, you give up the right to terminate for any reason during that window. If you keep a short option period, you must act fast on inspections and decisions.
Timing and deadlines
Your contract sets the deadlines, so read those fields closely and confirm delivery instructions.
- Earnest money timing: The contract specifies when it’s due. In practice, many Dallas contracts call for delivery within 1 to 3 business days of the effective date. Deliver per the contract and obtain written confirmation from the escrow agent.
- Option fee timing: Often due on or before the effective date or within a short number of days. The option period begins and ends on specific dates in the contract. You must give written notice of termination before the option period expires if you choose to back out.
If a deadline is tight, plan inspections and negotiation windows in advance so you can make decisions before the option period ends.
Refunds, credits, and forfeiture
- If you terminate during the option period: When you give proper written notice within the option period per the contract, your earnest money is typically returned. The seller usually keeps the option fee.
- If you close: Earnest money and often the option fee are credited to your closing costs or purchase price according to the contract.
- If you default after the option period: The seller may have a claim to your earnest money, subject to the contract’s remedies and any dispute procedures.
How to protect yourself as a buyer
Use this checklist to reduce risk and avoid disputes.
- Confirm the escrow agent and delivery method for earnest money before you send funds.
- Deliver earnest money and the option fee exactly as the contract instructs and get written receipts.
- Schedule inspections immediately so you can review results and negotiate within the option period.
- Track the option period end date and time. If you plan to terminate, send written notice per the contract before the deadline.
- Coordinate with your lender on financing and appraisal contingencies if they apply to your contract.
- Keep all communication and receipts in writing for your records.
Smart steps for sellers
Protect your time on market and your leverage with a clear process.
- Request proof of the earnest money deposit from the title company early in the option period.
- Document receipt of the option fee, whether it’s delivered to you, your broker, or escrow.
- Ensure the contract clearly states where to deliver funds and how notices must be sent.
- Set expectations on showings, access for inspections, and backup-offer policies.
- Respond promptly to repair requests so negotiations stay within the option period.
Avoiding pitfalls and disputes
- Follow the contract: Dates, times, and delivery methods matter. Missing a deadline can change who keeps the money.
- Use written notices: Termination must be in writing and delivered as the contract directs.
- Know how escrow releases funds: Title companies generally require a mutual release or final adjudication if there’s a dispute over earnest money.
- Communicate early: If you see a timing issue, loop in your agent and the title company before the deadline.
Strategy: Make a stronger offer without excess risk
Your earnest money and option fee can help your offer stand out while keeping reasonable protections.
- Consider a slightly higher earnest money deposit to show commitment, especially in competitive pockets of Dallas.
- Keep an option period, but make it concise. A shorter option period with a fair option fee can balance risk and speed.
- If you’re tempted to waive the option period, understand you give up a key protection. Talk through inspection timing, any known property conditions, and your tolerance for risk before deciding.
Work with a local pro
A clear plan for earnest money, the option fee, and timelines helps you avoid stress. If you’re buying, you can dig deeper into process and timelines in Andrew’s Buyer Guide. When you’re ready to map your offer strategy to the Dallas market, schedule a free consultation with Andrew.
FAQs
What is earnest money in a Dallas home purchase?
- Earnest money is your good-faith deposit held by a title company or escrow agent and applied to your purchase at closing per the contract.
What is the option fee in Texas real estate?
- The option fee is a separate payment to the seller that gives you the right to terminate the contract during a negotiated option period.
Who holds earnest money in Dallas transactions?
- Most Dallas contracts name a title company or escrow agent to hold earnest money. Sometimes a broker’s trust account is used if the contract says so.
Is the option fee refundable in Dallas?
- Generally no. It’s typically non-refundable, but it’s often credited to you at closing if the sale completes.
Will I lose earnest money if I terminate during the option period?
- Typically no, if you deliver written notice within the option period per the contract. The seller usually keeps the option fee.
How much should I offer for earnest money and the option fee?
- There’s no fixed rule. Many Dallas offers include a few thousand dollars or about 1 percent in earnest money and $100 to $500 for the option fee in balanced markets. Competitive situations may call for more.
What happens if the seller won’t release my earnest money?
- The escrow agent will usually hold funds until a mutual release or legal resolution per the contract’s dispute procedures.
