You hear a lot about two small checks when you write an offer in Texas: earnest money and the option fee. They sound similar, but they work very differently. If you get them wrong, you can risk money or lose leverage. If you get them right, you protect yourself and write a stronger offer on a Katy home.
In this guide, you’ll learn exactly what each payment does, what’s typical in Katy and Fort Bend County, when the money is due, and how to structure a competitive offer without taking on unnecessary risk. Let’s dive in.
Earnest money explained
Earnest money is a good‑faith deposit that shows you intend to complete the purchase. You deliver it to the title company or agreed escrow agent, and they hold it in an escrow account until closing or release.
- Purpose: It demonstrates your seriousness and becomes the main money at risk if you default after your contract protections expire. If you close, it is typically credited to you at settlement.
- Refundability: It can be refundable if you end the contract within your contractual rights, such as during a valid option period or under financing protections. If you default outside those protections, the seller may be entitled to the earnest money per the contract.
- Timing: The contract sets the deadline. Texas practice often uses a short window measured from the effective date, such as within 3 days. Always follow the exact timing in your contract.
Option fee explained
The option fee is a separate payment that buys you an unrestricted right to terminate during a negotiated option period. Think of it as paying for a short evaluation window so you can inspect and decide.
- Purpose: It gives you the unilateral right to terminate for any reason during the option period.
- Refundability: It is typically non‑refundable to the seller. If you close, many contracts allow this fee to be credited to you at settlement, if specified in the contract.
- Timing and who holds it: It is generally due at contract execution or within a short window. It is paid to the seller (or delivered to the seller’s agent). Some title companies will accept and receipt it, but practices vary and the contract should specify delivery instructions.
Key differences at a glance
- Protection: Earnest money protects the seller if you default after protections end. The option fee protects you by giving you a no‑questions‑asked termination right during the option period.
- Where funds sit: Earnest money sits in escrow with the title company. The option fee is paid to the seller.
- Refundability: Earnest money may be refundable if you terminate under contract rights. The option fee is usually non‑refundable, but may be credited at closing if the contract says so.
- Size: Earnest money is usually larger. The option fee is relatively small.
What Katy buyers typically pay
Katy follows Houston‑area norms, with amounts flexing by neighborhood, price tier, and competition. Here are reasonable examples for resale homes:
- Entry to low‑mid price homes ($200,000 to $350,000)
- Earnest money: about $1,000 to $5,000
- Option fee: about $100 to $400
- Mid‑price homes ($350,000 to $600,000)
- Earnest money: around $3,500 to $7,500, or roughly 1% of price
- Option fee: about $200 to $500, sometimes $500 to $1,000 in hot spots
- Higher‑priced homes (above $600,000)
- Earnest money: commonly 1% or more of the purchase price
- Option fee: more variable and often higher if you want a very short option period
Local drivers that change amounts:
- Inventory and competition: Fewer listings often push buyers to offer higher earnest money and shorten or even waive the option period.
- Price tier: A percentage‑based earnest money deposit rises with price. The option fee often stays in the low hundreds unless you shorten the option period.
- Property condition: Older homes or homes with visible maintenance items may motivate a longer option period and a higher option fee so you have time to inspect.
New construction can be different. Builders often require higher deposits and use builder contracts where the option period may not apply the same way. Always read builder terms carefully.
Texas timing and delivery
Your TREC‑promulgated residential contract includes separate sections for earnest money and the option period. Follow those instructions exactly. In practice:
- Earnest money delivery
- Deliver to the title company or agreed escrow agent by the contract deadline, often within a few days of the effective date.
- Obtain a receipt or acknowledgment from the title company.
- Option fee delivery
- Pay upon execution or within the contract’s short window.
- Follow the contract for where to deliver it. Many buyers deliver to the listing agent for the seller or arrange title company receipting. Keep written proof of delivery.
- Option period length
- Negotiated. Common ranges are 3 to 10 days. A 7 to 10 day period gives more inspection time. In competitive situations, buyers shorten to 0 to 3 days or waive it to strengthen their offer.
If you terminate within the option period according to the contract, the seller keeps the option fee and you typically receive your earnest money back. If you default after the option period without a contract basis, the seller may claim the earnest money as damages under the contract.
How to write a stronger offer in Katy
Sellers prefer certainty. You balance that with your need for inspection protection. Consider these common strategies:
- Conservative protection
- Earnest money: modest flat amount (for example, $1,000 to $5,000 depending on price)
- Option period: 7 to 10 days
- Option fee: about $200 to $400
- Best for cautious buyers who want time for inspections and negotiation.
- Balanced approach
- Earnest money: about 1% of price
- Option period: 3 to 7 days
- Option fee: about $300 to $500
- Signals commitment while preserving a meaningful inspection window.
- Competitive, seller‑forward
- Earnest money: 1% to 2% or a larger flat amount
- Option period: 0 to 3 days, or waive if you are fully confident
- Option fee: can be higher if you keep a short option period
- Strongest to a seller, but increases your risk if inspections uncover issues after your option window.
Tip: A combination of higher earnest money plus a shorter option period is often the best lever to stand out, while keeping at least a brief option window to complete essential inspections.
Real‑world examples
- Example A: $350,000 Katy resale
- Option fee: $300 for a 7‑day option
- Earnest money: $3,500 (about 1%) delivered to title by the deadline
- Outcomes:
- If you terminate during the 7‑day option: the seller keeps $300; your $3,500 earnest money is returned per the contract.
- If you close: your $3,500 is credited at settlement. The $300 option fee may also be credited at closing if the contract says so.
- If you default after the option period without a contract right: the seller may claim the $3,500 as damages per the contract.
- Example B: $500,000 in a competitive Katy neighborhood
- Earnest money: $7,500 (about 1.5%)
- Option fee: $1,000 with a 3‑day option period
- Why it helps: It shows financial commitment and urgency, while keeping a brief inspection window.
Cash planning checklist
Before you write the offer:
- Review comps and gauge competition in the specific Katy neighborhood and price tier.
- Decide your risk tolerance between inspection protection and offer strength.
- Confirm liquid funds for the option fee, earnest money, inspections, and loan costs.
When your offer is accepted:
- Deliver the option fee and earnest money on time and to the correct parties.
- Get receipts from the listing agent or title company.
- Schedule inspections immediately, ideally on day 1 of the option period.
- Track deadlines for termination and repair negotiations.
If you terminate or proceed:
- If terminating, follow the written steps in the contract and meet the deadline to preserve your earnest money.
- If closing, confirm whether the option fee will be credited at settlement as stated in the contract.
- Keep all receipts and title company acknowledgments in your file.
Risks and special situations
- Timing mistakes: Missing the earnest money delivery deadline or the option period termination deadline can jeopardize your rights. Put reminders on your calendar.
- Disputes: If there is a disagreement about releasing earnest money, the title company typically holds funds until both parties agree or the contract’s dispute process resolves the issue.
- Builder contracts: New construction often has higher deposits, different escrow rules, and different inspection rights. Do not assume the standard option period applies.
- Non‑standard instructions: Some sellers or listing agents specify unique delivery steps for the option fee or deposits. Read the contract and any addenda carefully.
Bottom line for Katy homebuyers
Earnest money and the option fee serve different jobs. Earnest money is escrowed and usually larger, protecting the seller if you default after your protections end. The option fee is a smaller, typically non‑refundable payment that buys you a short window to inspect and terminate without risking your earnest money.
In Katy, plan for an option fee in the low hundreds and earnest money from a flat amount up to about 1% of price, with higher percentages common in competitive segments. Calibrate your offer to the neighborhood and your risk tolerance, document delivery of both payments, and follow the contract timelines exactly.
If you want help tailoring your deposit strategy to a specific Katy home, reach out. I’ll walk you through the numbers, deadlines, and offer structure that fits your goals. Connect with Holly Flaskamp to get started today.
FAQs
When do I need cash at contract in Katy?
- Be ready to pay the option fee at execution or within the contract’s short window, and deliver earnest money to the title company within the contract deadline, often within a few days of the effective date.
Is the Texas option fee refundable to buyers?
- It is typically non‑refundable to the seller, though many contracts allow it to be credited to you at closing if the transaction closes and the contract specifies the credit.
Can I get my earnest money back if I terminate during the option period?
- Yes, if you provide written notice within the option period as the contract requires; in that case, the seller keeps the option fee and your earnest money is generally returned.
What should I increase to strengthen a Katy offer?
- Sellers value certainty, so larger earnest money plus a shorter option period often carries the most weight; consider keeping a brief option window so you can still complete essential inspections.
Who holds the option fee and earnest money in Texas?
- The title company typically holds earnest money in escrow, while the option fee is paid to the seller or handled as directed in the contract; always get a receipt.
What happens if the seller claims my earnest money later?
- The title company usually holds funds until both parties agree on release or the dispute is resolved under the contract’s remedies and dispute‑resolution process.
