Earnest Money v./ Option Fee

Earnest Money v. Option Money what is the difference | Should I pay Option Money | Earnest Money

Here in Texas we have Earnest Money and Option Fee, when purchasing a home or buying real estate.

Buyers and Sellers, (and Real Estate Agents) sometimes get the two elements confused, so let me explain the difference.

We will outline why paying the Option Fee is a “good idea” even if it’s not “required”.

It pains me when I hear Agents say that the Option Fee is not required. And that is correct – technically no, it is not required.

Earnest Money

Earnest Money can be looked at like a “good faith deposit” toward the purchase of the home. If the Buyer backs out of the purchase within any of the contingencies allowed for in the PA, they get their “deposit” back.

Option Money

Option Money is a fee paid to the Seller for the “Option” to inspect the home, and consider it for purchase. While also providing small compensation for the Seller to remove the property from actively being marketed during that time.

Non-Refundable

This option fee, regardless of the direction of the transaction will never be refunded to the Buyer whereas, Earnest Money can, and often does, get refunded should the transaction go sideways.

No Inspection Contingency

Unless you are an investor with no plans to inspect the property or further consider it in any way, it’s a huge disservice to not pay ‘something’ toward option money.

The One to Four Residential Resale Contract states in Paragraph 5.B:

“TERMINATION Option: For nominal consideration, the receipt of which Seller acknowledges, and Buyer’s agreement to pay the Option Fee within the time required, Seller grants the Buyer the unrestricted right to terminate this contract by giving notice of termination to the Seller within _______ days after the Effective Date of this contract. (Option Period)”

Paragraph 5.D:

“If no dollar amount is stated as the Option Fee or if the Buyer fails to deliver the Option Fee within the time required, Buyer shall not have the unrestricted right to terminate this contract under paragraph 5. “

Backed into a Corner with Repair Negotiations

So when Inspections come back showing the property needs a new roof, the foundation is questionable and there’s a leak in the bathroom, the Buyer is backed into a corner because they did not pay an option fee.

The Seller may or may not agree to repairs, and the Buyer does not have the “unrestricted right to terminate this contract”.

Contact: (817) 937-8532

Earnest Money v/ Option Fee