Earnest Money & Option Fee: What are they?

Earnest Money

The earnest money is the good faith deposit to the Seller that the buyer makes. 

Things to note:

• Earnest Money is refundable if there is still a contingency left in place (Option, Title, Third Party Financing, HOA, etc) There are many outs a buyer can take to back out and retain earnest money, ensure you know them. 

• If agent fails to deliver the earnest money to the title company by 5 pm of the 3rd day after the executed contract, the buyer is in default of contract. Weekends and Holidays (excluding federal holidays) STILL count as days to deliver earnest money. If your delivery date falls on a Federal Holiday, you have until the next business day at 5pm to deliver funds.

Option Fee

The Option Fee is the money paid to seller (non-refundable) to have the opportunity to do due diligence on a property you are considering for purchase. It gives you time to negotiate repairs or back out during the option PERIOD while the home is off the market to other buyers. Both the fee and time is specified on par. 5 of the TREC 1-4 contract. 

Things to remember:

• Option fee is non refundable

• If you or the real estate agent fails to deliver the option fee to the title company by the 3rd day after the executed contract, the buyer waives their right to the option period. Weekends and Federal Holidays STILL count as option days.

• Most title/escrow companies will accept funds digitally, making this process much simpler for buyers.

• Option period ends at 5pm. All negotiations need to be finalized and signed off on before 5pm of the last day of the option period.

Delivery of Earnest and Option money:

The buyer must deliver the earnest money and option money within 3 days of the executed contract. The buyer has several options for delivery of funds. They may hand deliver it to the title company, the buyer can wire the money to the title company, the Realtor can pick up the money from the buyer and deliver it to the title company, or the Realtor can request a FEDEX/UPS overnight mailing slip from the title company for the Buyer to then send or lastly some title companies have begun to accept online payments through secure portals. 

Getting Earnest Money Back:

If neither client is willing to release the Earnest Money or negotiate a split of the Earnest Money then the buyer will need to email the Title Company requesting the Earnest Money be released to them. The other party has 15 days to respond. If they respond also asking for EM to be released to them the two parties will need to hire a mediator to help resolve the dispute. Title will NOT get involved in these disputes, they must be solved excluding the title company.