Important points:
If you’re buying a home in Texas, you’ve probably heard of the term earnest money, or earnest money deposit, which shows the seller is serious about your offer. In most cases, earnest money deposits in Texas range from 1% to 3% of the home purchase price, but the exact amount may vary depending on market conditions and your agreement with the seller. According to the Texas Real Estate Commission (TREC), buyers must deliver their earnest money deposit to the escrow agent within the deadline specified in the contract. If the money is not delivered on time, the Seller may terminate the transaction or seek the remedies outlined in Section 15 of the TREC Agreement.
In the case of real estate, a contract is only binding if there is “consideration,” meaning that both parties are providing something of value. In this case, the buyer’s promise to buy and the seller’s promise to sell satisfy that requirement. The earnest money deposit plays a very important role in this exchange, so understanding your down payment amount and closing period can help you avoid delays and even miss out on your dream home.
What is serious money?
The earnest money deposit is a good-faith deposit the buyer puts with their offer to show that you are serious about buying the home. This acts as a sign of commitment and gives the seller confidence that the buyer will not back out without reason.
If your offer is accepted, your earnest money deposit is typically held in an escrow account maintained by the title company or brokerage until closing. Once the sale is complete, the earnest money is applied to the buyer’s down payment or closing costs. If the deal falls through for reasons covered in the contract, such as a failed inspection or a financing contingency, the buyer can get their earnest money back.
When will I receive the deposit?
In Texas, the earnest money deposit is usually due within three business days of closing. However, the exact deadline depends on the terms stated in the purchase agreement. According to the Texas Real Estate Commission (TREC), the buyer must deliver the earnest money deposit to the escrow agent or title company named in the contract. If the deposit is not delivered on time, the Seller has the right to terminate the contract or seek other remedies. The buyer typically submits the earnest money deposit to the title company via wire transfer, check, or money order.
For example, if your offer is accepted on a Friday, you typically need to deliver your earnest money by the following Wednesday to comply with the terms of the contract.
How much will you give me as a deposit?
Most buyers in Texas put down 1% to 3% of the home purchase price as a deposit. For example, if you’re buying a $400,000 home, your down payment could range from $4,000 to $12,000. In a competitive market, you may offer more money to stand out from other buyers. Even if the market is depressed, a small deposit amount may be acceptable. The appropriate amount will depend on local standards, facility demands, and comfort level.
Is the deposit refundable?
Yes, your earnest money deposit may be refunded in certain circumstances, depending on the terms stated in your purchase contract. In Texas, most real estate contracts include certain contingencies, or conditions that must be met for the sale to proceed. If any of these conditions are not met, the buyer may be entitled to a refund of the earnest money deposit.
Common situations in which refunds are possible include:
Funding emergencies: If you are unable to secure mortgage approval within the agreed timeframe, you can usually cancel the contract and have your earnest money refunded. Emergency Inspection: If the home inspection reveals major problems and you decide to withdraw your offer within the allowed time, your earnest money deposit is usually refunded. Unforeseen Appraisal: If the home’s appraised value is less than the purchase price and you can’t come to a new agreement with the seller, you can cancel and get your earnest money back. Title or Seller Default: If there is a problem with the title or the seller fails to meet its obligations, the buyer can often terminate the contract and get their earnest money back.
It is important to read your contract carefully and work closely with your real estate agent and attorney to understand your rights. Once all contingencies have been met and the sale proceeds, the earnest money deposit is non-refundable and will be applied to your closing costs or down payment.
In what cases will the earnest money not be refunded?
Once all contractual contingencies have been met and both parties move toward closing, the earnest money deposit becomes non-refundable. At this point, the deposit indicates your commitment to the purchase. If you withdraw without a valid reason, you could lose that money.
In Texas, your earnest money deposit may not be refunded under the following circumstances:
The deadline has passed. If you miss important deadlines, such as inspection or loan deadlines, your right to a refund may be forfeited. Once the contingency is resolved, you change your mind. If you withdraw your offer after inspection, appraisal, and financing has been approved, your earnest money deposit may be forfeited. You do not fulfill the contract. If you violate the terms of the contract, such as not closing on time for no reason, the seller may keep your earnest money as compensation. Waive the contingency. When you remove standard protections like inspections and financing contingencies to strengthen your offer, you also give up the right to recover your earnest money if the deal falls through.
At this stage of the transaction, your earnest money deposit forms part of your financial commitment to purchase the home. Be sure to understand all terms of the contract before signing and consult your real estate agent or attorney if you have any questions.
How to protect your earnest money deposit in Texas
Your earnest money deposit represents a significant financial commitment, so it’s important to take steps to protect it throughout the home buying process. In Texas, buyers can protect their earnest money deposit by following these best practices:
Work with a licensed real estate agent. An experienced agent can ensure that all contract terms, deadlines, and contingencies are clearly explained and adhered to. Check with your escrow agent or title company. Turn over your earnest money only to the trusted and authorized escrow holder named in the contract. Do not transfer funds directly to sellers or agents. Please pay using a traceable method. Use wire transfers, certified checks, and money orders to keep clear records of payments and receipts. Understand contingencies. Please review each contingency carefully to know when and how to exercise your right to cancel if something goes wrong. Get everything in writing. Any changes, extensions, or waivers of the earnest money deposit must be confirmed in writing signed by both parties.
By following these precautions, you can reduce the risk of conflict and protect your investment from potential losses. A clear understanding of Texas Real Estate Commission (TREC) rules and contract terms will ensure your earnest money is safe until closing.
Texas Earnest Money Frequently Asked Questions
Who has earnest money in Texas?
Earnest money deposits in Texas are typically held by the title company or escrow agent named in the purchase contract. They hold the funds in a secure escrow account until the transaction closes or the contract is terminated according to the terms of the contract.
Is it possible to lose seriously earned money?
Yes, you can lose your earnest money if you default on your contract, miss an important deadline, or cancel your purchase after all contingencies have been resolved. Once these protection periods are over, the seller can keep the earnest money deposit as compensation for taking the home off the market.
Will the deposit be reduced from the purchase price?
Yes, in most cases, the earnest money deposit will be applied toward the purchase price of the home at closing. The deposit typically goes toward your down payment or closing costs, reducing the total amount you need to bring to the closing table. Think of this as an early payment that shows the seller you’re serious about buying.
The funds will remain in the escrow account until the sale is completed. Once the transaction is complete, your money will be refunded as part of your total home purchase price. However, if the deal fails for reasons not covered by the contract, the seller may be entitled to keep the earnest money as compensation for lost time or opportunity.
Things to be careful about when depositing earnest money
The money you earn plays an important role in any home purchase in Texas. This shows your commitment and helps sellers move forward with confidence. Refunds are usually refundable under certain conditions, but it’s important to understand when they are non-refundable and how to protect them. By working with a licensed real estate agent, carefully reviewing your TREC contract, and meeting all deadlines, you can ensure your earnest money is safe and on the way to your dream home when it’s time to close.
