Earnest Money & The Termination Option

When purchasing a home in Texas there are some up-front expenses you’ll need to budget for. 

When going under contract on a property you will likely be asked to provide funds called Earnest Money & Option Money. Earnest money is an amount agreed to in the real estate contract that you will pay as a show of “good faith” that you intend to purchase the property. I recommend you plan to have at least 1% of the sales price on a home for this payment. This is a negotiable amount but 1% is common. Earnest money isn’t required to have a contract, but you’ll likely be expected to provide these funds. 

Option money is for the purchase of what’s called a ‘Termination Option.’ With this option you hold the unrestricted right to terminate for an agreed upon number of days. $100-300 is a common amount in the Central Texas market. It’s during this time that you’ll also be advised to get a home inspection which is another additional cost often paid early in the transaction. You will have the opportunity to negotiate repairs and other considerations during this time. 

You’ll have 3 days from the execution (or the day everyone signs) of your contract to deposit these funds, which are held by an escrow officer – often with a title company.  If the deal closes, the earnest and option monies are typically credited toward your home purchase. Negotiating the amounts and fully leveraging your option period are very important and your realtor plays a big part in effectively managing this important part of the transaction.  If you have more questions about real estate contact Two Lakes today


More Posts

Send Us A Message