Earnest money is a buyer’s performance deposit delivered to the title company after a Texas real estate contract is executed.
If the buyer performs under the contract and purchases the home, the earnest money is credited toward the amount due at closing. If the buyer properly terminates under a contractual right, the earnest money is returned. If the buyer defaults, the seller can choose the contract remedy of terminating and claiming the earnest money as liquidated damages – the agreed financial remedy for the buyer’s default.
In the Bryan-College Station market, earnest money is commonly around 1% of the sales price. The amount is negotiable and can change based on the property, price, competition, and terms of the offer.
Raylene describes earnest money as performance money. It helps keep everyone honest. Good intentions are lovely, but money sitting at the title company tends to hold everyone’s attention.
In Texas, the buyer delivers the earnest money to the title company named in the contract. The title company holds it as a neutral third party; the money is not paid directly to the seller.
Under the current Texas resale contract, the buyer must deliver the earnest money and option fee within three days after the effective date.
Missing that deadline is serious. Raylene and her office confirm with the title company that the correct amounts have been received. If the buyer does not deliver the earnest money on time, the seller can terminate the contract by providing notice before the buyer delivers it.
Not when the purchase closes. The earnest money is credited toward the amount the buyer owes at closing, reducing the remaining cash needed.
Think of it as money paid early and accounted for later.
No. When a buyer is financing the purchase, the down payment is the cash portion of the sales price the lender requires the buyer to pay to obtain the loan, and it is paid at closing.
Earnest money is paid earlier, after the contract is executed, and held by the title company until the transaction closes or the contract ends.
Earnest money supports the buyer’s performance under the contract. The option fee buys the buyer the unrestricted right to terminate during the negotiated option period.
If the buyer properly terminates during the option period, the earnest money is returned to the buyer. The option fee is not refunded. If the purchase closes, both amounts are credited to the buyer at closing and reduce the amount the buyer must bring.
They travel to the title company together, but they have entirely different jobs.
For a closer look at that deadline and what buyers can do during it, read What Is the Option Period in Texas Real Estate?
Maybe. It depends on why the buyer is terminating and what protections were negotiated in the contract.
The end of the option period does not automatically give the earnest money to the seller. It ends the buyer’s unrestricted right to terminate. After that, the buyer needs another contractual right to end the contract and receive the earnest money back.
Depending on the contract and negotiated terms, those protections may involve:
These are not automatic exits. Each protection has its own requirements and deadlines. This is why having an experienced agent matters: Raylene tracks the protections negotiated into the contract, the deadlines attached to them, and whether the buyer has the right to terminate and receive the earnest money back.
If the seller fails to comply with the contract, the buyer can also choose to terminate and receive the earnest money back.
If the buyer fails to comply with the contract, the seller can choose the contract remedy of terminating and claiming the earnest money as liquidated damages.
A buyer cannot simply cancel after the option period because plans changed, the sofa suddenly looks wrong for the living room, or Mercury appears to be doing something suspicious. Without a separate contractual right to terminate, refusing to close is a buyer default.
The title company does not decide that a default occurred merely because one party says so. It continues holding the money while the release or formal-demand process is followed.
When the buyer is entitled to the earnest money, Raylene sends the buyer-signed release to both the seller’s agent and the title company and asks the title company to begin the formal demand process.
The money is not released automatically merely because the buyer signed the form. The title company sends formal demand notice to the seller, and the seller has 15 days to object.
If the title company receives no objection during that period, it can return the earnest money to the buyer. If the seller objects, the title company continues holding the money until the disagreement is resolved.
That is the important distinction: a buyer-signed release requests the earnest money, but the formal demand starts the 15-day objection period. Just because you asked – even nicely and in writing – does not mean the title company can hand over the money.
Sometimes. In a specific negotiating situation, a higher earnest-money amount can show confidence or help address a seller’s concern. It also increases the amount at risk if the buyer defaults.
Raylene discusses whether the additional amount provides a real negotiating advantage before recommending it. Adding another zero can make an offer look serious, but it should not happen merely because the contract had room for one.
Earnest money is performance money held by the title company.
The amount matters, but the deadlines and contract protections matter more. Raylene tracks both so the buyer knows what is protected, what is at risk, and what needs to happen next.
