I know this can be a little confusing.  Realtors in Texas typically use the Texas Real Estate Commission option contract to convey single family homes.  When an offer is accepted, the buyer writes two checks.  The first check is made out personally to the seller.  It might be anywhere from $100 to $250.  That is called the option fee and it is totally separate from the earnest money.  It is meant to be a relatively small amount because once it is given to the seller, the seller can cash it immediately.  If the buyer does not close on the home, they have lost that money.   

From the buyer's standpoint, why would they risk more than about $250 before they have even had a chance to do their home inspections?  If the buyer decides not to buy the home for any reason whatsoever during the option period, they are only out the option fee (plus inspection costs of course).  But they have not put their earnest money at risk.  The option fee is not meant to be a punitive amount, just enough to legally bind the buyer and seller to the contract during the option period. 

The earnest money, on the other hand, is usually a much larger check and normally made out to the title company to hold during the life of the contract.  If the property closes, it is used towards the buyer's closing costs or loan amount. 

As a Seller's agent, I like to see about 1% of the total cost of the home in earnest money, although that is also a negotiable item.  On my listings, I would ask for $5,000 earnest money on a $500,000 home.  I think that is a fair amount.  That earnest money will not become forfeitable until some point in time after the option period has expired.   It is meant to be a fair compensation to the seller if the buyer defaults on the contract after going through all of their contract performance deadlines.

I can only remember three times when I have had a buyer lose their earnest money, but it does happen.  When it does, it is not just a matter of notifying the title company and the title company sending the money to the party which made the claim for it. 

The title company does not want to be the one making the call as to whether a buyer or seller did or did not perform per the terms of the contract.  That might open them up to litigation.  To prevent this, they will simply send a release form to both buyer and seller giving the title company permission to release the earnest money to the party which made the claim.  If both buyer and seller sign off on the release, it is released.

If you are wondering what happens if the offending party wrongfully refuses to sign the release of the earnest money, there is also a remedy for that in the contract.  The offending party might be hit with damages equal to the earnest money, Plus triple the amount of the earnest money, Plus attorney fees for the party which was wronged. 

Tom Grisak Estate Homes Realtors, Inc - Texas License # 0329533

Your realtors for Allentexas, Celinatexas, Fairviewtexas, Lucastexas, McKinneytexas, MurphyTexas, Parkertexas, Prospertexas, Richardson