Buying in Lake Highlands and hearing about both an option fee and earnest money? You’re not alone. These two payments serve different purposes in Texas, and understanding them can help you write a stronger, safer offer. In this guide, you’ll learn what each is for, how they work in Dallas, typical amounts and timelines, and how to use them to your advantage. Let’s dive in.
Option fee vs. earnest money
Option fee
- Gives you a short, contractual right to terminate for any reason during the option period.
- Is generally nonrefundable to you. If you terminate within the option period, the seller usually keeps the option fee.
- Is paid per contract instructions, commonly to the seller or to the title company for disbursement.
Earnest money
- Shows your good-faith commitment to close and is usually credited to you at closing.
- Can be refundable if you terminate properly under the contract, such as within the option period or other permitted contingencies.
- Is typically held by a title company or escrow agent specified in the contract.
How these work in Texas contracts
Most resale purchases use standard Texas Real Estate Commission forms that include separate provisions for the option period and earnest money. The option period is a private contractual right you buy with the option fee. Earnest money is a deposit held in escrow to signal your intent to close.
The contract sets deadlines for when each payment is due and who holds it. Title companies and brokers must handle escrow funds as fiduciaries and follow the contract’s release instructions. Always follow the exact timelines in your signed contract.
Dallas timelines and typical amounts
Option period length
- Negotiable. Common ranges are 3 to 10 days.
- In calmer markets, 7 to 10 days is common.
- In multiple-offer situations around Dallas and Lake Highlands, sellers may expect 1 to 5 days or for buyers to waive the option period.
Option fee amounts
- Low-to-moderate competition: about $100 to $350.
- Moderate-to-high competition: about $350 to $1,000 or more.
- Very competitive plays: some buyers offer $1,000+ to stand out while keeping some inspection time.
Earnest money amounts
- A common baseline is around 1 percent of the purchase price, though it can be lower or higher.
- Typical cash ranges include $1,000 to $5,000 for many price points, with $5,000 to $10,000 or more on higher-priced homes. Larger deposits can signal stronger commitment.
Delivery deadlines
- Earnest money is often due to the named title or escrow company within 1 to 3 business days after full execution of the contract.
- Option fee is commonly due at signing or within a short, specified period similar to earnest money.
- Missing a deadline can create a contract default or allow seller remedies. Meet every date in writing.
How each protects you and the seller
Buyer protections
- Option fee: Buys you a short window to inspect and walk away for any reason, usually without losing earnest money if you terminate on time.
- Earnest money: Held in escrow and typically returned if you terminate properly under the contract’s allowances.
Seller protections
- Option fee: Compensates the seller for taking the home off the market during your inspection period.
- Earnest money: Provides a financial remedy if you default after contingencies expire, subject to the contract.
Common outcomes you might see
- You terminate within the option period: the seller keeps the option fee, and your earnest money is returned per the contract.
- You terminate after the option period without a valid contract reason: the seller may keep your earnest money and pursue remedies per the contract.
- You close: your earnest money is applied to your price or closing costs. The seller typically keeps the option fee unless both sides agreed otherwise.
- You terminate under a permitted financing or appraisal contingency: your earnest money is usually returned if the contract allows for that termination. The seller typically keeps the option fee if it was paid for that right.
Lake Highlands budgeting examples
Use these illustrations to estimate cash needed when your offer is accepted. Adjust to current pricing and competition.
Example A, list price $400,000
- Earnest money: 1 percent, or $4,000
- Option fee: $200 to $350 for a 5 to 7 day period
- Total due soon after execution: $4,200 to $4,350
Example B, competitive $450,000 home
- Earnest money: $7,500 to show strength
- Option fee: about $500 for a 3 to 5 day period, or waive the option period to compete
- Total due: about $8,000
Example C, more inspection time on $350,000
- Earnest money: $2,500
- Option fee: $1,000 for a 10 day period
- Total due: $3,500
Offer strategies Dallas buyers use
- Shorten or waive the option period. Sellers often favor less option time. Shortening to 1 to 3 days can help you compete, but it reduces your inspection window.
- Increase earnest money. A larger deposit signals commitment. It remains refundable only if you terminate properly under the contract.
- Raise the option fee while keeping some option time. A higher nonrefundable fee can balance competitiveness with due diligence time.
- Limit seller concessions. Fewer requests and clearer terms can make your offer stand out in multiple-offer situations.
Risks to weigh before you offer
- Very short or waived option periods mean less time to inspect and negotiate repairs. Consider pre-scheduling inspectors.
- Small earnest money can weaken your offer in a hot submarket. Very large earnest money raises your at-risk funds if you default after contingencies.
- Timelines matter. Late delivery of funds can trigger default or allow the seller to take action per the contract. Coordinate with your agent, lender, and title company early.
Who holds the funds and how they move
- Option fee: Paid as directed in the contract, commonly to the seller or delivered to the title company for disbursement. It is usually nonrefundable.
- Earnest money: Delivered to the title company or escrow agent named in the contract. If you close, it is credited to you at settlement. If you terminate properly under the contract, it is typically returned.
Lake Highlands market context
Lake Highlands is within the Dallas city limits, and local practices generally mirror broader Dallas and DFW norms. In active pockets with well-presented homes, you may see shorter option periods, stronger earnest money, and limited seller concessions. Work with your agent to match your offer structure to the property’s demand.
Quick checklist before you submit
- Confirm option period length and option fee that match your risk tolerance and competition.
- Verify earnest money amount and delivery timing with the title company.
- Pre-schedule inspections to fit a short option window if needed.
- Align with your lender on appraisal and financing timelines.
- Track every deadline in writing and set reminders.
Ready to move forward?
If you want clarity on how to tailor your option fee and earnest money for a Lake Highlands home, you’re not alone. A thoughtful structure can protect your interests and make your offer stand out. For calm, local guidance and full-service representation, connect with Marla Sewall to schedule a personal consultation.
FAQs
Is the option fee in Texas refundable?
- Generally no. The option fee typically compensates the seller for your unrestricted right to terminate during the option period, and the seller usually keeps it if you terminate.
Who holds earnest money in Dallas transactions?
- The contract usually names a title company or escrow agent to hold earnest money, which is handled in a fiduciary capacity and released per the contract.
When are option fee and earnest money due in Texas?
- Earnest money is often due within 1 to 3 business days after execution, and the option fee is due at signing or shortly after, as specified in the contract. Always follow your exact deadlines.
Can I pay the option fee and earnest money together?
- You can deliver both at the same time, but they are handled differently. Follow the contract’s payee and handling instructions for each.
If I terminate during the option period, do I keep my earnest money?
- Yes, under typical contract practice your earnest money is returned if you terminate properly within the option period. The seller usually keeps the option fee.
How much cash should I plan for at contract acceptance in Lake Highlands?
- Plan for earnest money, often around 1 percent of price or a fixed amount, plus an option fee that commonly ranges from about $100 to $1,000, along with inspection and other upfront costs.
