Earnest Money vs. Option Money

    I’ve been working with several first time home buyers and investors here in College Station, Texas lately and keep getting the same question about Earnest Money verse Option Money, so I thought I would break it down. 

    Once an offer is accepted you, the buyer, will need to pay some money up front. 

    a) Earnest Money (1% of Sales Price) – Earnest Money is essentially a security deposit showing that you are serious about completing the transaction – Make the check out to the Title Company for (typically) 1% of the sales price.  Funds are deposited in an Escrow account at the Title Company and will be applied to the purchase at closing/funding.

    b) Option Fee (typically $100 or more) – An option fee is money paid by you to the Seller for the option to terminate the real estate transaction – Check made out directly to the seller.  This pays the Seller to take it off the market for typically 7 – 10 days, while the buyer completes inspections and negotiates repairs.  The option period allows you to back out of the offer during that timeframe for any reason.  Typically it is something like a bad inspection report or issue with financing.

    Hope this helps clear things up.  As always, check with your local realtor about the details in your area because processes and rules vary.

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    What is the difference between Earnest Money vs Option Money

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