Earnest money in Texas is the buyer's good-faith deposit toward the purchase price — held by an escrow agent (typically the title company) until closing or termination. The rules around when it's due, when it's refundable, and how it's released are governed by TREC Form 20-17 Paragraph 5A and the contract's default-and-remedies provisions.
How much earnest money is typical in Texas?
There's no statutory minimum. Common ranges in Texas residential transactions:
- 1% of sales price — common starting point for routine deals.
- 1-2% — typical for competitive markets where buyers want to signal commitment.
- $5,000 flat — common in mid-priced markets regardless of percentage.
- 3%+ — aggressive buyer offers in tight markets, intended to make the offer harder to walk away from.
Whatever you negotiate, the dollar amount goes in ¶ 5A. The amount itself isn't risk — it's the certainty of when it's at risk that matters. Earnest money is at risk only if the buyer terminates outside their contractual rights.
When earnest money is due
¶ 5A specifies a number of days after the Effective Date — default is 3 days. The deadline rolls per ¶ 23 if it lands on a Saturday, Sunday, or federal holiday. The buyer must deliver the funds to the escrow agent by the deadline.
When earnest money is refundable
Earnest money is generally refundable to the buyer if the buyer terminates per a contract right:
- During the option period (¶ 5B). Buyer terminates for any reason — refunded.
- Title objection unresolved (¶ 6D). Seller can't or won't cure — refunded.
- Financing failure per the Third Party Financing Addendum. Buyer's loan denied within the financing period and notice delivered — refunded.
- Casualty loss (¶ 14). Property damaged before closing in a way that triggers the casualty provision — refunded.
When earnest money is at risk
If the buyer defaults — fails to close after their contingencies expire and without a contractual right to terminate — the seller's remedy under ¶ 15 is typically to retain the earnest money as liquidated damages. That's the standard outcome.
Common ways buyers forfeit earnest money:
- Letting the option period expire and then trying to terminate without cause. Once ¶ 5B's option dies, the buyer needs a cause-based reason. "Cold feet" isn't one of them.
- Letting the financing deadline pass without terminating. If financing falls through after the deadline and the buyer didn't deliver notice during the window, the buyer is on the hook to close cash or forfeit.
- Walking from the title commitment without proper objection. The buyer must follow ¶ 6's process to preserve the right to terminate over title issues.
How earnest money is released
The escrow agent releases earnest money based on either (a) the closing statement at closing, or (b) a written release-of-earnest-money instrument signed by both parties. Texas escrow agents will not release earnest money on one party's say-so — both buyer and seller must agree, or a court order must direct release.
This is where deals get acrimonious. If the buyer claims a financing-failure refund and the seller disagrees, the title company holds the money pending resolution. TREC publishes Form 38-7 (Release of Earnest Money) for amicable releases. For disputed cases, agents and clients should consult counsel before signing anything.
The option fee versus earnest money
These are two different deposits with two different rules:
| Feature | Option fee (¶ 5A) | Earnest money (¶ 5A) |
|---|---|---|
| Purpose | Consideration for option-period right | Good-faith deposit toward sale |
| Typical amount | $200-$500 in Texas | 1-3% of sales price |
| Refundable on option-period termination? | No | Yes |
| Held by | Seller | Escrow agent (title company) |
| Credit to sales price? | Only if checked in ¶ 5A | Yes — applied to closing costs/down payment |