Have you heard both “earnest money” and “option fee” tossed around and wondered why Texas buyers pay two different amounts up front? You are not alone, especially in fast-moving Round Rock. Understanding what each payment does can help you write a stronger offer without taking on unnecessary risk. In this guide, you will learn exactly how these deposits work in Texas contracts, when they are due, what is refundable, and how to tailor amounts for the Round Rock market. Let’s dive in.
Quick definitions you can trust
Earnest money is a good-faith deposit that shows you are serious about buying. A neutral escrow or title company holds it, and it is usually credited to you at closing. You can get it back only if the contract allows you to terminate for a permitted reason. If you default after your termination rights expire, your earnest money can be at risk.
Option fee is a separate payment that buys you a short, unilateral right to terminate the contract for any reason. This is called the option period. The fee compensates the seller for taking the home off the market and for giving you an unrestricted exit window. It is usually non-refundable, but if you close, it is commonly credited to your purchase price per the contract.
How the Texas timeline works
Step A: Offer becomes effective
Once you and the seller sign, the contract becomes effective on the Effective Date. All deadlines in your contract count from this date. Mark it on your calendar.
Step B: Pay the option fee
The contract states when and to whom the option fee is due, often immediately upon execution or within a short window after the Effective Date. You typically deliver it to the seller or the seller’s agent as instructed in the contract. Paying on time activates your option period.
Step C: Deliver earnest money to escrow
Earnest money is usually due within 1 to 3 business days after the Effective Date, though the exact deadline is negotiable. You deliver it to the title company or escrow agent named in the contract. Get a receipt or written confirmation of deposit.
Step D: Use your option period wisely
During the option period, you can inspect, review HOA documents, and complete neighborhood due diligence. You may terminate for any reason during this time and, per the contract, your earnest money is generally returned to you. The seller keeps the option fee if you terminate.
Step E: After the option period ends
If you continue past the option period, you are moving toward closing with fewer exit rights. If you later terminate without a contractual reason, your earnest money can be at risk and a dispute process may apply. If you proceed, your earnest money will be applied at closing.
Step F: Closing day
At closing, your earnest money is credited to your funds to close. The option fee is typically already with the seller, but many contracts provide it is credited to you at closing too. Confirm these credits on your settlement statement.
Typical Round Rock amounts and examples
Every deal is negotiable, but local patterns can guide your expectations.
- Earnest money: Often 1 to 3 percent of the purchase price in competitive markets. In cooler conditions, it may be a flat amount or closer to 1 percent.
- Option fee: Commonly 100 to 500 dollars for a standard option period. In hot situations, buyers sometimes offer 500 to 2,000 dollars or shorten the period to stand out.
- Option period length: Frequently 3 to 10 days. In Round Rock, 3 to 7 days is common. Very competitive listings sometimes see 1 to 3 days or a waived option period.
Illustrative Round Rock examples:
- 350,000 dollar home: 1 percent earnest equals 3,500 dollars. 2 percent equals 7,000 dollars.
- 500,000 dollar home: 1 percent earnest equals 5,000 dollars. 1.5 percent equals 7,500 dollars.
- Conservative offer example: 4,000 dollars earnest on a 400,000 dollar home, 250 dollar option fee, 7-day option period.
- Competitive offer example: 10,000 dollars earnest on the same home, 500 to 2,000 dollar option fee, 2 to 3 day option period.
These are illustrations, not rules. Your exact numbers should reflect property condition, your comfort with risk, and current local competition.
Refundability rules in plain English
Option fee: typically non-refundable
The option fee is paid to the seller for your unrestricted termination right. If you cancel during the option period, the seller keeps this fee. If you close, many contracts credit it back to you at settlement.
Earnest money: refundable only if contract allows
Your earnest money is held in escrow and is refundable only under contractually permitted terminations. Common examples include canceling during the option period or meeting a financing or appraisal contingency per the contract. If you default without a valid contractual reason, the seller may seek to keep it.
Disputes and documentation
The escrow agent follows the contract and requires written mutual instructions to release funds if there is a dispute. If you and the seller cannot agree, the escrow agent may deposit the funds with the court. Protect yourself by documenting delivery of both payments with receipts and confirmations.
How to be competitive without overexposing cash
You can tailor amounts and timelines to fit your goals and the property’s competitive setting.
- Shorten the option period instead of waiving it. A 2 to 5 day window keeps inspection rights while signaling confidence.
- Increase earnest money slightly above the local norm. Offering 1 to 2 percent shows seriousness without locking up too much cash.
- Offer a higher option fee with a short option period. Sellers value certainty. This can help your offer stand out while you keep inspection rights.
- Pair your offer with a strong pre-approval. A solid lender letter and timely appraisal plans can reduce seller concerns and may let you retain a reasonable option period.
If you are risk-averse or a first-time buyer
You can keep protection and still write a competitive offer.
- Choose a 3 to 7 day option period to allow for inspections of major systems such as roof and HVAC. Schedule inspectors early.
- Use a modest option fee and confirm the credit at closing in the contract.
- Do not waive the option period unless you have exceptional information and comfort with the property condition.
Three offer frameworks for Round Rock
These example constructions help you think through trade-offs.
- Balanced: 5,000 dollars earnest on a 500,000 dollar price, 300 dollar option fee, 5-day option period.
- Competitive: 10,000 dollars earnest, 1,000 dollar option fee, 2-day option period.
- Aggressive and higher risk: 15,000 dollars earnest, no option period. This is attractive to sellers, but you assume inspection risk.
Deadlines that trip up buyers
A few missed details can cost you real money. Avoid these common mistakes.
- Late delivery of option fee or earnest money. Set reminders the minute your offer is executed.
- No written termination. If you terminate, do it in writing and within the option period.
- Missing the time-of-day cutoff. Option periods commonly expire at 5:00 p.m. local time on the last day. Plan to act well before the deadline.
- Weak documentation. Keep receipts from the title company and confirmation emails for every handoff.
What sellers care about in Round Rock
Understanding the other side can help you calibrate your numbers.
- Certainty and speed. Higher earnest money and shorter option periods feel more secure to a seller.
- Limited exit windows. A short option period reduces the time a home is off the market without clarity.
- Clean timelines. Fast delivery of funds and a clear inspection plan builds confidence in your offer.
A quick side-by-side summary
- Earnest money signals commitment and sits in escrow. It is credited at closing and refundable only per the contract.
- The option fee buys your right to walk away during a set period for any reason. It is typically non-refundable, and often credited at closing if you finish the purchase.
If you remember one thing, let it be this: earnest money protects the seller if you default, and the option fee protects you during a short decision window. Set both to match the property and market conditions in Round Rock.
Ready to craft a smart, confident offer in Williamson County? Reach out to the local team that blends market savvy with concierge-level guidance. Let’s grab coffee and map out your strategy with Cashmere Realty Group.
FAQs
What is the difference between earnest money and the option fee in Texas?
- Earnest money is a good-faith deposit held in escrow and credited at closing, while the option fee is a separate payment that buys you a short, unilateral right to terminate for any reason during the option period.
When are earnest money and the option fee due in Round Rock contracts?
- The contract sets both deadlines, but local practice often sees earnest money due within 1 to 3 business days after the Effective Date and the option fee due upon execution or shortly after.
If I terminate during the option period in Texas, what happens to my deposits?
- The seller typically keeps the option fee, and your earnest money is generally returned to you per the contract.
Who holds each payment in a Texas home purchase?
- The title or escrow company holds the earnest money, while the option fee is paid to the seller or the seller’s agent as the contract directs.
What are typical Round Rock amounts for earnest money and option fees?
- Earnest money commonly ranges around 1 to 3 percent of price, and option fees are often 100 to 500 dollars for a standard 3 to 7 day option period, with higher fees or shorter periods in competitive situations.