How Much is Earnest Money in Texas: A Guide to Take Your Real Estate Game to the Next Level
Sign Now, Pay Later with Fast Soft Deposit Financing
Discover how Duckfund can help you secure prime commercial real estate quickly, close multiple deals at once, and rapidly grow your CRE portfolio. Only pay the soft deposit when you are ready to close the deal. Apply for fast CRE funding now. We'll get back to you within 24 hours.
Texas has fast become the hottest real estate market in the United States so far in 2023, making the understanding of how a down payment and earnest money works in Lone Star State real estate sales vital knowledge for commercial homebuyers, developers, and investors.
But exactly how much is earnest money in Texas, and how and when is it paid?
Though not required by law, paying earnest money in Texas—also known as a "soft deposit” or a “good faith deposit”—has become the norm in real estate transactions, and most realtors and property sellers will not push through with a sale without it.
Despite a 15% drop in real estate investment in the United States from 2021 to 2022, the US real estate market is now soaring, with analysts forecasting a Compound Annual Growth Rate (CAGR) of 4% from 2023 to 2028.
Many commercial developers and investors are still keen to get in on the most active real estate markets in the country (including cities along the “Sun Belt”), which means Texas—the state investors are singling out as the US’s number one market for real estate investment—is in their crosshairs.
A 2023 US Investor Intentions Survey conducted by CBRE, a global leader in commercial real estate services and investments, found that commercial property investors are prioritizing secondary markets over gateway markets and identified Dallas-Fort Worth and Austin, Texas, as the most sought-after investment markets in the country.
To add to its real estate accolades, Texas has also been named the highest-ranking state in the country when it comes to real estate building activity and contributions.
According to a 2023 report on the Economic Impacts of Commercial Real Estate by the NAIOP Research Foundation, Texas’ overall contributions of commercial real estate to state gross domestic product sit at $184 billion, with $70.3 billion in direct spending, $69.2 billion in personal spending, and 1.2 million jobs supported in 2022.
While local real estate agents and brokerages are keeping their Texas real estate expertise sharp, commercial property sellers, homeowners, and potential buyers also need to inform themselves on the finer details of the commercial real estate and home buying process—and earnest money deposits, option fees, and other legal payments are part and parcel of it.
Confused by how much earnest money is in Texas?
We’ll simplify matters and walk you through the whole procedure of putting money down by answering frequently asked questions, such as how much you need to shell out, why it’s important to protect your earnest money, and how (and when) to get a refund.
In this comprehensive guide, we’ll cover:
- Definitions
- Requirements and calculations
- Payments, disputes, and refunds
- Protection
[Eyeing some commercial real estate properties for investment in Texas but can’t quickly fund the earnest money deposit? Sign up for Duckfund today to get low-cost, flexible soft deposit financing in just 48 hours.]
How much is earnest money in Texas?
Definitions
1. What is earnest money?
Earnest money, also known as a soft deposit or good faith deposit, is money that serious buyers put down on a property before the closing date. Akin to getting pre-approval on a mortgage, earnest money signals that a buyer is highly ambitious to push through with the sale.
In the event that the buyer fails to complete the purchase and the deal falls through, the seller can keep the earnest money as compensation for their time and effort, or earnest money may also be refunded to the buyer, depending on contingencies agreed by both parties in the purchase contract.
On the other hand, if the sale is successfully completed, the earnest money is put toward the purchase price or utilized to cover the closing costs.
2. What is the purpose of earnest money?
Essentially, the purpose of earnest money is that it helps to establish trust between and protect both parties involved in a real estate transaction.
The earnest money is held in an escrow account—a legal arrangement in which a third party temporarily holds property or money until particular conditions have been met—until the transaction is completed, at which point it’s either applied to the buyer's closing costs or refunded if the buyer backs out of the transaction for reasons outlined in the purchase agreement.
3. How does earnest money differ from option money?
Don’t confuse earnest money with option money or option fees, which also have to be paid after signing a Texas purchase agreement on a new home or commercial real estate space.
Option money is a non-refundable payment that can be applied to the final sale price of the property after closing. This payment (around $100-$200 in Texas) grants you an option period, typically lasting between seven to 10 days, during which you can access the property and conduct building and home inspections. Paying the option fee gives potential buyers the right to terminate the contract before the option period concludes.
Both the earnest money and option money must be paid to the escrow agent or title company and not to the seller, as was traditionally the case. The changes were mandated by the Texas Real Estate Commission (TREC) in 2021.
Requirements and Calculations
4. How much earnest money is required in Texas?
Earnest money is not required to close a home purchase or a valid real estate contract in Texas. However, in competitive markets such as Texas, paying earnest money has become the status quo, and sellers now may not push through with a sale unless it’s provided.
5. How is earnest money calculated?
The amount of earnest money to be paid is generally calculated as a percentage of the purchase price and can vary depending on the real estate market and other factors.
Typical earnest money in Texas is 1% of the purchase price, but for in-demand markets like Dallas-Fort Worth and Austin, earnest money of 2% (or more) may be required to beat other offers the seller may receive.
In hotter markets, earnest money deposits can go as high as 10% of the purchase price!
So how much is earnest money in Texas on a $540,000 residential-area building (the median price in Austin)? Well, using this yardstick, it would be between $5,400 and $10,800. Putting down less than the expected amount of earnest money may send the wrong signal that the buyer is not serious or perhaps does not have the finances to see the deal through.
Payment, Disputes, and Refunds
6. When should earnest money be paid?
Earnest money should be paid after both buyer and seller have signed the purchase agreement, which will specify the exact amount of earnest money required and the deadline for the payment. Typically, earnest money is paid within a few days of the contract being signed; earnest money in Texas must be paid within three days of the contract’s effective date, for example.
When calculating the earnest money due date, it’s important to remember that 1) weekends and holidays are included in the official day count and 2) the deadline is extended to the next business day when the earnest money due date falls on a legal holiday or weekend.
7. How should earnest money be paid?
Earnest money in Texas is paid to the title company or escrow agent, the reliable third party entrusted with safeguarding documents and funds necessary to the transaction until the transaction is successfully completed.
Besides knowing how much earnest money in Texas is, it’s important to be aware of the different payment methods available to commercial real estate buyers and developers.
Below are the payment methods accepted for earnest money in Texas:
- Cash
- Cashier’s check
- Certified check
- Money order
- Personal check
- Wire transfer
While the Texas Department of Insurance (TDI)—the governing body over title companies—simply requires that companies accept “good funds”, buyers should be wary of paying in cold, hard bills as many companies won’t accept large sums of cash. If paying by check, the check must clear first for the earnest money to be considered paid.
If an agent, broker, or another third party is depositing the earnest money on behalf of the buyer, they must sign a Third Party Financing Addendum form, as dictated by TREC.
8. Is earnest money refundable?
Yes, earnest money in Texas can be refunded.
If a sale does not go through for any reason, the earnest money may either be kept by the seller or refunded to the buyer, depending on the contract’s stipulations. As a rule of thumb, the buyer gets the earnest money back if the seller reneges on the contract, and the seller keeps the earnest money if the buyer defaults.
9. What are some common scenarios of a sale deal falling through, and who keeps the earnest money in those cases?
- Issues with the title: The buyer has the right to object to and contest issues to do with the title and other documents, and the seller has 15 days to deal with and fix the issue. If the seller fails to sort out the objections within the time period, the contract is terminated and the earnest money is then refunded to the buyer.
- Buyer backs out during option period: If the buyer paid an option fee to inspect the property prior to purchase, this gives them the right to back out of the contract within the option period and for any reason. In this case, the seller keeps the option fee and the earnest money is returned to the buyer.
- Repairs mandated by lender: If the lender demands repairs on the property, neither the seller or the buyer is required to pay for them, and either party can cancel the contract. The earnest money is then refunded to the buyer.
- Seller fails to complete agreed-upon repairs: If both the seller and the buyer agree on repairs, the seller is required to complete all repairs (and ensure that they are done by licensed contractors with appropriate state-issued permits). If they fail to do so, the buyer has a few options: they can extend the contract’s closing date or end the contract and get their earnest money deposit back.
- Buyer or seller defaults on the contract: If either the buyer or the seller fails to comply with the specified contract terms, the other party has the right to terminate the contract and keep the earnest money.
- Buyer’s financing does not go through: For contracts with a financing contingency, buyers can have their earnest money refunded if financing falls through. If the buyer chose to waive the contingency and their commercial or home loan does not go through, the earnest money is then forfeited to the seller.
There are other reasons that may throw a wrench in the sale process and cause disputes over earnest money. Working with lawyers experienced in real estate transactions is vital to ensuring that the process goes smoothly and everyone is covered. Handling disputes is also much easier with real estate lawyers as they will take over all the formalities and legalities involved.
Protection
10. How can earnest money be protected?
There are several ways that prospective buyers can protect their earnest money deposits:
- Include financing and inspections contingencies in the purchase contract: Without proper contingencies stipulated in the contract, the seller gets to keep the earnest money if the buyer can't get financing.
- Ensure contract terms (and all amendments) are in writing: The contract agreement, as well as any amendments, between a buyer and seller must be in writing and must be signed by both parties to be considered valid. It’s best to work with real estate lawyers who can advise on the process and take care of all the legalities.
- Understand and strictly follow the terms of the contract: The buyer should ensure that they read, comprehend, and abide by the terms of the contract. Failure to do so could result in forfeiting the earnest money deposit to the seller.
- Put the earnest money in an escrow account and get receipts: Earnest money is never paid directly to the seller but instead should be paid to an escrow firm that can hold and safeguard the funds until the transaction is complete or terminated. The buyer should make sure that they have the appropriate receipt for their earnest money deposit.
Again, working with a good real estate lawyer can take the headaches out of the entire commercial real estate buying process and ensure that everything is secure and legal. Interested commercial real estate developers and investors can contact the Texas Real Estate Commission and the Texas Department of Insurance for further guidance.
Investing in the USA's hottest property market may be stressful for developers and investors, particularly for finding earnest money funds upfront, but arming themselves with the above knowledge will put them in the best position to avoid potential shocks during their next commercial real estate purchase in Texas.
[Looking to apply for an earnest money loan? Accelerate the growth of your real estate portfolio with Duckfund, which lets you access low-cost, flexible, and fast soft deposit financing with ease and less stress. Sign up for an earnest money loan today and get financing within 48 hours!]
CRE Classified: 7 Most Investable CRE Asset Classes Ranked By Performance in 2024
Want to see great returns on your commercial investments? Maximize your portfolio with 2024’s top 8 CRE asset classes.
Multifamily Market Trends 2024-2025: A Snapshot of Key Metrics
Look ahead to the multifamily market in 2025 with Duckfund’s in-depth analysis of current market conditions.
Hottest CRE Markets Forecasted: 7 US Cities to Watch in 2025
The difference between cities like Newark and Nashville is their CRE markets and whether you should invest in them or not.
Multi-Family Commercial Real Estate: Everything You Need to Know
All successful multifamily deals come from deep industry knowledge: this is the place to start.
The Truth Behind 7 Commercial Real Estate Myths
Dealing with facts rather than falsehoods is essential for any commercial property purchase.
How to Get Into Commercial Real Estate Development: 7 Tips to Turn Pro
For all developers and investors who want to make serious money, here’s how to get into commercial real estate successfully.
Sign Now, Pay Later with Fast Soft Deposit Financing
Discover how Duckfund can help you secure prime commercial real estate quickly, close multiple deals at once, and rapidly grow your CRE portfolio. Only pay the soft deposit when you are ready to close the deal. Apply for fast CRE funding now. We'll get back to you within 24 hours.
How to Find Vacant Properties and Outsmart the Competition
Here’s how to find vacant properties before they go to market and the bidding wars start.
Single Tenant vs Multi Tenant: Pros and Cons for Commercial Real Estate
Whether you should buy single-tenant or multi-tenant commercial properties depends on your risk tolerance and investment strategy.
How Big Data in Commercial Real Estate Is Changing The Way Developers Profit
All big property companies are going digital. The key is knowing how they’re doing it.
Commercial Property Development Finance: 6 Ways To Secure The Right Capital
These financing options will help you carry out the commercial venture you’ve always dreamed of.
ESG, PropTech…And Bamboo. What’s Driving Commercial Real Estate Sustainability Right Now?
Knowing the latest green trends will help you make your next project a more successful one.
Top Commercial Property Operating Expenses and How to Reduce Them
With decelerating rents across multiple CRE sectors, reducing operating expenses is the most appropriate way to increase net operating income and cap rate.
Sign Now, Pay Later with Fast Soft Deposit Financing
Discover how Duckfund can help you secure prime commercial real estate quickly, close multiple deals at once, and rapidly grow your CRE portfolio. Only pay the soft deposit when you are ready to close the deal. Apply for fast CRE funding now. We'll get back to you within 24 hours.
Upzoning, Downzoning, and Everything In Between: A CRE Investor’s Guide to Commercial Property Zones
Getting your head around zoning laws will help you make a success of your CRE investment.
How To Find The Value Of Commercial Property: A Guide For Property Developers
To be a successful developer, you must find the right place for properties you buy and charge the right price for the ones you sell.
Don't Get The Wrong Loan: Your Guide to Mastering CRE Financing
Any CRE investor worth their salt must know which financing works best for them.
Funding Mastered: How to Find the Right Commercial Building Financing for Your CRE Investment
Growing your property portfolio is possible, but you’ll need to make some key calculations.
Unlocking Opportunities: How to Raise Capital in a Tight Lending Market
Some investors see doom and gloom but there are big opportunities in the commercial real estate market for those who can focus on the positives.
How Much Does it Cost to Build a Warehouse: A CRE Investor’s Guide
Funding warehouse construction is tough, so you’ll need a detailed building plan to follow.
Sign Now, Pay Later with Fast Soft Deposit Financing
Discover how Duckfund can help you secure prime commercial real estate quickly, close multiple deals at once, and rapidly grow your CRE portfolio. Only pay the soft deposit when you are ready to close the deal. Apply for fast CRE funding now. We'll get back to you within 24 hours.
Should You Dive into Self-Storage Financing? Unpacking the Potential for CRE Investors
Making money from self-storage is a hot topic in the CRE market, but you’ll need to know how to finance it.
3 Commercial Real Estate Challenges You Can Also Profit From
Here’s how to outsmart the biggest challenges the CRE market throws at you.
Powering the Cloud: Your Guide to Data Center Financing
So you are looking to invest in data centers, but how much will it cost?
12 Real Estate Investing Tax Strategies You Should Know
These guidelines will help you get the most out of your CRE income.
Is Earnest Money Refundable? Here’s What The Experts Say
Locking tens of thousands of dollars in escrow is not a gamble if you understand when and how earnest money is refundable.
Faster Earnest Money Deposits: The Secret Weapon in Winning CRE Deals
Earnest money deposits have become so important that CRE investors looking to build successful portfolios cannot ignore them.
Sign Now, Pay Later with Fast Soft Deposit Financing
Discover how Duckfund can help you secure prime commercial real estate quickly, close multiple deals at once, and rapidly grow your CRE portfolio. Only pay the soft deposit when you are ready to close the deal. Apply for fast CRE funding now. We'll get back to you within 24 hours.
Get Your Properties in Order: 4 Expert CRE Investment Strategies To Help In A Tough Market
We’re going through a tough CRE market, but knowing how to invest wisely will get us through it.
7 Real Estate Law Firm Marketing Ideas Every Attorney Should Use
The property law market is crowded, but you can still stand out from the crowd
The Ultimate Guide to Good Faith Deposits in the Big Apple
From the paperwork to the payment, dive into the protocols and practices surrounding good faith deposits in NYC’s commercial real estate transactions.
Good Faith Deposits in Commercial Real Estate: A Complete Guide
Almost every CRE deal now requires a good faith deposit, so CRE investors must understand what good faith deposits are about and how to get them for every deal.
6 Mortgage Broker Marketing Ideas You May Not Have Thought Of
If you haven’t explored these mortgage broker marketing ideas, then now’s a good time to try.
How Option Fees & Earnest Money Work in Real Estate Deals
Make the right choice about financing real estate and master the differences between option fees, earnest money, and call options.
Sign Now, Pay Later with Fast Soft Deposit Financing
Discover how Duckfund can help you secure prime commercial real estate quickly, close multiple deals at once, and rapidly grow your CRE portfolio. Only pay the soft deposit when you are ready to close the deal. Apply for fast CRE funding now. We'll get back to you within 24 hours.
Is Gator Lending Legit? Bringing Clarity to an Important Debate
Gator lending, a form of creative financing, is becoming popular. But is it legitimate or should property investors beware?
How Much Are Earnest Money Deposits in Michigan? The Definitive Guide
The right understanding of earnest money deposits in Michigan will aid prospective buyers, investors, and property flippers in confidently cinching commercial real estate deals in The Great Lakes State.
What is Gator Lending: A Simple Guide to Creative Financing in Real Estate
Gator lending is providing an alternative for real estate investors who are fed up with traditional lending becoming more inaccessible and stressful.
6 Proven Title Company Marketing Ideas to Unlock More Sales
Wondering how to get your title company’s name in front of new customers? Look no further.
Commercial Real Estate Analysis: How to Find and Select the Right Properties
Get commercial real estate analysis right, and you’ll be able to select profitable properties and avoid loss-making ones.
Commercial Real Estate Market Analysis 2024: 5 Factors Set to Move The Market
2024 will be a make-or-break year for CRE property developers. Get ahead of the market by leveraging the 5 factors laid out in this commercial real estate market analysis.
Sign Now, Pay Later with Fast Soft Deposit Financing
Discover how Duckfund can help you secure prime commercial real estate quickly, close multiple deals at once, and rapidly grow your CRE portfolio. Only pay the soft deposit when you are ready to close the deal. Apply for fast CRE funding now. We'll get back to you within 24 hours.
Earnest Money Deposits in Tennessee: What You Need to Know Before Making an Offer
Nashville is one of the nation’s top 5 commercial real estate markets, making investments in Tennessee worthy of further research.
A Deep Dive into Earnest Money Deposits in Arizona: All You Need to Know
Understanding how earnest money deposits in Arizona work will assist you in securing a successful CRE sale in Phoenix, the US’ second hottest market to watch for 2024.
Lawsuits, Rights Losses, and Bad Publicity: Here’s What Happens if You Don’t Make An Earnest Money Payment
Not paying earnest money isn’t the end of the world, but here’s what might happen instead.
Sign Now, Pay Later: Close CRE Deals Faster with Duckfund
Thought securing a property with no money down was impossible? Think again.
Should You Buy Office Property With An LLC? All You Need to Know
CRE investors might be struggling to secure office space right now. But then they might not know about this creative soft deposit solution.
Why Releasing Earnest Money Prior to Closing Isn’t as Hard As It Looks
Putting down earnest money can be difficult and you’re not guaranteed to get it back. Knowing how to release it is vitally important.
Sign Now, Pay Later with Fast Soft Deposit Financing
Discover how Duckfund can help you secure prime commercial real estate quickly, close multiple deals at once, and rapidly grow your CRE portfolio. Only pay the soft deposit when you are ready to close the deal. Apply for fast CRE funding now. We'll get back to you within 24 hours.
Strategies for Success: How to Flip Commercial Real Estate Contracts for Profit
Flipping commercial real estate contracts is a low-cost and low-risk investment strategy that any real estate investor can explore.
How to Safely Pay Earnest Money Online Using an LLC
Problems with earnest money payments can ruin a property deal. But they can be avoided if you use this method.
How to Flip Commercial Real Estate Like A Pro
Flipping commercial real estate has its risks, but with a good grasp of the fundamentals you can generate high returns while minimizing risk.
How Much Is Earnest Money for Commercial Property in the US: A Complete Guide
Understanding earnest money is crucial to closing commercial real estate deals in many US states.
Ignore Your Bank: Buying Commercial Property With No Money Down is Possible
Illiquidity can be a limiting factor for commercial real estate investors in today’s market. But with the right strategies, even illiquid investors can thrive.
How to Finance a Commercial Property Without Worrying About Liquidity
Learn how to finance a commercial property via the diverse funding options available in 2023. Besides traditional banking loans, online platforms now offer great financing quickly and cost-effectively.
Sign Now, Pay Later with Fast Soft Deposit Financing
Discover how Duckfund can help you secure prime commercial real estate quickly, close multiple deals at once, and rapidly grow your CRE portfolio. Only pay the soft deposit when you are ready to close the deal. Apply for fast CRE funding now. We'll get back to you within 24 hours.
How Much is Commercial Land Worth: 4 Methods for CRE Valuation
Knowing what a piece of commercial land is worth will help you avoid overpaying for it. Here is your complete guide to understanding how to conduct commercial land valuation.
How Much Earnest Money Is Required in Georgia? (And Other FAQs, Explained)
Understanding how much earnest money is required in Georgia, when and how to pay, and who holds the earnest money are all vital to closing a successful property sale in one of the US’ top markets.
How Much Earnest Money Is Required in Illinois: A Comprehensive Guide
Boost your investment portfolio by investing in Chicago, Illinois, one of the US’ top gateway markets.
Finding Your Way in Florida Real Estate: A Complete Guide to How Much Earnest Money Is Required in Florida
Understanding how much earnest money is required in Florida is key to securing property in one of the top housing and commercial real estate markets in the United States.
Flip the Game: 8 Tips for Commercial Real Estate Flipping
Having capital always helps in a competitive CRE market, but sometimes getting smart leads can lead to the biggest flip gains.
Earnest Money Deposits vs Down Payments: How They Differ and Why You Should Care
Earnest money deposits and down payments are both important parts of closing real estate deals, but there are significant differences that investors must be aware of.
Sign Now, Pay Later with Fast Soft Deposit Financing
Discover how Duckfund can help you secure prime commercial real estate quickly, close multiple deals at once, and rapidly grow your CRE portfolio. Only pay the soft deposit when you are ready to close the deal. Apply for fast CRE funding now. We'll get back to you within 24 hours.
How Does Earnest Money Work in Commercial Real Estate?
As earnest money becomes more common in commercial real estate, investors must understand what it is all about and how to secure these funds quickly when they need them.
Earnest Money in Colorado: Seal the Deal Before Anyone Else Does
Understanding the process of paying earnest money in Colorado can spell the difference between closing and losing a deal.
A Winning Investment: Learn The Difference Between Due Diligence Fees and Earnest Money
Both can make or break your property deal, so understanding these two key terms (and how they differ) is crucial.
Future-Proof Your CRE Portfolio: 10 Essential Trends Developers Should Watch (2024)
The CRE market is unpredictable but developers who stay informed will ride its waves.
Lacking Cash? 4 Ways To Raise a Soft Deposit for Commercial Property
Current economic conditions make raising a soft deposit seem tough, but not if you know where to look.
Explaining Due Diligence and Earnest Money in South Carolina
Understanding the uses and distinctions between due diligence and earnest money in South Carolina is crucial to successfully navigate today's competitive market and seal valuable CRE deals.
Sign Now, Pay Later with Fast Soft Deposit Financing
Discover how Duckfund can help you secure prime commercial real estate quickly, close multiple deals at once, and rapidly grow your CRE portfolio. Only pay the soft deposit when you are ready to close the deal. Apply for fast CRE funding now. We'll get back to you within 24 hours.
5 Commercial Real Estate Tech Trends You Can't Afford to Ignore (But Most Investors Do)
Digital transformation is changing the world. The CRE market is no different.
Ahead of the Curve: 7 Commercial Real Estate Trends Set to Shake Up 2024
The past year’s bumpy ride in CRE is far from over, but a new investment landscape emerges for the careful investor. You can thrive amid the chaos by capitalizing on 2024’s top commercial real estate trends.
Commercial Land Development: 8 Steps to Build Commercial Properties From Scratch
Commercial land development is a profitable enterprise for those who are willing to follow the process. Below is a step by step guide to doing it right.
Are Earnest Money Deposits Refundable? Everything CRE Developers Need to Know
CRE developers can use earnest money deposits to their benefit (not as a roadblock). It comes down to understanding your contract and different US state norms.
Sign Now, Pay Later with Fast Soft Deposit Financing
Discover how Duckfund can help you secure prime commercial real estate quickly, close multiple deals at once, and rapidly grow your CRE portfolio. Only pay the soft deposit when you are ready to close the deal. Apply for fast CRE funding now. We'll get back to you within 24 hours.