Option fee


In a real estate context, an option fee is consideration paid by a buyer for the unrestricted right to terminate a residential real estate contract during an agreed option period. The fee is negotiated by the parties and, in Texas’s promulgated contracts, it is typically credited to the sales price at closing but is otherwise non-refundable.
Option fee funds should not be confused with earnest money, which is generally refundable if the buyer timely terminates under the option paragraph, whereas the option fee is not refunded.
The use of option fees is strongly associated with the residential resale market in Texas.

Option fees in Texas

Texas residential resale transactions commonly use standardized contract forms promulgated by the Texas Real Estate Commission. The forms are available for public use but are intended primarily for use by licensed real estate brokers and sales agents trained in their correct use.
A distinctive feature of the TREC standard forms is the Termination Option, under which the seller grants the buyer, for payment of an option fee, an unrestricted right to terminate the contract by a stated deadline. If the buyer fails to deliver the option fee on time, the buyer does not have the unrestricted right to terminate under that paragraph.

2021 change to option-fee delivery

In 2021 the Commission revised its residential contracts so that the option fee is delivered to the escrow agent, rather than to the seller. The change authorized payment of the option fee either separately or combined with earnest money in a single payment and clarified that funds are applied first to the option fee, then to earnest money.

Current form version

As of January 3, 2025, the current TREC One to Four Family Residential Contract is Form 20-18, which continues to provide for an option fee credited to the sales price at closing and delivered to the escrow agent within the stated time period.

Distinction from earnest money

The option fee purchases an unrestricted termination right during the option period and is not refundable if the buyer terminates; by contrast, earnest money serves as a good-faith deposit and is generally refundable to the buyer if the contract is properly terminated within that period, subject to the contract’s terms.