The Texas Option Period and Earnest Money: What Relocating Buyers Need to Know

In a Texas home purchase, the option period is a short, negotiated window after your contract is signed when you can back out for any reason. You pay the seller a small option fee for that right, and if you terminate on time, you get your earnest money back but not the option fee.

If you're used to buying in another state, this is the part of the Texas contract that surprises people most. The deadlines are strict, and they start the day after you go under contract. Here's how it works in the standard Texas Real Estate Commission (TREC) contract for resale homes.

What is the option period in Texas?

In the current TREC One to Four Family Residential Contract (Resale), form 20-19, the seller grants the buyer "the unrestricted right to terminate" the contract within a set number of days after the effective date. That number is left blank in the form, so it's negotiated deal by deal.

Unrestricted means exactly that. You don't need a reason. In practice, this is when you do your inspections, get repair estimates, and confirm the home works for you. If you're buying in an older neighborhood, it's also when I'd have you look closely at foundation issues common in East Dallas.

What's the difference between the option fee and earnest money?

They're two separate payments that do two different jobs:

• The option fee pays for your right to walk away during the option period. If you terminate on time, it isn't refunded. If you close, it's credited to the sales price.
• Earnest money shows the seller you're serious. If you terminate within the option period, it's refunded to you. If you close, it's applied toward your purchase.

Texas doesn't set a minimum or maximum for either amount. Both are negotiated between buyer and seller. [FILL IN: what Lacey typically sees for option fees and earnest money (as a % of price) in Dallas right now].

When are the option fee and earnest money due?

Under the TREC contract, you must deliver both the earnest money and the option fee to the escrow agent, usually the title company, within 3 days after the effective date. Both are made payable to the escrow agent, not the seller or either agent, and they can be paid separately or together.

If that third day falls on a Saturday, Sunday, or legal holiday, the delivery deadline moves to the end of the next day that isn't one.

This deadline matters more than most buyers realize. The contract says that if you fail to deliver the option fee on time, you "shall not have the unrestricted right to terminate." In other words, a late option fee can cost you your option period entirely. If you're buying a Dallas home from out of state, line up your wire or delivery with the title company before you sign, so the clock never catches you off guard.

What time does the option period end?

Notice of termination must be given by 5:00 p.m., local time where the property is located, on the last day of the option period. Not midnight. Not end of business in your old time zone. For a Dallas home, that's 5:00 p.m. Central.

The weekend and holiday extension I mentioned above applies to delivering the money, not to the option deadline itself. The contract also states that time is of the essence and strict compliance is required. If your option period ends on a Saturday, plan for it to end on that Saturday.

What happens to my earnest money if I back out?

It depends on when and why:

1. During the option period: you give notice by the deadline, the option fee goes to the seller, and your earnest money is refunded.
2. Under another contract provision: the contract has other paths where the earnest money is refunded, such as certain title problems the seller doesn't cure, a seller's disclosure notice that wasn't delivered, or lender-required repairs that exceed 5% of the sales price. Financing and appraisal protections come from separate addenda, so we'll review those for your specific deal.
3. Without a contractual right to terminate: if you simply walk away after the option period, that's generally a default, and the seller can terminate and keep the earnest money as liquidated damages.

How do I make the option period work for me?

A longer option period gives you more time, and a larger option fee can make your offer stronger. Those two levers work against each other, and the right balance depends on how competitive the home is. That's a big part of how I approach multiple-offer situations.

For relocating buyers, I recommend scheduling your inspector before the contract is signed, so day one of the option period isn't spent making phone calls. If you can't be in Dallas for the inspection, we'll plan ahead for how you'll review the findings.

Frequently Asked Questions

Is the option fee refundable in Texas?

No. If you terminate during the option period, the option fee goes to the seller. If you close, it's credited to the sales price.

How many days do I have to deliver earnest money in Texas?

Under the standard TREC resale contract, earnest money and the option fee are due to the escrow agent within 3 days after the effective date, extended to the next day that isn't a Saturday, Sunday, or legal holiday if the third day falls on one.

What time does the Texas option period end?

Notice of termination must be given by 5:00 p.m. local time where the property is located, on the last day of the option period.

Getting ready to make an offer in Dallas, or just want to understand the contract before you start looking? I'm happy to walk you through it line by line. Reach me at (214) 642-2510 or lacey@theadvisoryteamdallas.com. — Lacey