Uncategorized January 2, 2019

Explanation of Earnest Money and Option Fee

Difficult topics for a blog post, but since I promised to define them, here we go.

Earnest Money

Earnest Money is a deposit made by a real estate Buyer to show good faith in a transaction. The money is held at the title company until closing. In the San Antonio market, Earnest Money is approximately 1% of the Sales Price of the Contract.

At closing, the money is returned to the Buyer. Either the amount the Buyer is required to bring to closing is reduced or the title company will pay the money to the Buyer.

If the Contract is terminated, both parties must sign the Release of the Earnest Money before the title company is allowed to release the money. The party receiving the Earnest Money is determined by the termination reason. The title company may delay until they have held the funds at least 10 business days from the date of deposit.

Option Period

The Option Period takes the property off the market for a fee to allow for inspections of the property. The Buyer has the unrestricted right to terminate the contract so long as the termination paperwork* is sent to the Seller before the end of the Option Period. The Seller is obligated to the terms of the Contract but may be willing to renegotiate.

The length of the Option Period and the cost (Option Fee) are negotiated as terms of the Contract. In the San Antonio market, the period is 5 to 10 days and the usual cost is $10 per day. The Option Fee usually returns to the Buyer at closing, but this is also negotiable. Any termination of the Contract after the Option Period results in the Buyer losing the Option Fee.


*As of this writing, the end of the Option Period is set at 5:00 p.m. on the last day of Option Period by the Texas Real Estate Commission.