Buying in Allen or across Collin County and keep hearing about earnest money and the option fee? You are not alone. These two payments do very different jobs in a Texas contract, and understanding them can help you protect your money and write a stronger offer. In this guide, you will learn what each payment covers, typical local amounts, how and when to pay, and what happens if a deal cancels or closes. Let’s dive in.
Earnest money explained
Earnest money is a good-faith deposit that shows you intend to perform on the contract. It is usually held by the title company named in your agreement and is credited to your closing costs or down payment when you close. If your contract allows termination under certain conditions, you can often get earnest money back when you cancel within those terms.
You typically deliver earnest money within the first few days after the contract’s effective date. In the Dallas–Plano–Irving area, many contracts call for delivery within 1 to 3 days. Title companies commonly accept checks or wires and will issue a receipt.
Option fee and the option period
The option fee is unique to Texas. It is paid to the seller in exchange for an unrestricted right to terminate the contract during a short window called the option period. Buyers use this time for inspections and decision-making.
The option fee is generally nonrefundable once paid. If the contract says the fee will be credited at closing and you proceed to close, it can be applied to your costs. If you terminate during the option period, the seller typically keeps the option fee.
Key differences at a glance
- Purpose: Earnest money shows performance intent and sits in escrow. The option fee buys your right to terminate during an agreed period.
- Who holds it: Earnest money is usually held by the title company or named escrow agent. The option fee is usually paid to the seller or the listing broker to deliver to the seller.
- Refund rules: Earnest money can be refundable if you terminate under allowed contract terms. The option fee is usually nonrefundable, except it can be credited at closing if the contract says so.
How payments are delivered locally
Earnest money delivery
- Paid to the title company or escrow agent named in the contract.
- Commonly due within 1 to 3 days after the effective date.
- Pay by check or wire, and always obtain a written receipt or escrow acknowledgment.
Option fee delivery
- Paid to the seller or the seller’s agent as specified in the contract.
- Typically due within the first few days of the effective date.
- Get a signed receipt showing the amount and date received.
Receipts and records
Keep copies of wire confirmations, checks, and receipts for both payments. Good records make any future dispute easier to resolve and help your transaction stay on track.
Typical amounts in Allen and DFW
Earnest money ranges
- Entry-level homes: about 1,000 to 3,000 dollars is common.
- Mid-priced homes: about 2,000 to 10,000 dollars, with many buyers offering 3,000 to 5,000 dollars.
- Higher-priced homes: often 1 to 2 percent of the purchase price. In competitive situations, buyers sometimes offer more to stand out.
These amounts are negotiable. Match your earnest money to your comfort level and the protections in your contract.
Option fee and option period norms
- Option fee: often 100 to 500 dollars for standard deals. In competitive scenarios, buyers may offer 500 to 1,000 dollars or more.
- Option period: commonly 5 to 10 days in this area. Shorter periods or higher fees can make your offer more attractive to a seller.
Local closings in Collin County often run 30 to 45 days with financing. Cash purchases can close sooner.
Who keeps what: common scenarios
If you terminate during the option period
You usually receive your earnest money back when you terminate within the option period under the contract. The seller typically keeps the option fee since it paid for your right to terminate.
If you close on the home
Your earnest money is credited to your closing costs or down payment. If your contract says the option fee will be credited, that amount is applied at closing as well.
If a party defaults or a dispute arises
If a buyer defaults after the option period, the seller may pursue remedies allowed by the contract, which can include retaining earnest money as liquidated damages. If there is a disagreement about disbursement, the escrow holder usually keeps the earnest money in escrow until both parties agree or a court or settlement directs payment.
Make your offer competitive
- Increase your earnest money to signal strong commitment.
- Shorten the option period if you can schedule inspections quickly.
- Offer a higher option fee for a shorter option period. This preserves inspection time while compensating the seller.
- Avoid waiving protections unless you clearly understand the risks and have a plan for inspections and financing.
Protect your funds from wire fraud
Wire fraud is an active risk. Criminals can send fake wiring instructions by email that look authentic. Use these precautions:
- Do not wire funds based on email alone. Confirm instructions by calling the title company using a known, verified phone number.
- If possible, deliver a cashier’s check in person or verify wire details in person with the title company.
- Keep copies of wire confirmations, receipts, and acknowledgments.
- Treat any last-minute change to wiring instructions as a red flag and verify by phone immediately.
Quick buyer checklist
- Confirm who holds earnest money and who receives the option fee in your contract.
- Send both payments on time and collect written receipts.
- Schedule inspections as soon as the option period begins.
- Track all deadlines and keep copies of all confirmations.
- Coordinate with your lender and title company to keep the closing timeline on track.
Partner with a local pro in Allen
The right structure can help you win in a multiple-offer situation while protecting your money. With a process-driven approach and deep local experience across Allen and Collin County, you can plan your earnest money and option strategy with confidence. If you want calm, clear guidance from offer to closing, connect with Melissa Manemann for tailored advice and a smooth experience from start to finish.
FAQs
What is the difference between earnest money and an option fee in Texas?
- Earnest money is an escrowed good-faith deposit tied to contract performance, while the option fee pays for a short, unrestricted right to terminate during the option period.
How much earnest money should I offer in Allen or Collin County?
- Common ranges are 1,000 to 3,000 dollars on lower-priced homes, 3,000 to 10,000 dollars on mid-priced homes, and 1 to 2 percent of price for higher-priced homes.
What is a typical option fee and option period locally?
- Many offers include a 100 to 500 dollar option fee and a 5 to 10 day option period, with higher fees or shorter periods in competitive situations.
Who holds earnest money and who gets the option fee?
- Earnest money is usually held by the title company or escrow agent named in the contract, while the option fee is commonly paid to the seller or the seller’s agent.
If I cancel during the option period, what gets refunded?
- Earnest money is usually refunded when you terminate within the option period under contract terms. The option fee is typically kept by the seller.
Can my option fee be credited back to me at closing?
- Yes, if your contract specifies that the option fee will be credited at closing and you proceed to close, it is applied to your costs.
What happens if the seller refuses to release earnest money I believe is mine?
- The escrow holder follows the contract’s disbursement rules. If parties do not agree, the funds often remain in escrow until mutual release, mediation, arbitration, or a court order directs payment.
