What is Earnest Money

When making an offer on a house you'll have to decide on the amount of earnest money to give the seller. The purpose of earnest money is so that the seller has some protection that a buyer won't back out of the contract. For if a buyer backed out of a contract the seller would keep the earnest money. There are some protections for buyers too.

For typical residential contracts in Texas there are two buyer protections that are most often used 1) the financing addendum and 2) the option period. The financing addendum allows a buyer who has tried but cannot obtain financing to cancel the contract during a specified time period and still receive their earnest money back. The financing addendum period is typically between 12 and 21 days and is negotiable.

The option period is a more powerful buyer protection in that a buyer can back out during the option period for any reason at all. It is during this time that a home inspection is done to make sure the buyer can back out if they find something unacceptable with the house. But again, they can back out for any reason, it doesn't have to be inspection related. Option periods are usually 5 to 12 days and is negotiable too. Both the finanding addendum and option period are optional items in the contract.

There are a few other buyer protections that allow a buyer to back out, usually after getting some additional information about the property. Information such as Survey, Title Policy, Sellers Disclosure and Appraisal.

All contracts are different so it's always best to talk with your Realtor so you fully understand the contract and how these different time periods affect each other. If you have any questions, I'm happy to answer them. Please email me at billconover@america-lending.com.