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"What is Earnest Money?"

In a nutshell, earnest money is a deposit that home buyers submit whenever a contract is executed, in order to show that they're sincere about the purchase. An executed contract means that every term of the contract has been agreed upon, and all parties have initialed and signed as necessary.

A typical amount for earnest money is 1% of the sales price or thereabouts. So, if you're buying a home for $300,000, expect to put up $3,000 as earnest money.

In Texas, this money almost invariably goes to a title company, so the check would be made payable directly to that company.

A follow up question that I often hear is: "Will the check be deposited/cashed?" In a word, yes. The money will be deposited by the title company, and if you end up purchasing the home and closing on the transaction, this money is credited to the sales price. In other words, it means you will bring less money to the closing table.

Here in Austin, almost every contract that we deal with has an option period as well. This is a period of time during which buyers have the unrestricted right to terminate the contract just by giving notice to the seller. The option fee is a negotiable amount of money and the option period is a negotiable amount of time. A typical option period is 7-10 days, and it will cost you around $150 or so. This money is not refundable, although it will also be credited to the sales price if you close.

If you decide not to proceed, and you back out during the option period, your earnest money will be refunded, but the option fee will not. One of the primary goals during the option period is to get any necessary inspections completed and, hopefully, to negotiate any critical repairs with the seller. After the option period expires, you lose some measure of leverage on this.


If you are considering buying a home in the Austin, Texas area, I would love the opportunity to help you find the right place. I've been selling homes full-time here in Austin since 1997. Feel free to call, email, or text me anytime, or visit our website at for more information or to search available homes.

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