Are you getting ready to make an offer on a home in McKinney and wondering how earnest money really works? You are not alone. Many North Texas buyers want to show strength without putting too much cash at risk. In this guide, you will learn exactly what earnest money is, how it differs from the Texas option fee, typical amounts in Collin County, when it is due, and what happens to it if a deal falls apart. Let’s dive in.
What earnest money is in Texas
Earnest money is a good-faith deposit that shows a seller you intend to complete the purchase. It becomes part of your closing funds if you proceed to closing. The amount, deadline to deliver, and who holds the money are all spelled out in your purchase contract.
In North Texas, the most common form is the TREC One to Four Family Residential Contract for resale. This contract sets out where the money goes, when it is due, and how it can be released. Title companies, escrow agents, or a broker’s trust account usually hold the funds and follow written escrow instructions.
Earnest money vs. the option fee
In Texas, the option fee is separate from earnest money. You pay the option fee directly to the seller in exchange for an option period, which is a short window when you can terminate for any reason. That option period is when most inspections occur.
- Earnest money: Held in escrow and may be refundable under contract terms.
- Option fee: Paid to the seller, usually non-refundable if you terminate under the option.
Both amounts are negotiated in your offer. The escrow holder, payment method, and deadlines are all specified in the contract.
How much to offer in McKinney
Customary ranges shift with market conditions in McKinney and across Collin County. As a general rule of thumb in DFW suburbs:
- Earnest money often falls around 1-3% of the purchase price.
- In hot multiple-offer situations, buyers sometimes go higher, around 2-5% or more, to stand out.
- Option fees vary by competitiveness. They have ranged from modest amounts to higher figures in strong seller markets. The option period often runs about 5-10 days, depending on your inspection schedule and the deal’s pace.
The best amount for you depends on current local competition, the specific property, and your risk tolerance. Ask your agent about recent offer behavior in the neighborhood so you can match the market without overcommitting cash.
Quick McKinney examples
- On a $400,000 home, 1% earnest money is $4,000. At 2%, it is $8,000. Your option fee might range from a few hundred dollars to a higher figure in a multiple-offer scenario.
- If you terminate within the option period after paying the option fee, the earnest money is typically returned per the contract. The seller keeps the option fee.
When and where you deposit
Your contract sets the deadline for delivery, often within 1-3 business days after the effective date. Always meet that timeline or request a written extension if a bank holiday or wire delay pops up. Missing the deadline can create seller remedies under the contract, including potential termination.
Funds usually go to a title company or escrow agent named in the contract. After you deliver funds, keep the receipt or wire confirmation in your records. If you are making a cash offer, include proof of funds with your offer. If you are financing, attach a strong pre-approval letter. These do not replace earnest money, but they reinforce your ability to close.
When you can get earnest money back
Refundability depends on your contract rights and your timing. Follow notice deadlines exactly and keep documentation.
During the option period
If you timely pay the option fee and terminate during the option period, you generally receive your earnest money back under the contract’s termination instructions.
Financing falls through
If your contract includes a financing contingency and you follow the notice requirements by the deadline, earnest money is typically refundable.
Seller breach or title issues
If the seller fails to perform or cannot convey marketable title, you may be entitled to a return of earnest money and potentially other remedies that your contract describes.
Buyer default
If you fail to close without a contract-allowed termination, the seller may be able to keep the earnest money as liquidated damages, depending on your contract language.
If there is a dispute
Escrow agents and title companies usually need a signed release from both parties to disburse funds. If you cannot agree, the escrow holder may continue to hold funds or ask a court to decide. Clear documentation of your notices and deadlines helps resolve disputes faster.
Structure a strong, safe offer
You want to look serious to the seller while protecting your money. Try these strategies that fit McKinney’s norms:
- Right-size your earnest money. In a competitive pocket of McKinney, stronger deposits help your offer stand out. In cooler segments, a smaller deposit with a top-tier pre-approval often works.
- Be thoughtful with the option period. Choose enough days to complete inspections and get results back. Adjust the option fee to reflect competition.
- Deliver on time. Deposit earnest money promptly and confirm receipt in writing. If needed, request a short written extension before a deadline lapses.
- Choose a reputable local title company. Sellers often prefer title-company escrow for neutrality and clarity.
- Align contingencies with your finances. If you rely on financing, make sure your lender timelines fit the contract so you preserve refund rights.
- Balance risk and strength. If you prefer to hold more cash, consider a smaller earnest deposit paired with a flexible closing date or other seller-friendly terms.
Paperwork and proof to save
Keep a clean paper trail for every step:
- Earnest money receipt or wire confirmation
- Option fee receipt and proof of timely delivery
- Inspection reports and option-period termination notices
- Lender pre-approval, commitment, or denial letters
- Any signed contract amendments or extensions
What to do next in McKinney
Before you write your next offer, review the earnest money and option paragraphs in the contract you will use. Confirm escrow instructions with the title company, and set your inspection schedule before you finalize your option period. Ask your agent about recent offer patterns for your target neighborhood so your earnest money and option fee match the moment.
Ready to tailor a plan to today’s McKinney market and your budget? Connect with the local experts at The Tomlin Team Real Estate Group to build a competitive, safe offer strategy.
FAQs
How much earnest money do McKinney buyers usually put down?
- A common range in DFW suburbs is about 1-3% of the price, with stronger deposits used in multiple-offer situations.
When is earnest money due in a Texas contract?
- Your contract sets the deadline, often within 1-3 business days after the effective date; get any extensions in writing.
Who holds my earnest money in McKinney?
- A title company, escrow agent, or a broker trust account usually holds it and follows the contract’s escrow instructions.
What is the difference between earnest money and the option fee?
- Earnest money is held in escrow and may be refundable under contract terms; the option fee is paid to the seller for an option period and is usually non-refundable.
Can I get my earnest money back if financing falls through?
- If you have a financing contingency and give notice by the deadline, earnest money is generally refundable under the contract.
What happens if the seller will not release my earnest money?
- Escrow agents often require a signed release from both parties; without agreement, funds may be held until resolution or a court decides.
