How does the option fee work in Texas?
The option fee is a negotiated amount the buyer delivers to the escrow agent — the title company, not the seller — within three days after the effective date. It pays for the unrestricted right to terminate. If the sale closes, the fee is credited to the sales price. If the buyer terminates, the seller keeps it.
What the money actually buys
The option fee is consideration. It is not a deposit, it is not part of the down payment, and it is not held for the buyer's benefit. It is payment for a contractual right.
Paragraph 5B of the current contract says it directly: "For nominal consideration, the receipt of which Seller acknowledges, and Buyer's agreement to pay the option fee within the time required, Seller grants Buyer the unrestricted right to terminate this contract by giving notice of termination to Seller within [blank] days after the Effective Date of this contract (Option Period)" (TREC form 20-19, ¶5B).
Unrestricted means unrestricted. Not "if the inspection is bad." Not "if the appraisal is low." Any reason, or none.
That distinction matters because it changes how everything downstream behaves. Earnest money is the buyer's money sitting in escrow. The option fee is the seller's money the moment the right is purchased — the escrow agent is just the delivery point.
The amount is negotiated, not set by law
There is no statutory option fee in Texas, and TREC does not set one. Paragraph 5A of form 20-19 is a fill-in-the-blank: "$____ as earnest money and $____ as the option fee." The number is whatever the buyer and seller agree to, the same way they agree to the sales price (TREC form 20-19, ¶5A).
In practice the amount tracks the length of the option period and the competitiveness of the offer. A buyer asking for a longer window generally pays more for it. A buyer trying to win a multiple-offer situation may put up a larger non-refundable fee as a signal of seriousness. Commonly reported figures sit in the low hundreds of dollars, but that is market convention reported by practitioners, not a rule — the number is whatever the parties write down.
Where the fee goes, and by when
Paragraph 5A: "Within 3 days after the Effective Date, Buyer must deliver to [blank] (Escrow Agent) at [blank] (address): $____ as earnest money and $____ as the option fee" (TREC form 20-19, ¶5A).
It goes to the escrow agent — the title company. Not the seller, not the listing agent, not the listing brokerage.
Paragraph 5A(2) handles the weekend. If the last day to deliver the earnest money, option fee or additional earnest money falls on a Saturday, Sunday or Legal Holiday, the time extends to the end of the next day that is none of those. The contract does not leave "legal holiday" to interpretation — it defines it by reference to Sections 662.003(a) and 662.003(b)(4) and (6) of the Texas Government Code.
Paragraph 5E closes the door on flexibility: "Time is of the essence for this paragraph and strict compliance with the time for performance is required."
Delivery is the thing that activates the right. A buyer who negotiated a ten-day option period and then delivered the fee on day four does not have a ten-day option period — that buyer has no termination right at all. The contract survives, the earnest money is still at risk, and the seller has no obligation to let the buyer out. This is the single most avoidable failure in a Texas contract.
Because the deadline runs from the effective date, an incorrect effective date poisons it. The effective date is when the last party signs and that signature is delivered, not the day the offer was written and not the day the seller said yes on the phone.
Two ways to lose the right, and one of them is a blank
Paragraph 5D is the exact answer to "what happens if I miss it," and it names two failures, not one:
"If no dollar amount is stated as the option fee or if Buyer fails to deliver the option fee within the time required, Buyer shall not have the unrestricted right to terminate this contract under this paragraph 5."
The late wire is the failure everyone talks about. The blank is the one that actually gets missed, because it happens at the drafting stage where nobody is watching a clock.
A contract that names an option period — ten days, fifteen days, whatever was negotiated — but leaves the option fee dollar blank empty gives the buyer no unrestricted right to terminate. The option period paragraph is filled in. The fee amount is not. Under ¶5D the right does not exist. A $0 or blank entry is not a free option period; it is no option period at all.
This is why a buyer should read ¶5A on their own executed contract, not just the summary their agent gave them. Confirm there is a dollar figure in the option fee blank, confirm the escrow agent and address are filled in, and confirm the delivery went out within three days.
The combined-payment trap
Paragraph 5A says the earnest money and option fee are made payable to the escrow agent and "may be paid separately or combined in a single payment." Most buyers now send one wire or one check covering both.
Paragraph 5A(3) then fixes the order: amounts received are applied "first to the option fee, then to the earnest money, and then to the additional earnest money" (TREC form 20-19, ¶5A(3)). That order is what creates the trap. Suppose the contract calls for a $300 option fee and $3,000 in earnest money, and the buyer wires $3,000 by mistake. The first $300 satisfies the option fee — so the termination right is intact — and the remaining $2,700 lands as earnest money. The earnest money is now $300 short of what the contract requires, which is a buyer default, not a rounding error.
Paragraph 5A(1) adds a third bucket, additional earnest money, delivered within a stated number of days after the effective date. If the contract uses it, that is one more amount and one more deadline in the waterfall.
The failure is quiet. Nobody gets an error message. It usually surfaces when someone reconciles escrow, which can be days or weeks later. Sending the two amounts as two separate payments removes the problem entirely, and it also makes the escrow receipt unambiguous if the option fee delivery is ever questioned.
The escrow agent can hand the fee to the seller without asking
The buyer agrees to this in the contract itself. Paragraph 5A(4):
"Buyer authorizes Escrow Agent to release and deliver the option fee to Seller at any time without further notice to or consent from Buyer, and releases Escrow Agent from liability for delivery of the option fee to Seller. The option fee will be credited to the Sales Price at closing."
"Without further notice to or consent from Buyer" is signed by the buyer at the moment the offer is made. This is a real difference from earnest money, which sits in escrow and cannot be paid to anyone without mutual agreement or a court order. A buyer who assumes both amounts are sitting untouched at the title company until closing is wrong about half of it. The option fee may already be in the seller's account.
That is also why "just get my option fee back" is not a request the title company can grant after the fact.
What happens to the fee at closing
Paragraph 5A(4) again: "The option fee will be credited to the Sales Price at closing." The buyer does not pay it twice. It shows up as a credit on the buyer's side of the settlement statement and reduces the cash needed at closing by that amount.
So the economics are simple. Close, and the fee is effectively returned as a credit. Terminate, and the seller keeps it — which is exactly what the buyer paid for.
Out-of-state buyers frequently expect Texas to work like a "due diligence fee" state where the fee is a pure sunk cost, or like an earnest-money state where everything comes back. Texas is neither. The fee is non-refundable and creditable at the same time.
Which contract this lives in
All of the above is Paragraph 5, EARNEST MONEY AND TERMINATION OPTION, of the One to Four Family Residential Contract (Resale), TREC form 20-19, effective 07/01/2026 — a 12-page form carrying a 05-04-2026 footer date (TREC form 20-19 PDF, TREC form page). Condominium resales, builder new construction and farm and ranch each use a different promulgated form with its own number (TREC contract forms).
License holders are required to use the promulgated forms and may not draft contract language — Paragraph 23 of the contract is titled CONSULT AN ATTORNEY BEFORE SIGNING and states that "TREC rules prohibit real estate brokers and sales agents from giving legal advice." If a deal needs a custom option structure — an extended option tied to a rezoning, for instance, or an option fee that applies to something other than the sales price — that is a job for a Texas real estate attorney.
Related questions
- What is the option period in a Texas real estate contract?
- Is the option fee refundable in Texas?
- What is earnest money in Texas, and is it refundable?
- What does the effective date mean in a Texas contract?
- How do I terminate a real estate contract in Texas?
Questions about a specific property?
Call or text 830-446-3847 · Email heath.shepard@kw.com
This page explains how the Texas option fee works mechanically. It is not legal advice. For how these terms apply to a specific contract, talk with a Texas real estate attorney.