Earnest Money in Texas: How Much, When You Lose It, and How to Protect It
What Is Earnest Money?
Earnest money (also called an earnest money deposit or EMD) is a good-faith deposit a buyer makes when submitting an offer on a home. It shows the seller you're serious about purchasing the property and is typically applied toward your down payment or closing costs at the end of the transaction.
In Texas, earnest money is held by a neutral third party — usually the title company — not the seller. This protects both parties until closing.
How Much Earnest Money Is Standard in Texas?
There's no legal minimum in Texas, but the market norm is typically 1% of the purchase price. On a $350,000 home, that's $3,500. In competitive Austin or Dallas markets, buyers sometimes offer 2–3% to make their offer stand out.
The amount you offer signals your level of commitment. Too low, and sellers may not take your offer seriously. Too high, and you're tying up more cash unnecessarily.
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 all parties). It must be delivered to the title company by that deadline or the seller can declare the contract terminated.
Make sure your agent gives you the title company's wire or check instructions promptly after the contract is signed.
Can You Get Your Earnest Money Back?
Yes — if you terminate during the right window. Texas buyers are protected by two key provisions:
The Option Period
The Texas TREC contract includes an option period (typically 5–10 days) during which the buyer pays a separate, non-refundable option fee ($100–$500 typically) in exchange for the unrestricted right to terminate the contract for any reason. If you terminate during the option period, you get your earnest money back — but you forfeit the option fee.
Contingency Failures
If your contract includes a financing contingency and you're unable to get approved for your loan despite good-faith efforts, you can typically get your earnest money back. Similarly, if an appraisal contingency is triggered and you can't agree on a new price, you may be entitled to a refund.
When Do You Lose Your Earnest Money?
You risk losing your earnest money if you:
Simply change your mind after the option period expires without a valid contractual reason
Fail to secure financing due to issues you didn't disclose (like a job change)
Miss a critical contract deadline (like the option period expiration)
Back out without a contingency to cover you
If a dispute arises over earnest money, neither party can release it without mutual written agreement or a court order — so protect yourself with proper contingencies from the start.
Earnest Money vs. Option Fee: What's the Difference?
Earnest money – Larger amount, refundable if proper contingencies apply, held by title company
Option fee – Smaller amount, always non-refundable, paid directly to the seller, buys you the right to terminate during option period
Both are part of virtually every Texas residential transaction and serve distinct purposes.
How KAT Realty Protects Your Earnest Money
At KAT Realty, we make sure your contract is structured with the right contingencies to protect your deposit. We track all deadlines — option period expiration, financing contingency dates, and closing timelines — so you never accidentally waive your protections.
All of this is included in our flat fee of $4,999. Contact KAT Realty before your next Texas home purchase to make sure your earnest money is protected from day one.
