Is earnest money the same as an option fee? If you are buying a home in Plano or anywhere in Collin County, it can be confusing to see two different checks and two different timelines in your offer. You want to compete without taking on unnecessary risk, and you need a clear plan for both. In this guide, you will learn exactly what each payment does, typical amounts seen in our area, and how to use them to strengthen your offer while protecting yourself. Let’s dive in.
Earnest money vs. option fee: the basics
What earnest money does
Earnest money is a good-faith deposit that shows the seller you intend to follow through with the purchase. Under the standard Texas contract, it is deposited with the title company named in the contract, and it is credited toward your closing funds if you close. Whether you get it back depends on the contract terms and whether you use any allowed termination rights correctly.
If you terminate within a valid contingency window, such as a financing contingency that is properly exercised, your earnest money is typically returned. If you back out without a contractual right after deadlines have passed, you risk losing your earnest money to the seller as damages, subject to the contract’s remedies and title company procedures.
What the option fee does
The option fee pays the seller for granting you an option period. During this short window, you may terminate the contract for any reason. If you terminate within this period, the seller usually keeps the option fee, but your earnest money is typically returned per the contract. The option fee is separate from inspection costs. You are paying for the contractual right to walk away within a set number of days.
Under the Texas contract, the option fee is paid to the seller, and the number of option days is negotiated in your offer. This period does not stop other deadlines from running. It simply gives you a defined window to investigate and decide.
How they interact in Texas
- If you terminate during the option period, the seller typically keeps the option fee and your earnest money is returned.
- If you do not terminate within the option period and later try to back out without another valid contingency, you could lose your earnest money and face other contract remedies.
- The exact outcomes always depend on the signed contract language. Review the relevant paragraphs in the standard Texas forms and confirm procedures with your title company.
For the official contracts and instructions, refer to the Texas Real Estate Commission’s forms library. You can review the Option paragraph and earnest money handling in the One to Four Family Residential Contract on the TREC forms page.
Typical amounts in Plano and Collin County
Option fee ranges you may see
Across Texas, option fees commonly range from about 100 to 300 dollars. In more competitive situations, buyers often offer 300 to 1,000 dollars or more to signal strong intent to investigate quickly and proceed. In Plano and Collin County, especially in desirable pockets and for well-prepared, move-in ready homes, option fees often trend toward the higher end of that range.
Your exact option fee should match the property’s appeal and the level of competition. Higher option fees tell the seller you are serious about the inspection period, but remember this fee is typically nonrefundable if you choose to terminate.
Earnest money norms by price point
Earnest money in Texas is commonly a fixed amount or a percentage of the price. For many single-family homes, 1,000 to 5,000 dollars is a frequent range, and a common rule of thumb is about 1 percent of the purchase price. In a competitive scenario or on higher-priced homes, earnest money can increase to 5,000 to 20,000 dollars or more.
In Plano, many accepted offers include earnest money in the low thousands or near 1 percent. On hot listings or in higher price bands, you will often see larger amounts. Your best benchmark is recent accepted offers in the same neighborhood and price range, which your agent can pull from MLS data.
How to choose your amounts and terms
Balance signal and risk
- Larger earnest money signals financial strength and commitment to close. The risk is that more money is at stake if you breach without a valid reason under the contract.
- A higher option fee shows you value the option period and are serious about inspections. The trade-off is that it is usually nonrefundable if you terminate within that period.
- The strongest offers balance a meaningful earnest money deposit with an option fee and period that give you enough time to evaluate the home.
Option period length choices
Longer option periods give you more time to inspect and negotiate, but they may be less attractive to a seller. In Plano, a common pattern is about 7 to 10 days in lower competition and 5 to 7 days when multiple buyers are circling. Some buyers shorten or even waive the option period to compete, but that increases risk. Many buyers who shorten the option period plan inspections as soon as the contract is executed or pursue a pre-offer inspection if the seller allows.
Cash, financing, and other terms
Earnest money and option fee choices work best alongside other terms. You can strengthen your offer by adjusting closing timelines, offering flexible possession, or keeping the contract clean with fewer seller requests. Some buyers also adjust financing or appraisal terms to compete, but those choices increase risk. Consider these levers together with your money deposits so the whole offer tells a clear, confident story.
Step-by-step timeline in Texas contracts
Contract execution. Buyer and seller sign the contract that names the title company and lists the earnest money and option fee amounts, plus the option period days.
Deliver earnest money. You deliver the earnest money to the title company by the deadline in the contract. Always get a written receipt from the title company.
Pay the option fee. You pay the option fee to the seller as directed in the contract and obtain a receipt. The option period starts at the time specified in the contract.
Inspection and decisions. During the option period, you complete inspections, review disclosures, and decide whether to proceed, negotiate repairs, or terminate.
After the option period. If you do not terminate, the contract continues to financing, appraisal, title review, and closing. If you try to back out later without a contractual right, you risk losing earnest money and other remedies may apply.
Where the money goes and receipts
- The title company holds earnest money under the contract instructions and will not release it without proper written agreement from both parties or a permitted process. If there is a dispute, the title company may hold funds until the parties resolve it or a court orders release.
- The option fee is typically paid directly to the seller. Keep a record of delivery and a receipt for your files.
- Calendar all deadlines: earnest money deposit, option period end, inspection windows, financing and appraisal milestones, and closing.
Offer playbook for Plano buyers
Use the following illustrations as starting points. Always tailor your numbers to the neighborhood, recent comps, and live competition on the property.
Low competition example
- Earnest money: about 2,000 dollars to 5,000 dollars, or near 1 percent of price.
- Option fee: around 150 dollars.
- Option period: 7 to 10 days.
- Why it works: Shows commitment while giving you time to inspect and negotiate.
Moderate competition example
- Earnest money: about 5,000 dollars or around 1 percent if the price is higher.
- Option fee: 250 to 400 dollars.
- Option period: 5 to 7 days.
- Why it works: Offers a stronger financial signal and a tighter timeline that is seller-friendly.
Multiple-offer example
- Earnest money: 10,000 dollars or more, or a higher percentage of the price.
- Option fee: 500 to 1,000 dollars if you want the right to terminate during inspections.
- Option period: very short, often 3 to 5 days, or waived if you have done a pre-offer inspection and accept the added risk.
- Why it works: Combines strong financial signals with speed, which can stand out in competitive Plano segments.
Common pitfalls and how to avoid them
- Not matching the market. A 100 dollar option fee and 1,000 dollar earnest money may be too light on a hot Plano listing. Ask your agent for very recent neighborhood comps on accepted offers.
- Missing a deadline. Deliver earnest money and the option fee on time and get receipts. Calendar the option period end to the hour.
- Confusing inspections with the option fee. Your inspection fees are separate from the option fee. The option fee buys your termination right during a set period.
- Overexposing yourself. If you shorten or waive the option period, line up inspections immediately and be sure you understand the risks. If you raise earnest money, confirm the conditions for a refund under your specific contract.
- Assuming releases are automatic. Title companies need written direction or a contract-permitted process to release earnest money. Keep documentation organized in case there is a dispute.
Verify details using official forms
Texas uses standardized contracts and instructions. To see exactly how the Option paragraph and earnest money are handled, review the forms on the Texas Real Estate Commission forms page. Your agent and the title company can help you interpret timelines and receipts, and you should consult an attorney for any contract dispute or complex remedy question.
Ready to plan your offer?
You deserve a clear strategy that fits the neighborhood, the price band, and your risk comfort. Our team brings hands-on Plano and Collin County experience plus the systems to move quickly and keep you protected. If you want a tailored plan for earnest money, option fee, and timelines on your next offer, reach out to Cardinal Realty Group. We are ready to help you win the home you love.
FAQs
What is the difference between earnest money and the option fee in Texas?
- Earnest money is a refundable good-faith deposit held by the title company and credited at closing if you proceed, while the option fee is typically a nonrefundable payment to the seller for a short window to terminate for any reason.
How much earnest money is typical for Plano buyers?
- Many offers include 1,000 to 5,000 dollars or about 1 percent of the price, with higher amounts used for hot listings or higher-priced homes.
What option fee amounts do sellers in Collin County expect?
- Common ranges are about 100 to 300 dollars, with 300 to 1,000 dollars or more on competitive homes to strengthen your offer during the option period.
Who holds my earnest money in a Texas home purchase?
- The title company named in the contract holds earnest money and issues a receipt, releasing funds only with proper written agreement or a permitted process.
When do I pay the option fee in Texas?
- You pay the option fee to the seller upon or shortly after contract signing as stated in the contract and you should obtain a receipt.
If I terminate during the option period in Plano, do I get my earnest money back?
- Typically yes, the seller keeps the option fee and your earnest money is returned per the contract, provided you terminate within the option period and follow the contract’s procedures.
Can I waive the option period to compete in Collin County?
- You can, but it increases risk. Many buyers instead offer a shorter option period with a higher option fee or complete a pre-offer inspection if the seller allows.
