Is the option fee refundable in Texas?
No. The option fee is not refundable. If the buyer terminates during the option period, the seller keeps it — that is what the fee bought. If the sale closes, the fee is credited to the sales price, so the buyer effectively gets it back at the closing table. Earnest money is the refundable deposit.
Why it is not refundable
The option fee is consideration for a right, not a deposit. The buyer is purchasing an unrestricted right to terminate the contract during the option period, for any reason or no reason at all. The seller sells that right and gets paid for it.
The contract says so in terms. Paragraph 5B of TREC form 20-19 provides that if the buyer gives notice of termination within the time prescribed, "(i) the option fee will not be refunded and Escrow Agent shall release any option fee remaining with Escrow Agent to Seller; and (ii) any earnest money will be refunded to Buyer" (TREC form 20-19, ¶5B).
That single sentence is the whole answer. The fee goes to the seller. The earnest money comes back.
Refunding the fee would mean the buyer got the right for free. That is not the bargain, and it is not how the contract is written. The seller earns the fee by taking the property off the market and accepting that the buyer can walk with no justification required. Whether the buyer uses the right or not, the seller provided it.
The question most people are actually asking
Almost nobody asks "is the option fee refundable" because they want a vocabulary lesson. They are asking one of two things.
"If I back out, do I lose money?" Yes — you lose the option fee. Your earnest money comes back to you, assuming you terminated properly and on time.
"If I buy the house, did I pay that for nothing?" No. Paragraph 5A(4) of the contract: "The option fee will be credited to the Sales Price at closing" (TREC form 20-19, ¶5A(4)). It shows on the buyer's side of the settlement statement as a credit and reduces the cash needed at the table by that amount. You do not pay it twice.
So "not refundable" and "you get it back" are both true, in different scenarios. Non-refundable on termination. Credited on closing.
Option fee versus earnest money
These are two different amounts with two different jobs, and they behave nothing alike.
| Option fee | Earnest money | |
|---|---|---|
| What it is | Payment for the right to terminate | Good-faith deposit toward the purchase |
| Whose money once delivered | The seller's | Still the buyer's, held in escrow |
| Refundable on option-period termination | No | Yes |
| At closing | Credited to the sales price | Credited to the buyer |
| Can be released early | Yes — escrow may pay it to the seller before closing without the buyer's consent | No — requires mutual agreement or a court order |
That last row is the one that surprises people, and the buyer signed up for it. 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" (TREC form 20-19, ¶5A(4)). Earnest money cannot move that way. It sits in escrow until both sides sign a release or a court orders it.
Is there any situation where the fee comes back?
Not through the option mechanism. The fee is non-refundable by design, and there is no statutory right to claw it back.
Two things get confused with a refund:
The credit at closing. Covered above. That is not a refund, it is a credit against the price.
A negotiated return. Buyer and seller can agree to anything they both sign. If a seller wants to return the option fee as part of settling a dispute, or as a concession in a re-negotiation, nothing prevents it. That is a deal term the parties write, not a right the buyer has. A Texas real estate attorney is the right person to look at any agreement that moves money after a termination.
The failure that actually costs buyers money
The bigger risk is not losing the option fee. It is losing the right the option fee paid for.
Paragraph 5D spells out both ways that happens:
"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."
Late delivery. Paragraph 5A requires the fee to reach the escrow agent within 3 days after the effective date. Paragraph 5A(2) extends that only if the last day is a Saturday, Sunday or Legal Holiday, as defined by Texas Government Code Sections 662.003(a) and 662.003(b)(4) and (6). Paragraph 5E: "Time is of the essence for this paragraph and strict compliance with the time for performance is required."
A blank option fee. This one has nothing to do with timing. A contract with an option period filled in and the option fee dollar blank left empty gives the buyer no unrestricted right to terminate at all. Nobody misses a deadline; the right simply never existed. Read your own executed ¶5A and confirm there is a dollar figure in it.
Either way the buyer is in a contract they cannot freely exit, with earnest money exposed.
The combined payment adds a third exposure. Paragraph 5A allows the option fee and earnest money to be paid separately or combined, and ¶5A(3) applies amounts received "first to the option fee, then to the earnest money, and then to the additional earnest money." A combined payment that is short by any amount fully funds the option fee and leaves the earnest money underfunded — which is a buyer default, not a clerical issue.
Terminating the right way
Paragraph 5B requires notice of termination to the seller, and specifies that "Notices under this paragraph must be given by 5:00 p.m. (local time where the Property is located) by the date specified" (TREC form 20-19, ¶5B). TREC publishes a form for it: Notice of Buyer's Termination of Contract, form 38-8, effective 04/01/2025 (TREC contract forms).
Do that, and the seller keeps the option fee and the earnest money goes back to the buyer. Miss the 5:00 p.m. deadline and the buyer has paid for a right that expired unused.
Related questions
- How does the option fee work in Texas?
- What is the option period in a Texas real estate contract?
- What is earnest money in Texas, and is it refundable?
- 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 is treated under the TREC contract. It is not legal advice. For how these terms apply to a specific contract, talk with a Texas real estate attorney.