What’s the difference between earnest money and option money?

The main differences between earnest money and option money are amount, payee, and refundability.

earnest money purchasing spring texas home

Although negotiated between buyers and sellers, earnest money is typically 1% of the sales price. The earnest money is made payable to a title company (another term negotiated between buyers and sellers) and deposited into an escrow account at the title company. Upon closing on the purchase of a house, the earnest money is applied to the buyers down payment, closing costs and prepaids. Under certain circumstances, the earnest money is refundable to the buyer.

Like earnest money, option money is negotiated between buyers and sellers. But the amount of option money is significantly smaller as it typically runs between $100 to $500. The option money is provided to the seller. Upon closing on the purchase of the house, the option money is typically provided as a credit to the buyer.  The option money is non-refundable.

If the buyer terminates the contract during the option / termination period or if the buyer is unable to secure financing during a defined time frame and the seller is notified of such, the earnest money is refunded to the buyer. The option money is not refunded under any circumstance.

All real estate is local. The difference between earnest money and option money outlined above is relevant to the Spring Texas real estate market.

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