What’s the Difference Between Earnest Money and an Option Fee in Texas?

"I don't want to lose thousands of dollars if the inspection comes back bad."

Almost every first-time buyer in North Dallas tells me some version of that.

Here's the short answer. In Texas, the option fee is a small payment that buys you the unrestricted right to walk away during the option period, and you don't get it back if you terminate. Earnest money is a larger good-faith deposit held by the escrow agent, and under the standard Texas contract it may be refunded to you if you terminate within the option period. If you close, both generally go toward your purchase.

One rents your exit. The other shows you're serious. Different jobs. Different rules.

What is an option fee in Texas?

Most resale homes in Texas are bought on the Texas Real Estate Commission (TREC) One to Four Family Residential Contract, Form 20-18. Paragraph 5 gives you "the unrestricted right to terminate" for a number of days you negotiate: the option period.

Unrestricted means exactly that. The inspection. The insurance quote. The foundation report. Cold feet. Any reason works, as long as your written notice reaches the seller by 5:00 p.m. local time on the last day.

🚨 Here's the part I want my first-time buyers to understand: the DEADLINE matters more than the amount. The option fee is due to the escrow agent within 3 days after the contract's Effective Date. Miss it, and Paragraph 5D says you don't have the unrestricted right to terminate at all.

What is earnest money in Texas?

Earnest money is your good-faith deposit. It's made payable to the escrow agent named in the contract, usually the title company, and it's due on the same clock: within 3 days after the Effective Date.

It does NOT go to the seller when you sign. It sits in escrow until the deal closes or ends.

The TREC form leaves both amounts blank. They're negotiated, which is why the right number on a starter home in Little Elm, Aubrey or Providence Village can look different from street to street.

Do you get your earnest money back if you back out?

It depends on when, and which part of the contract you use:

Notice the pattern? Your earnest money is protected by deadlines. Not by good intentions.

Quick answers

Is the option fee refundable in Texas?
Not if you terminate. If you close, it's credited to the sales price (TREC Form 20-18, Paragraph 5).

When are earnest money and the option fee due?
Within 3 days after the contract's Effective Date, delivered to the escrow agent.

Can I back out during the option period for any reason?
Yes. It's an "unrestricted right to terminate," as long as written notice reaches the seller by 5:00 p.m. on the last day.

My take

Treat every date in your contract like it's written in stone.

And here's the honest part. If your loan isn't solidly pre-approved yet, and losing your earnest money would wipe out your savings, writing an offer this week isn't the smart move. Getting your financing in order first is.

The option fee buys your exit. The deadline decides whether you get to use it. 🏡

📲 DM me "OPTION FEE" on Instagram @JenniferKirkRealtor, or call 214-592-7605.

Jennifer Kirk, REALTOR® · Real Broker, LLC · Equal Housing Opportunity. I'm not a lender or financial advisor. Talk with a licensed lender about your situation.

Sources

• TREC One to Four Family Residential Contract (Resale), Form 20-18 (11-04-2024), accessed October 26, 2026
• TREC Third Party Financing Addendum, Form 40-11 (11-04-2024), accessed October 26, 2026
• TREC Contract Forms page, accessed October 26, 2026
• TREC: Form changes effective January 3, 2025, accessed October 26, 2026