What Is Earnest Money in Texas and How Much Should You Ask For?

Earnest money is a deposit a buyer makes when they go under contract — it signals commitment and protects you as the seller if the buyer backs out without a valid contract reason. Here's how Texas handles it.

How Earnest Money Works in Texas

When a buyer and seller execute a contract, the buyer deposits earnest money with the escrow agent (usually a title company) within a specified timeframe — typically 3 business days. The title company holds it in a trust account until closing, where it's applied to the buyer's costs, or until termination, where it's distributed per the contract terms.

How Much Earnest Money Is Standard in Texas?

There's no legal minimum, but convention in Texas is 1% of the purchase price for a financed transaction. A $300,000 home = $3,000 earnest money. On competitive deals or custom homes, 2–3% is common. Cash buyers often offer less because the deal has fewer contingencies, but $1,000–$2,500 minimum is reasonable to request.

When Does the Seller Keep the Earnest Money?

You keep the earnest money if the buyer terminates for a reason NOT covered by a contract contingency. Common valid buyer termination rights that return earnest money: during the option period, if financing falls through, if title issues can't be resolved, or if the home doesn't appraise and the parties can't agree on price. Non-valid terminations (buyer just changes their mind after the option period) = seller keeps the deposit.

The Option Period in Texas

Texas residential contracts typically include a negotiable Option Period (usually 5–10 days) during which the buyer can terminate for any reason and receive their earnest money back. The buyer pays an Option Fee (separate from earnest money) for this right. After the option period expires, the buyer's termination rights narrow significantly.

Earnest Money With Cash Buyers

Cash buyers have fewer contingencies — no financing to fall through, often no appraisal. This makes their deposits more meaningful. A cash buyer who terminates outside the option period for no valid reason forfeits the earnest money. Many cash buyers offer a shorter or waived option period as part of a competitive offer.

Frequently Asked Questions

Related reading: how selling for cash works · what happens at closing in Texas · how fast cash buyers close