Earnest Money in Texas: How Much, When, and What Happens If You Back Out

What Is Earnest Money?

Earnest money is a good-faith deposit made by the buyer when submitting an offer. It signals to the seller that you're serious. In Texas, earnest money is held by a title company in escrow and applied toward your closing costs or down payment at closing.

How Much Earnest Money Is Typical in Texas?

The standard earnest money amount in Texas is 1% of the purchase price. On a $400,000 home, that's $4,000. In competitive markets like Austin, Dallas, or Houston's inner loop, sellers may expect 1–2% or more. Offering too little can make your offer look weak.

When Is Earnest Money Due?

Under the standard TREC One to Four Family Residential Contract, earnest money is typically due within 3 business days of the contract being executed (signed by both parties). The funds are delivered to the title company named in the contract. Missing the earnest money deadline can put you in default, so track this date carefully.

The Option Period: Your Safest Exit Window

Texas buyers have a powerful protection called the option period — a negotiated window (typically 5–10 days) during which you can terminate the contract for ANY reason and get your earnest money back in full. You pay a separate option fee for this right (usually $100–$500, negotiable). During the option period, your earnest money is completely protected. You can order inspections, review HOA documents, research MUD taxes, or simply change your mind — and walk away with no penalty except the option fee.

When Can You Lose Your Earnest Money?

After the option period ends, the rules change. You can still back out under specific contract contingencies: a financing contingency if your loan is denied (with a Third-Party Financing Addendum in place), title issues if the seller can't deliver clear title, and survey objections within the timeframe specified in the contract. If you back out outside a valid contingency, the seller can typically claim your earnest money as damages.

Who Holds the Earnest Money?

In Texas, earnest money is almost always held by the title company (the escrow agent). The title company is a neutral third party — they don't release the funds without written instructions from both buyer and seller, or a court order.

How KAT Realty Protects Your Earnest Money

A good buyer's agent tracks every deadline so you never accidentally waive a contingency or miss a termination window. At KAT Realty, we monitor your contract dates and send you reminders so your earnest money stays protected throughout the transaction. Flat fee of $4,999 — full service.