You find a home you love in Houston, and your agent starts talking about earnest money and an option fee. They sound similar, but they do very different things for you. Understanding both can protect your budget and strengthen your offer. In this guide, you’ll learn what each payment covers, typical Houston amounts and timelines, and smart steps to avoid costly mistakes. Let’s dive in.
Earnest money vs option fee: the short answer
- Earnest money is a good-faith deposit you place in escrow to show you intend to buy. If you close, it goes toward your cash to close.
- Option fee is a separate, usually small, non-refundable payment to the seller that buys you a short, unconditional right to cancel during the option period.
If you terminate within the option period, you usually get the earnest money back and the seller keeps the option fee. If you cancel after the option period without another valid contingency, you risk losing your earnest money.
How Texas contracts treat each one
Most Houston deals use the TREC One to Four Family Residential Contract. The contract lists the escrow holder for earnest money, the amount, and the delivery deadline. It also spells out the option fee, who it is paid to, and the length of the option period.
- The effective date is when the last party signs. Deadlines are measured from that date.
- Earnest money is typically due to the escrow or title company within a short window after the effective date, often 1 to 3 business days.
- The option fee and option period are negotiated. The fee is usually due within the same short window and is paid to the seller, unless the contract says otherwise.
Always follow the delivery instructions in the executed contract. The escrow holder, deadlines, and amounts must match what you agreed to in writing.
What happens to your money
- If you close, earnest money applies to your purchase funds.
- If you terminate within the option period, your earnest money is generally returned. The seller keeps the option fee because it paid for your right to cancel.
- If you terminate after the option period without another contingency, the seller may keep your earnest money as liquidated damages, per the contract.
The option fee is normally not credited to the purchase price unless your contract says it is. Read your contract and confirm with your agent.
Typical Houston amounts and timelines
Local custom can shift with the market, price point, and how competitive a listing is, but these Houston-area ranges are common:
- Earnest money
- Under $300,000 price: $1,000 to $3,000 is common, or about 1 percent of price.
- $300,000 to $800,000 price: often about 1 percent of price, such as $3,000 to $8,000.
- Above $800,000 price: 1 to 2 percent is common, sometimes more on luxury homes.
- Option fee
- Often $100 to $400 on most single-family homes.
- May be higher if you need a longer option period or if the listing is very competitive.
- Option period length
- Commonly 5 to 10 days, with 7 days used often.
- Shorter, such as 1 to 3 days, in highly competitive situations.
Your agent will help you match your offer to the neighborhood, property type, and current market.
Simple Houston examples
- Example A: List price $250,000. Earnest money about $2,500. Option fee about $150. Option period 7 days.
- Example B: List price $450,000. Earnest money about $4,500. Option fee about $200 to $300. Option period 7 days.
- Example C: List price $900,000. Earnest money about $9,000. Option fee about $300 to $500. Option period 7 to 10 days.
These are illustrations. Your exact numbers are negotiable and depend on competition and seller expectations.
Your timeline: day by day
- Day 0: Contract effective date. Start your clock.
- Days 1 to 3: Deliver earnest money to the named escrow holder. Deliver the option fee to the seller if required by your contract. Get a receipt for both.
- Day 1: Schedule inspections immediately. Aim to inspect within 48 hours so you have time for quotes and decisions.
- Days 2 to 6: Review inspection findings, request estimates, and evaluate HOA docs or lender requirements as needed.
- Day 7: Typical decision point if you negotiated a 7-day option period. If you plan to terminate, send the required termination notice before the deadline.
Missing a delivery or the option deadline can put your deposit at risk. Track deadlines in writing and set reminders.
Common mistakes to avoid
- Mixing up refundable and non-refundable money. Earnest money can be refundable under the contract. The option fee is usually non-refundable.
- Paying the option fee late or without confirming acceptance and the option period in the signed contract.
- Delivering earnest money to the wrong place or with the wrong instructions. Always verify wiring or drop-off details with the escrow holder by phone to avoid fraud.
- Waiting too long to schedule inspections. Late inspections compress your decision window and create stress.
- Underfunding earnest money in a competitive submarket. A stronger deposit can help your offer stand out.
A quick checklist and a clear calendar can prevent most of these issues.
Smart strategies in Houston offers
- Tune your numbers to the property. In hot pockets, a 1 percent earnest money deposit and a shorter option period can show commitment.
- If you need more time, consider a longer option period paired with a higher option fee to balance the ask.
- Use the option period for full due diligence. Inspections, quotes, HOA documents, and lender checks all belong here.
- Keep your files clean. Save receipts for earnest money and the option fee, inspection reports, and all emails about deadlines.
Your agent can help you weigh the trade-offs so your offer is both competitive and safe.
Budget checklist for upfront costs
- Earnest money deposit
- Option fee
- Inspection fees and any follow-up specialist inspections
- Appraisal fee if applicable
- Courier or wire fees for escrow delivery
Build these into your cash plan so there are no surprises.
What if things change
If you terminate within the option period using the contract’s termination form, you typically get your earnest money back and the seller keeps the option fee. If you need to cancel after the option period, you must rely on another contingency in your contract, such as a financing contingency. If no contingency applies, the seller may keep your earnest money and you could be in breach.
If you miss a payment deadline for earnest money, the seller may have remedies, including terminating. Reach out to your agent immediately to understand your options based on the contract.
Final take for Houston buyers
Think of earnest money as your show of good faith that becomes part of your purchase funds. Think of the option fee as your paid time to investigate and decide. Choose amounts and timelines that fit the property and the market, deliver both on time, and use the option period to do thorough due diligence.
If you want a calm, well-orchestrated process, especially on a relocation or move-up purchase, work with a local expert who coordinates inspections early, protects your deadlines, and helps you structure a strong offer. When you are ready, connect with Chris Domangue. Don't make a move without me.
FAQs
What is the difference between earnest money and the option fee in a Texas home purchase?
- Earnest money is an escrowed deposit applied to your purchase at closing, while the option fee is a separate, usually non-refundable payment to the seller for a short, unconditional right to terminate during the option period.
What happens to my earnest money if I cancel during the option period in Houston?
- If you terminate within the option period using the contract form, your earnest money is generally returned and the seller keeps the option fee.
How much earnest money should I expect to pay on a Houston home?
- A common baseline is about 1 percent of the price, with $1,000 to $3,000 typical under $300,000, 1 percent between $300,000 and $800,000, and 1 to 2 percent above $800,000.
How large is a typical option fee and how long is the option period in Houston?
- Many single-family offers use a $100 to $400 option fee with a 5 to 10 day option period, often 7 days, adjusted for competition and property complexity.
What if I miss the option period deadline but still want to cancel in Texas?
- The unconditional right to terminate lapses, so canceling after the option period can put your earnest money at risk unless another contract contingency applies.
Where and when do I deliver earnest money in a Houston transaction?
- Deliver earnest money to the escrow or title company named in your contract, typically within 1 to 3 business days after the effective date, and get a receipt.
Can my option fee be credited toward the purchase price at closing?
- It is usually not credited unless your contract specifically says it will be, so read the contract and confirm with your agent before assuming any credit.
