Buying in Far North Dallas or Collin County and hearing both “option fee” and “earnest money” tossed around? You are not alone. These two payments serve very different purposes in a Texas contract, and understanding them helps you write a stronger, safer offer. In a few minutes, you will know what each one does, typical North Dallas amounts, how refunds work, and how to use them strategically in Plano, Frisco, McKinney, Allen, and Far North Dallas. Let’s dive in.
Quick definitions
Earnest money
Earnest money is your good‑faith deposit that shows you intend to complete the purchase. It is held by a title company or escrow agent and is typically credited to your cash to close at settlement. Depending on the contract and what happens during the deal, it can be refundable or forfeited.
Option fee
An option fee is a separate, usually smaller payment you make to buy the right to terminate the contract for any reason during a set number of days called the option period. It is commonly paid directly to the seller or the seller’s agent. It is typically nonrefundable to the seller once paid, unless your specific contract says otherwise.
Key differences at a glance
| Topic | Earnest Money | Option Fee |
|---|---|---|
| Purpose | Good‑faith deposit securing the contract | Payment for the right to terminate during a defined option period |
| Who holds it | Title company or escrow agent | Usually seller or seller’s agent (sometimes via listing broker) |
| Refundable? | Refundable or forfeited based on contract events and timelines | Typically nonrefundable to seller once paid |
| Credited at closing | Yes, usually credited to buyer’s funds at closing | May be credited if negotiated; otherwise seller keeps it |
| Typical local amounts | Often about 1% of price or a fixed amount; in Collin County mid‑ to high‑range homes often see $5,000–$25,000 | Often $100–$500; competitive offers in North Dallas/Collin County may use $500–$2,000+ |
| Timing | Delivered to title by a contract‑set deadline, commonly 1–3 business days after effective date | Paid by a contract‑set deadline, often within a few days of the effective date |
How funds move in a Texas deal
Offer and acceptance. Both parties sign and the effective date starts all deadlines, including the option window and deposit timelines.
Deliver the option fee. You pay the option fee as the contract specifies, often directly to the seller or the seller’s agent. Once paid, the seller typically keeps it even if you later terminate during the option period.
Deliver earnest money. You deposit earnest money with the title company or escrow agent by the contract deadline. It stays in escrow until closing or a release instruction.
During the option period. You can terminate for any reason within the option days. If you do, you usually get your earnest money back, and the seller keeps the option fee.
After the option period. Financing, appraisal, or title contingencies may still allow termination with refund of earnest money if your contract provides for it and you act on time. If you breach after contingencies expire, the seller may be entitled to the earnest money under the contract.
Closing. Earnest money is credited to your closing funds. The option fee is either credited or kept by the seller based on your agreement in the contract.
Typical amounts in Far North Dallas and Collin County
Option period and fee norms
- Length: Commonly 3–10 days. In multiple‑offer situations, buyers often shorten to 0–3 days or waive entirely.
- Fee: Often $100–$500 in many Texas transactions. Competitive offers in Plano, Frisco, McKinney, Allen, and Far North Dallas sometimes use $500–$2,000 or more, especially for longer option periods or to stand out.
Earnest money norms
- Amount: Often around 1% of purchase price on higher‑priced homes. In competitive North Dallas and Collin County suburbs, you may see $5,000–$25,000 on mid‑ to high‑range homes to signal commitment.
- Timing: Commonly due to the title company within 1–3 business days after the effective date, per the contract.
Offer strategies in Plano, Frisco, McKinney, Allen
- Use earnest money to show strength. A larger earnest deposit can reassure a seller you are committed and prepared to close.
- Buy time with the option fee. If you want a realistic inspection window but need to compete, consider a higher option fee paired with a shorter option period.
- If you shorten or waive the option period, plan ahead. Pre‑book inspections, confirm lender readiness, and preview disclosures so you are not rushing.
- Calibrate your mix. A common approach in competitive spots is a strong earnest deposit plus a short option period with a higher option fee. Your exact mix should match your risk tolerance and timing.
Real‑world examples
Example A: Typical mid‑price North Dallas purchase
- Price: $450,000
- Earnest money: $4,500 (1%), due to title within 2 days
- Option period: 7 days; option fee: $250 to seller within 3 days
- Outcome: If you terminate during the option window, you recover the $4,500 and the seller keeps $250.
Example B: Competitive Frisco or Plano offer
- Price: $650,000
- Earnest money: $20,000, due to title in 1–2 days
- Option period: 3 days; option fee: $1,000
- Outcome: Short window plus larger deposits can make your offer stand out. If you waive the option entirely, you lose the unilateral right to terminate and must rely on other contract contingencies.
Example C: Relocation buyer needing more inspection time
- Earnest money: $10,000
- Option period: 5 days; option fee: $1,500
- Outcome: The higher option fee compensates the seller for time off‑market while giving you a practical inspection window.
Protect your money: escrow and disputes
- How escrow works. Title companies follow the contract. Most require a written release signed by both parties to disburse earnest money if a contract terminates outside clear rules.
- If there is a dispute. The escrow holder may keep funds in the account until both parties sign a release, a court orders disbursement, or the escrow holder files an interpleader for court guidance. Fees can sometimes be paid from the escrow funds.
- Smart safeguards.
- Keep proof of payments and delivery confirmations.
- Confirm the exact payee and title company account before sending funds.
- Call the title company on a known phone number to verify wire instructions. Do not rely on emailed wiring details without verification.
Buyer checklist for deadlines and delivery
- Confirm the exact deadlines for both the option fee and earnest money on your signed contract.
- Clarify who receives the option fee and whether it will be credited at closing.
- Verify the title company’s name, address, and acceptable payment methods before delivery.
- Schedule inspections immediately to fit your option window.
- Track every date: effective date, option period end, financing and appraisal timelines.
Common mistakes to avoid
- Confusing the two payments. Remember: earnest money secures the deal; the option fee buys your right to terminate during the option period.
- Missing delivery deadlines. Late delivery can create contract issues or risk default.
- Waiving the option period without a plan. If you waive it, ensure your lender and inspectors are ready and you understand remaining contingencies.
- Assuming the option fee is always credited. It is negotiable. Make sure the contract spells it out.
Work with a local advocate
The right mix of option fee, option days, and earnest money depends on your goals, property condition, and how competitive the neighborhood is. You deserve clear guidance, tight timeline management, and calm, proactive communication from contract to closing. If you are planning a move in Far North Dallas or Collin County, connect with Jeremy Whiteker for boutique, neighborhood‑focused representation that puts your interests first.
FAQs
What is the difference between option fee and earnest money in Texas?
- The option fee buys your right to terminate during a set option period and is usually nonrefundable to the seller; earnest money is your good‑faith deposit held in escrow and is credited at closing or refunded/forfeited under the contract.
How long is the option period in Far North Dallas and Collin County?
- Many contracts use 3–10 days, while multiple‑offer situations sometimes shorten to 0–3 days or waive the option entirely to compete.
How much earnest money should I expect to deposit locally?
- Higher‑priced homes often see around 1% of the price, and competitive North Dallas and Collin County deals commonly range from $5,000 to $25,000 to show commitment.
If I terminate during the option period, what happens to my money?
- You typically receive your earnest money back per the contract, and the seller keeps the option fee as consideration for granting the option period.
Who holds the earnest money and when is it due?
- The title company or escrow agent holds it, and delivery is usually required within 1–3 business days after the effective date as stated in your contract.
Can the option fee be credited to me at closing in Texas?
- Sometimes, but only if negotiated and stated in the contract; many sellers keep the option fee instead of crediting it.
How are earnest‑money disputes handled in Texas?
- Most title companies require a mutual written release or a court order; if parties cannot agree, the escrow holder may file an interpleader and await court direction.
