Texas Option Period and Earnest Money: How the TREC Contract Works

If you've bought a home anywhere else in the United States, the Texas purchase contract will look familiar in some places and completely foreign in others. The state's option period mechanic — combined with strict delivery deadlines for both earnest money and option fees — is the part that trips up buyers relocating from other states most often. Getting it wrong can cost you thousands of dollars or lock you into a purchase you want to exit.

The TREC Contract: Texas-Specific Forms

In Texas, licensed real estate agents are legally required to use forms promulgated by the Texas Real Estate Commission (TREC). They can't use a generic contract or one drafted by a different organization. The foundational document for residential purchases is the TREC One to Four Family Residential Contract (Resale) — a standardized form that gets updated periodically and is publicly available at TREC.texas.gov.

Understanding the key paragraphs of this contract before you make an offer puts you in control of your transaction.

Earnest Money vs. Option Fee: Two Different Things

Most first-time buyers think of earnest money as the deposit. In Texas, there are actually two separate upfront payments, and confusing them is expensive.

Earnest money (Paragraph 5A) is your good-faith deposit demonstrating commitment to the seller. It's held in escrow by the title company throughout the transaction. If the deal closes, it's credited toward your down payment and closing costs. If you terminate properly using a valid contract right, you get it back. If you walk away after your termination rights have expired, you forfeit it. Typical amount is around 1% of the purchase price, though the exact figure is negotiable.

The option fee (Paragraph 5B) is what you pay to purchase the right to terminate. In exchange for this non-refundable payment — typically $100 to $500 in normal markets, higher in competitive ones — the seller grants you an unrestricted, unilateral right to walk away from the contract for any reason during a negotiated number of days. Option fees almost never get credited back to the buyer unless specifically written into the contract. Unlike earnest money, the option fee goes directly to the seller once funds clear escrow.

The practical difference matters: earnest money is refundable if you use your option period properly. The option fee is gone regardless.

The Three-Day Delivery Deadline

Here's the rule that trips up buyers who don't read the contract carefully.

Both the earnest money and the option fee must be physically delivered to the title company within three calendar days of the contract's effective date. The effective date is Day Zero — it's not when you signed, it's when both parties have signed and acceptance has been communicated. Day One is the next calendar day.

If the third day falls on a Saturday, Sunday, or legal holiday, the delivery deadline automatically extends to the next business day. But this extension applies only to delivery of funds — the option period itself starts counting from the day after the effective date in consecutive calendar days.

Under Paragraph 5D, if the option fee is not delivered within the three-day window, you do not have the unrestricted right to terminate. The contract becomes binding immediately. The seller can also terminate if the earnest money isn't delivered in time (Paragraph 5C) — and they have the right to do so at any point before you actually deliver the funds.

When buyers combine earnest money and option fees into a single check or wire and the amount is short, there's a contractual priority rule: the escrow agent applies received funds first to the option fee, with any remainder going to earnest money. This protects your termination right, but if the earnest money portion is short, you may face a default on that side of the equation.

How the Option Period Works in Practice

The option period typically runs five to ten days depending on market conditions. Buyers in competitive markets sometimes accept shorter windows (five days) to make their offers more attractive. In slower markets, ten days gives you more breathing room.

The option period expires at exactly 5:00 PM local time on the final day — not midnight, not end of business. Deliver your termination notice before 5:00 PM or you lose the right.

During the option period, you conduct all your due diligence: general home inspection, termite inspection, structural foundation evaluation if warranted, hydrostatic plumbing test on older homes, flood zone verification, title commitment review. If anything significant comes up, you have three options:

1. Terminate and get your earnest money back (option fee stays with seller)
2. Negotiate an amendment for repairs, price reduction, or seller concessions
3. Accept the property as-is and proceed to closing

The option period is your most powerful consumer protection in a Texas real estate transaction. The fee to purchase it is typically the cheapest insurance you'll buy in your life.

Title Commitment Review

Under Paragraph 6D, the title company must produce a commitment for title insurance within 20 days of receiving the executed contract. You then have a specified number of days to review it and any attached exception documents.

The title commitment reveals items like utility easements, deed restrictions, and other encumbrances recorded against the property. Most are standard and expected. Occasionally, you'll find an unresolved lien, a problematic easement, or a restriction that affects your intended use. If you object and the seller can't cure the title issues within 15 days, the contract terminates and you get your earnest money back.

In Houston especially, reviewing the deed restrictions in the title commitment is essential. Houston has no municipal zoning, so deed restrictions (CC&Rs) are what prevent a warehouse from being built next to a residential neighborhood. If the deed restrictions have expired or aren't being enforced, the character of the neighborhood has no legal protection.

Survey Requirements

Most financed Texas transactions require a property survey. Paragraph 6C gives three options: the seller provides an existing survey with a T-47 affidavit (a notarized statement that no physical changes have been made since the survey date), the buyer orders a new survey at their expense, or the seller orders a new survey at their expense.

A residential survey typically costs $400 to $800 depending on acreage and complexity. The T-47 route saves money if the survey is relatively recent and no additions (fences, sheds, pools, room additions) have been made to the property since the survey date.

Closing in Texas

Texas closings happen at the title company's office. Unlike attorney-state closings or remote notarization arrangements common in other states, the standard Texas purchase closing is a physical event where you review and sign documents in person.

For basic purchase-money transactions, remote online notarization is increasingly available. However, if you ever refinance and take cash out later, that specific transaction — governed by Article XVI, Section 50(a)(6) of the Texas Constitution — must be executed in person at a physical title company, attorney's office, or the lender's primary office. Remote online notarization is explicitly prohibited for home equity loans.

The Texas First-Time Home Buyer Guide includes a contract walkthrough that covers every major paragraph in the TREC One to Four Family Contract, including the specific deadlines, the option period math, and how to review the title commitment without getting lost in legal language.

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