A Quick Definition Of Earnest Money And Option Fees

A Quick Definition Of Earnest Money And Option Fees

Earnest Money and Option Fee

When you decide to make an offer on a home, your agent will write a contract and send it, with any other necessary forms, to the listing agent. Together, you and your agent will decide on how much money to offer as earnest money and how much to offer as an option fee. You will also decide how long of an option period you'd like to offer. These days are for you to arrange any inspections you might need to help you make an informed decision about your purchase. For this privilege, you pay the sellers an option fee. Sellers generally appreciate short option periods, because the buyer retains the right to terminate the contract during this time, which is usually between 3-14 days. 

The earnest money and option fees, like everything else on the contract, are negotiable, but a common choice is to offer earnest money of 1% of the offer price, and option fees of 10% of that. So, on a $300,000 home, expect to offer $3000 in earnest money and $300 in option fees. Often, these will count toward any money owed at closing, but this too is negotiable. 

The earnest money and option fees are due in separate payments within a few days of execution of the contract. The earnest money stays with the title company and is returned to the buyer if the contract is terminated during the option period. The option money is cashed by the sellers right away and is not returned in the event of contract termination. Think of it as paying the sellers to take their home off the market while you decide if you want it. 

The earnest money is a bit more complex. Some possible reasons you might make it through the option period, but still be entitled to get back your earnest money back, are as follows:

-Your third party financing agreement stipulates that if you aren't able to get financing, you have an amount of time to terminate.

-The HOA documents were delivered and the time to review them continued past option period and you decided to terminate based on information in the HOA docs. 

-The property does not meet the lender's underwriting requirements.

-The seller cannot cure a valid objection you have to items on the title commitment.

Release of earnest money back to buyers is complex and dependent on individual properties and contracts, but this offers a general picture. 

Prefer a verbal explanation so you can ask questions? Call me at 512-771-4931 and let's chat!

Texas law requires all real estate license holders to give the linked Information About Brokerage Services form to prospective buyers, tenants, sellers, and landlords.

Kate Ward

Team Price Real Estate

512-771-4931

kateward@teamprice.com

kateward.buyinginaustin.com

Author: Kristina Ainsworth
Phone: 512-925-7368
Dated: March 16th 2017
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