Blog > The Texas Option Period and Earnest Money, Explained for Houston Buyers
The Texas Option Period and Earnest Money, Explained for Houston Buyers
by
Published
The short answer
- The option fee buys you a short window, often 5 to 10 days in Houston, to inspect the home and walk away for any reason.
- Earnest money shows you're serious. In Houston it's commonly around 1% of the price, held by the title company.
- Under the standard Texas contract, both payments are due to the title company within 3 days of the effective date. Miss the option fee and you lose your termination option.
- If you terminate during the option period, the seller keeps the option fee and you generally get your earnest money back.
The option period is the most misunderstood part of buying a home in Texas, especially for buyers moving from other states, where inspection contingencies work differently. It's also the most valuable protection a buyer has. Here's exactly how it works under the standard Texas contract, with the numbers we see on Houston deals.
Option fee vs. earnest money
| Option fee | Earnest money | |
|---|---|---|
| What it does | Buys the unrestricted right to terminate for a set number of days | Shows good faith and secures your performance under the contract |
| Typical Houston amount | A few hundred dollars, often $100 to $500 | Often around 1% of the price |
| Who holds it | The title company (escrow agent) | The title company (escrow agent) |
| If you close | Usually credited toward the price | Credited toward your down payment and closing costs |
| If you terminate in the option period | The seller keeps it | Refunded to you |
For a sense of real numbers: a recent cash offer on one of our listings came in at $280,000 with 1% earnest money and a $150 option fee for seven days, then was revised to a five-day option.
The 3-day rule
Under the standard TREC resale contract, the buyer must deliver the earnest money and the option fee to the title company within 3 days after the effective date. This catches people every year. If the option fee isn't delivered on time, the buyer doesn't get the termination option at all. If the earnest money is late, the seller may be able to terminate. We tell every buyer to have funds ready to send the day the contract is signed.
What to do during the option period
- Book inspections immediately. Good Houston inspectors fill up several days out. A general inspection and termite inspection are standard. Add a stucco, foundation, sewer scope or pool inspection when the home calls for it. An invasive stucco inspection drills small holes in the walls, so the seller has to approve it in writing first; we ask for that approval right away.
- Get insurance and flood quotes. Premiums vary a lot by roof age and location, and you want the real number before you're committed.
- Read the documents. Seller's disclosure, HOA information, the survey and MUD notice, and any deed restrictions.
- Negotiate repairs or credits if needed, and get any agreement signed as an amendment before the option period ends. Here's how repair negotiations work.
- Decide. If the home isn't right, deliver a written termination notice on time.
Deadlines are strict
Notices under the option paragraph must be delivered by 5:00 p.m., local time, on the last day of the option period. Day counting starts the day after the effective date. A termination at 5:15 p.m. on the last day doesn't count, and an "agreement in principle" over the phone doesn't extend anything. If you need more time, sign an amendment that extends the option period, usually with an added fee, before it expires.
What happens after the option period ends
Once the option period is over, you're committed except for the other conditions in your contract, such as:
- Financing approval under the financing addendum, if you kept that protection
- The appraisal, depending on the appraisal addendum you chose
- Title or survey objections raised within the contract deadlines
- HOA documents, if you have a right to terminate after receiving them
Outside those protections, backing out after the option period can put your earnest money at risk.
Getting earnest money back
Earnest money is released by agreement. When a contract terminates properly, both sides sign a release and the title company refunds or pays the money, minus any agreed fees. The standard Texas contract puts real pressure on a party who refuses to sign a release they should sign: they can be liable for three times the earnest money plus attorney's fees. In practice, disputes are rare when everyone followed the deadlines.
How option terms affect your offer
In a competitive situation, a shorter option period and a slightly larger option fee or earnest money tell the seller you're organized and serious. In today's slower Houston market, buyers usually have room for a normal option period of about 7 days. We pick the terms with you based on the house, the competition and how fast your inspectors can get in.
Option period questions
What is the option period in Texas?
It's a negotiated number of days, often 5 to 10 in Houston, during which a buyer who paid an option fee can terminate the contract for any reason. Most inspections and repair negotiations happen during this window.
How much is the option fee in Houston?
Usually a few hundred dollars, often $100 to $500, depending on the price and the number of days. It's typically credited toward the price if you close.
How much earnest money is typical in Houston?
Around 1% of the price is common, though it can be higher on competitive or high-end homes.
Do I get my earnest money back if I back out in Texas?
If you terminate properly during the option period, yes, you generally get it back and the seller keeps the option fee. After the option period, you're protected only by the other conditions in your contract.
When are the option fee and earnest money due?
Under the standard Texas resale contract, both are due to the title company within 3 days after the effective date. If the option fee is late, you don't get the termination option.
Getting ready to make an offer? We'll set up your option period, line up inspectors and track every deadline for you. Call or text (832) 777-3904 or send me a note.
Sources
- TREC: One to Four Family Residential Contract (Resale)
- TREC: Notice of Buyer's Termination of Contract
- TREC: Amendment to Contract
This is general information about the standard TREC contract, not legal advice. Your contract's terms control.
