Transaction Coordination

Texas Option Fee vs Earnest Money: Who Holds Each, When It's Due and What You Get Back

The option fee and the earnest money go to the same escrow agent on the same deadline, but they do different jobs. What each buys, who keeps it in every way a Texas deal can end, and how to handle late or combined payments.

Ijharul Islam October 30, 2026 11 min read

In a Texas TREC contract, the option fee buys an unrestricted right to terminate during the option period; the earnest money is the buyer's good-faith deposit. Both are negotiated and due to the escrow agent within 3 days after the Effective Date. The option fee goes to the seller or is credited at closing; earnest money is refunded on most timely terminations.

More on this topic: Contract deadlines by state, every guide in one place.

This guide follows the money through the current resale contract, TREC No. 20-19 (05-04-2026, in use since July 1, 2026). For the full set of Texas dates, see Texas option period and TREC contract deadlines. This is general information, not legal advice; the executed contract controls.

Key takeaways

Both payments go to the escrow agent named in Paragraph 5A, usually the title company, within 3 days after the Effective Date. Since the forms that became mandatory on April 1, 2021, the option fee no longer goes to the seller directly.
The escrow agent may release the option fee to the seller at any time (5A(4)); the earnest money stays in escrow until closing or a release.
At closing, the option fee is credited to the Sales Price and the earnest money is applied to the cash down payment, then the buyer's expenses.
Terminate within the option period and the seller keeps the option fee while the buyer gets the earnest money back (5B).
No option fee stated, or the fee paid late, means no unrestricted right to terminate (5D). Late earnest money lets the seller terminate (5C).

What is the difference between the option fee and earnest money in Texas?

They answer different questions. The option fee is the price of a choice: under Paragraph 5B, for the fee the seller grants the buyer “the unrestricted right to terminate this contract” by notice within the Option Period. The earnest money is security for the buyer's performance: if the buyer defaults, Paragraph 15 lets the seller terminate and keep it as liquidated damages. Side by side, as TREC 20-19 has them:

	Option fee	Earnest money
What it buys	The buyer's unrestricted right to terminate for any reason during the Option Period (5B)	Nothing by itself; it secures the buyer's performance and is the seller's liquidated damages if the buyer defaults (15)
Amount	Negotiated; written in 5A	Negotiated; written in 5A, plus any additional earnest money in 5A(1)
Paid to	The escrow agent named in 5A	The same escrow agent
Due	Within 3 days after the Effective Date	Within 3 days after the Effective Date; additional earnest money within the days written in 5A(1)
Before closing	Escrow agent may release it to the seller at any time without the buyer's consent (5A(4))	Stays in escrow; released at closing or by a signed release or the demand process (18)
At closing	Credited to the Sales Price (5A(4))	Applied first to the cash down payment, then to the buyer's expenses; any excess refunded (18B)
If it's late	Buyer loses the unrestricted right to terminate (5D)	Seller may terminate or use the Paragraph 15 remedies, by notice before the buyer delivers it (5C)

How much is the option fee and earnest money in Texas?

Whatever the buyer and seller agree; the form leaves both amounts blank and sets no minimum or percentage. Writing for the Texas A&M Real Estate Research Center, former TREC general counsel Kerri Lewis says the option fee “is negotiable between the parties” and shouldn't be a token amount; it tends to move with the length of the option period and how hot the market is.

Earnest money is negotiated the same way. We don't quote typical figures because no primary source sets one; ask the agents what's usual locally, and use the free earnest money calculator for the arithmetic.

Who holds the option fee in Texas: the seller or the title company?

The escrow agent, usually the title company. Paragraph 5A says the earnest money and option fee “shall be made payable to Escrow Agent and may be paid separately or combined in a single payment.” This changed with the TREC forms that became mandatory on April 1, 2021: Texas REALTORS explained at the time that the buyer now delivers the option fee “to the title company, not to the seller,” within three days after the effective date.

The seller can still have it early: under 5A(4) the escrow agent may release it to the seller “at any time without further notice to or consent from Buyer.” The Research Center says the escrow agent first confirms good funds, that most title companies wait ten business days, and that if the seller never asks, the fee is credited to the seller at closing.

The earnest money stays put until closing or a release. The escrow agent isn't a party to the contract, isn't liable for interest on it, and may require good funds before any disbursement (18A).

When are the option fee and earnest money due?

Both within 3 days after the Effective Date (5A), counting the Effective Date as day zero. If the last day falls on a Saturday, Sunday or Legal Holiday, delivery extends to the end of the next day that isn't one (5A(2)). The form defines Legal Holiday through Texas Government Code § 662.003(a), the national holidays, plus (b)(4) and (b)(6): June 19 (Emancipation Day in Texas) and the Friday after Thanksgiving.

That last one catches people out this year. An example with a 5-day option period:

Item	Rule	Effective Date Tuesday, November 24, 2026
Earnest money and option fee	3 days (5A), extended past a Saturday, Sunday or Legal Holiday (5A(2))	Day 3 is Friday, November 27, the Friday after Thanksgiving, a Legal Holiday under § 662.003(b)(6), which the form adopts. Then Saturday and Sunday. Due by the end of Monday, November 30
Option period	5 days (5B), by 5:00 p.m. local time; no weekend or holiday extension	Sunday, November 29, at 5:00 p.m.

Here the money is due after the option period has ended, because only 5A(2) rolls forward. Don't rely on that: deliver on day 1. The dates are illustrative; see calendar days vs business days for how counting rules differ.

If one payment covers both, the escrow agent applies the money to the option fee first, then the earnest money, then any additional earnest money (5A(3)). A short combined check secures the option but leaves the earnest money short, opening the seller's 5C termination right. More in earnest money deadlines.

Is the option fee credited at closing in Texas?

Yes. 5A(4) says the option fee “will be credited to the Sales Price at closing”, so a buyer who closes doesn't pay it twice. The earnest money is credited too, but differently: Paragraph 18B applies it first to any cash down payment, then to the buyer's expenses, with any excess refunded to the buyer.

An additional option fee is different: item 7 of the TREC Amendment (39-11) records that the buyer “has paid Seller an additional option fee”, with a box for whether it will or will not be credited to the Sales Price. Check the box before the settlement statement is drawn.

What happens to the option fee and earnest money if the deal falls through?

It depends on how it ends. The contract and the TREC forms give these outcomes:

How the contract ends	Option fee	Earnest money
Buyer terminates by notice within the Option Period (5B)	Not refunded; the escrow agent releases any it still holds to the seller	Refunded to the buyer
Buyer terminates under the Third Party Financing Addendum (40-11, Buyer Approval)	The form doesn't provide a refund; the Research Center says the option fee “is never refundable”	Refunded to the buyer
Buyer defaults, for example by not closing (15)	The form doesn't provide a refund	Seller may terminate and receive it as liquidated damages, or seek specific performance or other relief
Seller defaults (15)	The form doesn't provide a refund	Buyer may terminate and receive it, or seek specific performance or other relief

Even when the answer is clear, the escrow agent needs a release signed by both parties (18C). If one refuses, the other can make a written demand, and with no written objection within 15 days the escrow agent may disburse. A party who wrongfully refuses to sign within 7 days is liable for damages, the earnest money, attorney's fees and costs (18D). See earnest money disputes for what happens when both sides claim it.

What if the option fee or earnest money is paid late?

The two lapses have different consequences, and Paragraph 5E makes time of the essence for all of Paragraph 5, with strict compliance required (see what time is of the essence means):

Late or missing option fee: if no dollar amount is stated or the fee isn't delivered in time, the buyer “shall not have the unrestricted right to terminate” (5D). The contract survives; only the option is gone. The Research Center says a seller may agree to accept a late fee and let the buyer keep the option, but accepting it doesn't lengthen the option period.
Late earnest money: the seller may terminate, or use the Paragraph 15 remedies, or both, by notice to the buyer before the buyer delivers it (5C). Once it's delivered, that right is gone.

The escrow agent doesn't police the deadline: per the Research Center, it receipts the money whenever it arrives, and checking it came in on time is the listing agent's job.

Can a Texas buyer extend the option period or pay more option money?

Only by agreement, for another fee. The Research Center explains that an “extension” is really a new option period, that Texas case law suggests it needs an additional option fee, and that the fee shouldn't be a token amount. Item 7 of Amendment 39-11 records it, paid to the seller rather than the escrow agent, with a new 5:00 p.m. deadline. Item 8 waives the option instead.

If the closing date moves at the same time, item 3 of the same amendment changes it. The wider process, including lender rate locks and the Closing Disclosure, is in how to extend a closing date.

A checklist for TCs handling Texas option money

Read 5A on day one: the escrow agent, both amounts and any additional earnest money.
Count 3 days, then apply 5A(2) by hand for weekends and Texas Legal Holidays, including the Friday after Thanksgiving and June 19.
Confirm the escrow agent's receipt and receipt date in writing.
Calendar the option period's end separately, at 5:00 p.m., with no roll-forward; update it when a 39-11 adds option days.

Closingbird reads the executed contract and fills in the Effective Date, the amounts and the deadlines it finds for you to check, then sends each owner a morning reminder. Its business days skip weekends and US federal holidays only, so it won't skip the Friday after Thanksgiving: set a fixed date for the money deadline when 5A(2) moves it. See deadline tracking.

Frequently asked questions

Is the option fee part of the earnest money in Texas?

No. They're separate amounts in Paragraph 5A, though they can be paid in one check. Money received is applied to the option fee first, then to the earnest money.

Does the option fee count toward the purchase price?

Yes, if the deal closes: 5A(4) credits it to the Sales Price. An additional option fee under Amendment 39-11 is credited only if the box saying so is ticked.

Can the seller terminate during the Texas option period?

No. The Research Center notes the termination right is bought by the buyer and doesn't extend to the seller.

Can a Texas option fee be paid by Venmo or another app?

The Research Center says yes if the escrow agent treats it as good funds; delivery must be unconditional and any service fee is paid on top. Ask the escrow agent which methods it accepts.

Who gets the earnest money if the buyer backs out after the option period?

Unless the buyer has another termination right, such as the financing addendum, not closing is a default and Paragraph 15 lets the seller terminate and receive the earnest money as liquidated damages.

Track the money deadlines with the rest

Upload a TREC contract and check the earnest money, option fee and option period dates Closingbird fills in against Paragraph 5, with a morning reminder for every deadline owner. Start a free trial (14-day free trial, no credit card required) or see pricing.

Sources

Checked in October 2026. Rules and prices change, and many vary by state, so confirm with the source, your state's real estate commission or your broker before you rely on them.

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