What is earnest money in Texas, and is it refundable?

Earnest money is a good-faith deposit the buyer delivers to the title company to be held in escrow. It is refundable if the buyer terminates during the option period or under a contract right such as the financing addendum. It is credited to the buyer at closing and cannot be released without mutual agreement or a court order.

What earnest money is

Earnest money is the buyer's money, deposited with a neutral third party, showing the seller the offer is real. It is not a fee and it is not paid to the seller. It sits in the escrow account of the title company from delivery until the deal either closes or dies.

Paragraph 5A of the current contract sets the mechanics: "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. The earnest money and option fee shall be made payable to Escrow Agent and may be paid separately or combined in a single payment" (TREC form 20-19, ¶5A).

At closing it is credited to the buyer — it counts toward the down payment and closing costs, so the wire the buyer sends at the end is reduced by that amount.

The critical structural fact: earnest money in escrow cannot be released to either party without mutual agreement or a court order (Texas Real Estate Research Center). Paragraph 18 of the contract is titled ESCROW and governs how the escrow agent handles and releases it. The title company is not a judge. It does not decide who was right. If the two sides disagree about who gets the money, the money stays where it is.

How much earnest money

There is no statutory amount and TREC does not set one. It is a dollar blank in ¶5A that the buyer and seller negotiate (TREC form 20-19).

Paragraph 5A(1) adds an optional second layer: additional earnest money, delivered within a stated number of days after the effective date. It is a real negotiating tool — a buyer can deposit a modest amount up front and commit more once the option period expires, which signals seriousness without putting the full amount at risk during due diligence.

A stronger deposit is a signal — it tells the seller the buyer has cash and is not shopping around. A buyer competing on a well-priced listing may raise it deliberately. A buyer on a property with known complications may want it lower, because it is the amount at risk if the deal falls apart after the option period ends.

When it is refundable

During the option period. Paragraph 5B: if the buyer gives notice of termination within the time prescribed, "(i) the option fee will not be refunded... and (ii) any earnest money will be refunded to Buyer." Notice must be given "by 5:00 p.m. (local time where the Property is located) by the date specified" (TREC form 20-19, ¶5B). This is the clean exit and it requires no reason.

Under a contract right that survives the option period. The TREC promulgated addenda create their own termination rights with their own deadlines. The Third Party Financing Addendum, form 40-11, effective 01/03/2025 governs the buyer's financing exit. The Addendum Concerning Right to Terminate Due to Lender's Appraisal, form 49-1 addresses a low appraisal. The Addendum for Sale of Other Property by Buyer, form 10-6 covers a buyer whose purchase depends on selling a home (TREC contract forms). Each has its own notice requirement and its own clock.

Under the seller's disclosure right. Paragraph 7B(2) of the contract implements Texas Property Code §5.008. If the buyer has not received the seller's disclosure notice, "Buyer may terminate this contract at any time prior to the closing and the earnest money will be refunded to Buyer." If the seller then delivers it, "Buyer may terminate this contract for any reason within 7 days after Buyer receives the Seller's Disclosure Notice or prior to the closing, whichever first occurs, and the earnest money will be refunded to Buyer" (TREC form 20-19, ¶7B(2); Texas Property Code §5.008).

If the title commitment never arrives. Paragraph 6B requires the seller to furnish the commitment within 20 days after the title company receives a copy of the contract, automatically extended up to 15 days or 3 days before the closing date, whichever is earlier. If it still is not delivered in time, "Buyer may terminate this contract and the earnest money will be refunded to Buyer."

If title objections are not cured. Under ¶6D, if the seller does not cure the buyer's timely objections within the 15-day cure period, the buyer has 5 days after the end of that period to terminate with the earnest money refunded — or waive. Silence is a waiver.

Casualty loss. Under ¶14, if the property is damaged after the effective date and the seller cannot restore it by the closing date due to factors beyond the seller's control, one of the buyer's three options is to terminate and have the earnest money refunded.

If the seller defaults. Paragraph 15: the buyer may enforce specific performance, seek other relief provided by law, or both, or terminate and receive the earnest money.

When it is not

Once the option period expires and no other termination right applies, the earnest money is genuinely at risk. Paragraph 15 states the consequence plainly: if the buyer defaults, the seller may "(a) enforce specific performance, seek such other relief as may be provided by law, or both, or (b) terminate this contract and receive the earnest money as liquidated damages, thereby releasing both parties from this contract" (TREC form 20-19, ¶15).

"Liquidated damages" is the key phrase. The earnest money is the agreed measure of the seller's loss — the seller does not have to prove actual damages to keep it.

A buyer who changes their mind in week four, or cannot come up with funds that were never contingent, or simply does not show up to closing, is in default. "I got cold feet" is not a contract right. Neither is "the inspection worried me" once the option period is over — the inspection window and the unrestricted termination right are the same window, and it closes.

The late-earnest-money rule with a timing catch

Paragraph 5C covers what happens when the buyer does not deliver the earnest money on time. The seller may terminate the contract, exercise the remedies under ¶15, or both.

The catch is the timing, and it cuts the buyer's way. The seller must give that notice before the buyer delivers the earnest money (TREC form 20-19, ¶5C).

So a buyer who is two days late but wires the money before the seller sends notice has cured the problem. A seller who waits to see whether something better comes along, then tries to terminate after the funds have landed, has missed the window. The remedy exists only in the gap between the missed deadline and the late delivery.

Why "getting the money back" is a separate event from terminating

Terminating a contract and receiving escrowed funds are two distinct steps, and conflating them causes most of the frustration people have with Texas escrow.

Termination is unilateral when the contract gives you the right. You deliver notice, the contract ends.

Release of escrowed earnest money is not unilateral. It requires both parties to sign a release, or a court order (Texas Real Estate Research Center). A buyer who terminates perfectly and on time, and whose seller refuses to sign the release out of irritation, has a terminated contract and money still sitting in escrow.

That standoff is common and it is why a buyer's leverage is in the paperwork. A clean, timely, written termination delivered exactly the way the contract requires is what makes the seller's refusal indefensible. A sloppy one gives the seller an argument.

If a release stalls, the next conversation is with a Texas real estate attorney about the contract's dispute provisions. The title company will not break the tie.

Earnest money versus the option fee

Different money, different rules.

The option fee buys the unrestricted right to terminate. It becomes the seller's money, ¶5B says it "will not be refunded" on termination, and under ¶5A(4) the buyer authorizes the escrow agent to release it to the seller "at any time without further notice to or consent from Buyer" (TREC form 20-19).

The earnest money stays the buyer's money in escrow, is refundable on a timely termination, and cannot move without mutual agreement or a court order.

The delivery trap worth knowing

Paragraph 5A allows the option fee and earnest money to be paid separately or combined in a single payment. Paragraph 5A(3) then applies amounts received "first to the option fee, then to the earnest money, and then to the additional earnest money" (TREC form 20-19, ¶5A(3)).

A combined payment that is short by any amount will fully fund the option fee and underfund the earnest money. Underfunded earnest money is a buyer default under the contract, and under ¶5C the seller can act on it — but only by notice given before the buyer delivers. Nothing alerts anyone at the time. Sending two separate payments eliminates the exposure and produces a clean escrow receipt for each.

Paragraph 5A(2) governs the calendar: if the last day to deliver the earnest money, option fee or additional earnest money falls on a Saturday, Sunday or Legal Holiday — defined by reference to Texas Government Code Sections 662.003(a) and 662.003(b)(4) and (6) — the time extends to the end of the next day that is none of those.

Questions about a specific property?

Call or text 830-446-3847 · Email heath.shepard@kw.com

This page explains how earnest money is handled under the TREC contract in Texas. It is not legal advice. For a disputed escrow release or a specific contract, talk with a Texas real estate attorney.