Confused about when you pay earnest money and when you pay an option fee in McKinney? You are not alone. These two payments serve different purposes in Texas, and each one affects your leverage, your timelines, and your risk. In this guide, you will learn what each payment does, how deadlines work, what is typical in Collin County, and how to set smart amounts for your offer. Let’s dive in.
Definitions that matter in Texas
In Texas, most resale homes use TREC promulgated contracts. Two common payments show up right away: earnest money and the option fee. Each one has a different job.
- Earnest money is your good faith deposit that signals you intend to perform. It is typically applied to your purchase price at closing.
- The option fee is a separate payment for a short option period. During this window, you may terminate the contract for any reason if you give written notice on time.
The contract states where each payment goes and who holds it. Always review the current TREC form, because exact wording and timeframes control the outcome.
Earnest money vs option fee
Purpose
- Earnest money gives the seller security and shows commitment. It can compensate the seller if you default, per contract remedies.
- The option fee buys you time. It gives you a unilateral right to terminate during the option period for any reason.
Refundability
- Option fee is generally not refundable if you use your option to terminate. If you close, many sellers credit it back at closing, but that is negotiable.
- Earnest money is refundable if you terminate under an allowed contract provision, including a timely option termination. If you default outside those protections, the seller may be entitled to the earnest money, subject to the contract.
Who holds the funds
- Earnest money is commonly delivered to the title company or escrow agent in Collin County.
- Option fee has historically gone to the seller or the seller’s agent. Many buyers now deliver both payments to the title company for clarity. Make sure the contract states the recipient.
Use at closing
- Earnest money is typically applied to your closing funds.
- Option fee is often credited back if you close, if negotiated in the contract.
The simple distinction
- Option fee equals payment for the right to walk away during the option period.
- Earnest money equals a deposit that may be at risk if you later breach the contract.
Key timelines and deadlines
Texas timelines usually start on the effective date, which is the date the last party signs and acceptance is communicated. Confirm the current TREC contract language for your transaction.
- Deliver earnest money within the contract window, commonly within 3 days of the effective date.
- Pay the option fee within the same short window, commonly within 3 days.
- The option period begins on the effective date and runs for a negotiated length, often 3 to 10 days in Texas markets.
- To preserve your earnest money, deliver written notice of termination before the option period expires.
If you are late on earnest money, the seller may have the right to terminate. If you miss the option deadline, you lose your unrestricted right to terminate, and your earnest money becomes exposed unless another contract contingency applies. Notices must be in writing and delivered per the contract. Keep clear proof of delivery.
What is typical in McKinney and Collin County
McKinney sits in a competitive North Texas market. Practices shift with supply and demand.
- Earnest money
- Entry price points: often 1,000 to 5,000 dollars.
- Mid price: a few thousand dollars up to about 1 percent of the price.
- Higher priced homes: 1 to 2 percent is common, sometimes more in competitive situations.
- Option fee
- Short options: 100 to 300 dollars for about 3 days.
- More realistic inspection windows: 300 to 1,000 dollars or more, depending on days and competition.
- In very hot pockets, buyers sometimes offer several thousand dollars to secure a longer option period or to stand out.
When listings pull multiple offers, sellers tend to prefer larger earnest money and shorter option periods. Some buyers even waive the option period. When the market is balanced, buyers can negotiate a longer option window with a modest fee. Ask your agent to compare recent offers in your target neighborhood and price band so you set amounts that match current expectations.
How to choose your numbers
Use your strategy and the property’s competitiveness to set amounts that balance protection with appeal.
- Keep the option period short if the home is hot, and increase the option fee if you need extra days.
- Raise earnest money to signal strength while maintaining a manageable option period.
- Request that the option fee be credited at closing so you recover it if you buy.
- Align inspection scheduling so your option period is long enough for inspections and quotes.
Always confirm who receives each payment and how it will be delivered. Get receipts.
Step-by-step checklist
Before you submit an offer
- Ask the listing agent what the seller expects for earnest money, option fee, and option days.
- Decide how many days you need for inspections, HOA review, or specialists. A common starting point is 3 to 7 days.
- Set your option fee to match your requested days and market heat.
- Prepare certified funds or a verified wire, and confirm recipient details in the contract.
- Verify exact deadlines and delivery instructions in the TREC form.
Right after execution
- Deliver earnest money and the option fee within the contract window, commonly within 3 days. Obtain written receipts.
- Confirm that the title company opened escrow and shows both funds received.
- Schedule general inspections and any specialists immediately so you can act within the option period.
During the option period
- Complete inspections, review HOA documents and CCRs, and consult your lender about appraisal timing.
- If you plan to terminate, deliver written notice before the option expires and save proof.
- If you plan to proceed, negotiate repairs during the option period so you keep leverage.
If a deadline is missed or a dispute arises
- Contact your agent and the title company immediately.
- Do not rely on email alone for wiring changes. Call a verified number to confirm instructions.
- Keep documentation and timestamps for all notices and receipts.
Wire safety and payment logistics
Wire fraud targeting real estate transactions is a real risk. Protect your funds.
- Verify wiring instructions by calling the title company at a known, trusted phone number.
- Never click unexpected links or rely on last minute email changes.
- Consider in person delivery of a cashier’s check if allowed by the title company.
- Keep copies of receipts and any amendments.
Real world examples
These examples illustrate tradeoffs. Your contract controls.
- Entry buyer at 350,000 dollars: EMD 3,500 dollars at 1 percent, option fee 200 dollars for 3 days in a balanced setting.
- Competitive bid at 600,000 dollars: EMD 10,000 dollars around 1.7 percent, option waived or 1,000 dollars for 5 days in a hot pocket of McKinney.
Your agent should calibrate these numbers to current activity in your target neighborhood and price tier.
What controls the outcome
The TREC contract language controls deadlines, notices, and remedies. If a dispute arises about earnest money, the title company follows written instructions. If the parties cannot agree, the title company may require mutual release or court direction. If you have questions about legal rights or remedies, speak with your agent and consider consulting a Texas real estate attorney.
The bottom line for McKinney buyers
Use the option fee to buy the time you actually need, then use that time well. Set earnest money high enough to signal strength without overexposing your funds. Deliver both payments on time, get receipts, and give written notices before deadlines. In a competitive Collin County market, these simple steps help you protect your interests and win the home you want.
Ready to tailor a strategy to your specific home and neighborhood in McKinney? Connect with the team that blends luxury level service with contract precision. Request a Personalized Consultation with The Luxury Collective Group.
FAQs
What is the difference between earnest money and an option fee in Texas?
- Earnest money is a good faith deposit applied at closing and potentially at risk if you default. The option fee buys a short period where you can terminate for any reason with timely written notice.
How long is the option period for McKinney home purchases?
- It is negotiated. Many contracts use 3 to 10 days. Shorter periods are common in competitive situations, longer periods can be negotiated in balanced markets.
Do I get my option fee back if I terminate during the option period?
- No. The option fee is generally not refundable. If you close, many sellers credit it back at closing if the contract says so.
When is earnest money due in a Texas contract?
- Typically within a short window after the effective date, commonly within 3 days, delivered to the title company or escrow agent as named in the contract.
Can the seller keep my earnest money if I cancel in McKinney?
- If you terminate under a permitted contract contingency and give timely written notice, earnest money is generally refunded. If you default after protections expire, the seller may claim the earnest money per the contract.
Who should receive the option fee in Collin County?
- Specify it in the contract. Many buyers direct both the option fee and earnest money to the title company for clarity, though some sellers prefer the option fee directly.
