Heard the term earnest money and wondered how it actually works when you buy or sell in Colonial or near TCU? You are not alone. Earnest money touches almost every offer in Texas, yet the rules and timing can feel confusing in a fast-moving market. In this guide, you will learn what earnest money is, how Texas contracts handle it, when it is refundable, and how to use it strategically in Colonial and the TCU area. Let’s dive in.
What is earnest money?
Earnest money is a buyer’s deposit that shows good faith and commitment to purchase a home. You include it with your offer and it is held by a neutral escrow holder. If you close, it is credited toward your purchase price.
Its purpose is simple:
- It signals a serious offer.
- It gives the seller some protection if a buyer defaults.
- It helps a buyer stand out in multiple-offer situations.
How Texas contracts handle it
Contract framework
Most resale homes in Texas use standard forms issued by Texas real estate associations. These contracts include a specific place to state your earnest money amount, who will hold it, and when it is due. They also include clear remedies if either party defaults and instructions for what happens to the deposit.
Who holds the funds
In Fort Worth, title companies commonly hold earnest money since they already handle title and closing. Some deals use an escrow company or a broker trust account. The escrow holder issues a receipt and keeps the funds until closing or until the contract directs a release.
Option fee vs. earnest money
These two payments serve different purposes:
- Option fee: A small, typically nonrefundable fee paid to the seller for the right to terminate during a short option period. This is the time when you inspect and decide whether to proceed.
- Earnest money: A larger deposit held in escrow and credited at closing. It may be refundable if you end the contract using a valid contract right and provide timely written notice.
You may pay both on the same deal. Do not confuse them. The option fee buys time. Earnest money secures the contract.
Timing and delivery in Fort Worth
Deposit deadlines
Texas contracts set a firm deadline for delivering earnest money. Common practice is within a few business days of the effective date. Some deals require same-day delivery. The safest approach is to deposit promptly to avoid any claim of breach.
How to deliver and document
You can deliver by wire, ACH, or check as the contract allows. Name the exact escrow holder in your contract, then follow the instructions they provide. Always obtain a dated receipt that shows the amount and the escrow account.
Practical tips
- Confirm wiring instructions directly with the escrow holder and watch for fraud.
- Put all delivery deadlines on your calendar the day the contract is signed.
- Keep copies of emails or forms that show when and how you delivered funds.
When buyers can get earnest money back
You typically receive your earnest money back if you end the contract using an express right and give proper written notice within the deadlines. Common examples include:
- You terminate during the option period and provide timely notice.
- You end the contract under a financing or appraisal contingency per the contract terms and timelines.
- The seller breaches the contract.
The contract language controls the outcome. Timely written notice is essential. Keep proof of delivery.
When sellers may keep it
If a buyer defaults without a contractual right to terminate, the seller may have remedies. Depending on the contract, the seller may choose to keep the earnest money as liquidated damages or pursue other legal remedies. Escrow holders will not release funds without mutual written instructions or a court order, so disputes often require a signed release or legal resolution.
Colonial and TCU market context
The TCU area sees strong demand for single-family homes and rental properties given proximity to campus and nearby amenities. Colonial and surrounding neighborhoods are established and often attract owner-occupants. On well-priced, move-in-ready homes, multiple offers are common. In these situations, buyers may strengthen offers with larger earnest money and tighter timelines.
Typical approaches in Texas include either a flat amount or a percentage of the price. Many buyers use about 1 to 2 percent of the purchase price as a baseline. In competitive situations near TCU or in Colonial, buyers sometimes offer 3 to 5 percent or more, or they pair a solid deposit with shorter contingency periods. The right number depends on price, your risk tolerance, and current market conditions.
Strategy tips for buyers
- Use earnest money to show commitment, not to overexpose yourself to risk.
- Match deposit strength to the competitiveness of the property.
- Pair a strong deposit with clear, realistic timelines for inspections and financing.
- Never waive protections without understanding how it affects your deposit.
Strategy tips for sellers
- Expect stronger earnest money on homes that are well priced and move-in ready.
- Confirm that the escrow holder and the delivery timeline are stated in the contract.
- If a buyer misses deadlines, know what the contract allows before making a claim on the deposit.
Buyer checklist
- Discuss typical earnest money levels with your agent before you write an offer.
- Decide your deposit and name the escrow holder in the contract.
- Deliver funds by the deadline and get a receipt.
- Track all notice deadlines, including option, financing, and title-related timelines.
- If you terminate, give written notice before the deadline and keep proof of delivery.
Seller checklist
- Verify who will hold the earnest money and the delivery deadline in the contract.
- Confirm the deposit is received on time and request the receipt from the title company.
- Understand your remedies if the buyer defaults and how release of funds works.
- Consider mediation if a dispute arises before moving to litigation.
Common pitfalls to avoid
- Missing notice deadlines. The most frequent disputes happen when buyers miss the option period end or other required timelines.
- Confusing the option fee with earnest money. The option fee does not protect you after the option period ends.
- Relying on verbal promises. Only the written contract and written notices control the deposit.
- Vague escrow instructions. Name the exact escrow holder and delivery method in your contract.
- Waiving key protections. Waiving inspection or financing protections increases the risk to your deposit.
How disputes are resolved
Most disputes end with a mutual written release that instructs the escrow holder how to disburse funds. If the parties cannot agree, the escrow holder will usually hold the money until there is a court order. Some contracts provide for mediation or arbitration. Interpleader actions are also possible if the escrow holder asks a court to decide who gets the funds.
The bottom line for Colonial and TCU
Earnest money is a powerful tool in Fort Worth’s established neighborhoods. Use it to show strength while protecting your interests through clear timelines, clean documentation, and disciplined execution. If you are weighing how much to offer, or you want to structure a deal that wins without unnecessary risk, partner with a local team that closes cleanly and knows the neighborhood dynamics.
Curious how to set the right earnest money and timelines for a specific home in Colonial or near TCU? Connect with John Zimmerman for neighborhood-specific guidance and a smooth, professional path to the closing table.
FAQs
How much earnest money should I offer in Colonial or near TCU?
- Many buyers use about 1 to 2 percent of the purchase price as a baseline, and increase to 3 to 5 percent or more in competitive situations depending on risk and price.
Where do I deposit earnest money in a Texas deal?
- Deposit with the title or escrow company named in your contract, or another designated holder, and obtain a dated receipt showing amount and escrow account details.
When can I get earnest money back if I cancel?
- If you terminate using a contractual right, such as within the option period or under a financing contingency, and you give timely written notice, it is typically refunded.
Can a seller keep my earnest money if I default?
- If you fail to close without a valid termination right, the seller may be able to keep the deposit as liquidated damages or pursue other remedies as the contract allows.
What if the title company refuses to release the deposit?
- Escrow holders usually need a mutual written release or a court order to disburse funds, so disagreements can lead to mediation, arbitration, or court resolution.
How is the option fee different from earnest money?
- The option fee is paid to the seller for a short, unrestricted termination right and is typically nonrefundable, while earnest money is held in escrow and credited at closing if you proceed.
