In Texas, an option fee (also called a "termination option" or "unrestricted right to terminate") is a small, non-refundable fee the buyer pays to gain the unrestricted right to terminate the contract for any reason during a specified option period (typically 7-10 days). Under the current TREC contract form (20-19), the option fee and earnest money are delivered to the escrow agent, not paid directly to the seller, and the seller does not keep the option fee. The option fee must be delivered within 3 days of the effective date. To terminate, notice must be given by 5:00 PM local time on the last day of the option period. If the sale closes, the option fee is credited toward the price at closing; after a valid termination, the option fee is non-refundable. It's usually $100 to $500 and gives you the flexibility to walk away for any reason during the option period. Ask Patrick how the Texas option fee would work in your situation.
Option Fee vs Earnest Money: Key Difference
These two terms are often confused, but they serve very different purposes in a Texas real estate contract:
- Option fee: Non-refundable. Delivered to the escrow agent within 3 days of the effective date, not paid directly to the seller. Gives you the unconditional right to terminate the contract for any reason during the option period.
- Earnest money: Refundable (with contingencies). Held in escrow by a title company. Shows good faith you intend to buy. Refunded if you terminate within the option period or under a valid contingency.
The option fee is a small price for unlimited termination flexibility during the option period. Think of it as buying time to do your due diligence -- inspections, research, and making sure the property fits you -- without risking your earnest money deposit.
How the Option Period Works
The buyer negotiates an option period as part of the purchase contract -- typically 7 to 10 days, though it can be shorter or longer depending on the agreement. Here is how it plays out:
- During the option period, the buyer can terminate the contract for ANY reason and still get their earnest money back.
- To terminate, the buyer must give notice by 5:00 PM local time on the last day of the option period.
- The option fee is non-refundable after a valid termination. It is delivered to the escrow agent, not paid directly to the seller.
- After the option period expires, the buyer can only terminate using specific contingencies written into the contract (financing, appraisal, and any other negotiated contingencies).
This structure makes the option period the most powerful protection a buyer has in Texas. During those days, you have near-complete control over whether the deal moves forward.
Typical Option Fee Amounts
Option fees are negotiable and vary depending on market conditions. Here is what you can typically expect:
| Amount Range | Typical Scenario |
|---|---|
| $100 to $200 | Standard in most Texas markets |
| $200 to $500 | Common in competitive markets |
| $500+ | Aggressive in very hot markets or high-value properties |
The fee is negotiable and depends on market conditions. In a buyer's market, you might get away with $100. In a seller's market with multiple offers, sellers often ask for $300 to $500. I generally recommend $200 to $300 as a reasonable starting point that shows you are serious without overpaying.
Why Sellers Accept Option Fees
From a seller's perspective, the option period represents risk. The home is taken off the market while the buyer performs inspections and decides whether to proceed. If the buyer terminates, the seller has lost valuable marketing time and may have turned away other interested buyers.
The option fee is the consideration for that right, and under the current TREC form it is delivered to the escrow agent, not paid directly to the seller. If the buyer terminates, the fee is non-refundable, and if the sale closes it is credited toward the price at closing. It is a small cost for the buyer's flexibility and a fair trade for the seller's patience during the due diligence period.
Option Fee at Closing
Here is the best part: if you proceed to closing, the option fee is credited toward the price at closing. So while it is non-refundable if you terminate, it is not lost if you close on the home. The amount you delivered to the escrow agent becomes part of your purchase price credit.
In practice, the option fee is delivered to the escrow agent within 3 days of the effective date and held there through the option period. At closing, the escrow agent applies it as a credit toward the price, so if you close, the option fee essentially zeroes out against your purchase obligations.
Ask Patrick about the Texas option fee
Get a straight answer on the Texas option fee and how it works in your deal.
