Cash Home Buyers: Earnest Money vs. Option Fees

If you’ve ever sold a house to an investor who pays cash, you learn quickly that the contract language sets the tone for the entire deal. Two small items do an outsized amount of work: earnest money and the option fee. They’re both deposits, both due early, and both meant to signal that a buyer isn’t just tire-kicking. But they behave differently, and if you’re choosing between offers from cash home buyers or you want to sell my house fast with fewer hiccups, you need to understand how these payments shape risk, leverage, and timelines.

I’ve sat on both sides of the table. I’ve written offers for investors who buy three houses a month, and I’ve guided homeowners who just wanted to move on without a parade of showings. The pattern repeats. The deals that close smoothly use earnest money and option fees intentionally, not as boilerplate. The ones that drift or implode treat them as afterthoughts.

What each deposit really does

Earnest money is a good-faith deposit credited to the purchase price at closing. It goes into escrow, usually with the title company or attorney handling the transaction. Its job is to show commitment and to compensate the seller if the buyer walks without a valid contract excuse. In many markets, a typical earnest money amount for a standard retail deal is 1 to 3 percent of the price. In a true cash offer, especially one promising a quick close, I like to see at least 1 percent wired within one business day. The number matters less than its friction: when money hits escrow quickly, you know the buyer can move.

Option fees are different. They purchase a unilateral right to terminate the contract within a certain period, no questions asked. This right is called the option period. It’s when the buyer inspects, estimates repairs, checks title red flags, and confirms their exit plan. The option fee goes directly to the seller, often nonrefundable. If the buyer closes, it may or may not be credited to the price depending on your contract and state norms. The option fee is common in Texas and a few other states; elsewhere, inspection contingencies do similar work without a direct fee to the seller.

The short version: earnest money secures the deal for both sides and typically sits in escrow; the option fee buys time for the buyer and typically goes straight to the seller.

Why cash deals tweak the formula

When a buyer offers cash, you’re trading the predictability of mortgage underwriting for speed. Underwriting can take three to five weeks and sometimes dies at the eleventh hour. Cash buyers cut out that risk. In exchange, they want flexibility early in the process to verify the property in real time. That’s where the option period earns its keep. A seasoned investor knows within five to seven days whether their numbers hold up. An earnest money deposit gives you assurance the buyer will show up at closing once that period passes.

On paper, a cash contract looks simple. In practice, the details determine whether you feel confident enough to pack boxes. If the buyer waves around a high price with a tiny earnest deposit and a long option period, they’re effectively asking you to take your home off the market while they think it over. If the buyer offers a firm option fee, a brisk timeline, and meaningful earnest money that goes hard after the option window, that’s real skin in the game.

A concrete example

A homeowner in Fort Worth recently sold a rental to a local investor who marketed as we buy houses for cash. The list price was 238,000. The investor offered 220,000 with two notable terms: a 3,000 option fee for a five-day window, and 5,000 earnest money deposited within 24 hours and converting to nonrefundable after the option period. Title was set up to close in 12 days.

The investor inspected on day one, brought a contractor on day two, and reviewed the HOA docs on day three. There were no surprises. The option period expired on day five. The seller kept the option fee either way, but because the deal moved forward, that amount was credited at closing. On day 12, the wire hit. The seller sold slightly below market but without repairs, without showings, and with a timeline they could trust. The investor purchased certainty with the option fee and then backed that certainty with hard earnest money.

I’ve seen the opposite, too. Another buyer in the same market flashed 225,000 with a 50 dollar option fee and 500 earnest money, and asked for a 14-day option period. That’s not a serious offer. It might close, but the signals point the other direction.

How the two deposits interact

Earnest money and option fees aren’t separate levers. They work together to allocate risk across time.

During the option period, the option fee is the seller’s primary compensation for opportunity cost. Earnest money still sits in escrow, but it’s refundable if the buyer terminates inside the option period or under other contingencies. That’s why, at this stage, I push for an option fee that reflects the value of time. A thousand to a few thousand dollars usually focuses the buyer, especially on properties under 400,000.

After the option period expires, the earnest money typically “goes hard.” Some contracts spell this out: on day six, for example, the earnest money becomes nonrefundable except for specific title defects or a seller breach. This shift changes the incentive structure. The buyer is committed. If they walk now, you keep the earnest money. This is where a robust earnest deposit matters. Two hundred dollars of hard money isn’t much of a deterrent. Two percent of the price usually is.

Think of it as a relay race. The option fee carries your protection at the start, then hands the baton to earnest money for the run to closing.

Local variations, and what to ask

Not every state uses the same vocabulary. In some places, you’ll see inspection contingencies rather than formal option periods. You’ll also see variation in whether the option fee gets credited at closing. None of that changes the underlying logic.

If a buyer promises speed and certainty, ask a few direct questions before you sign:

How much is the option fee, and how many days are you asking for? Will it be credited at closing? How much earnest money will you deposit, and when does it become nonrefundable? Which contingencies survive the option period? Title issues only, or also appraisal, survey, or financing? Who holds escrow, and what is the title company’s wiring policy? What is your exact closing timeline, and what happens if you need an extension?

Those answers reveal whether a cash home buyer is serious. They also give you a yardstick when comparing offers, including those from companies that advertise we buy houses or sell my house fast programs.

The psychology behind the numbers

A buyer can promise anything in a phone call. Money moving into escrow is the first real test. If a buyer struggles to wire 2,500 within one business day, there is a good chance they’re wholesaling your contract to another investor and need time to find an end buyer. There’s nothing inherently wrong with wholesaling if everyone understands the plan, but it increases your odds of delays and re-trades. A larger option fee and a short option period force a wholesaler to move fast or step aside.

On the seller’s side, the option fee also clarifies your own priorities. If you value a guaranteed close date more than squeezing out the last dollar, a strong option fee with a tiny window is your friend. If you’re not in a rush and your home shows well, you might prefer a traditional listing where most of the earnest money leverage kicks in only after inspection, but you get competitive tension from multiple buyers.

When to push, and when to let it ride

There’s a fine line between getting better terms and scaring away qualified buyers. In my experience:

On a clean, vacant property where the investor’s risk is limited to condition and title, push for a higher option fee and a shorter option period. Three business days is often enough if access is easy. On a complicated property with tenants, code issues, or unknown liens, give a little more time and be realistic about fees. Investors will price in that uncertainty. Your leverage comes from transparency rather than penalties. If your buyer can close in 7 to 10 days, consider a slightly lower price in exchange for a meaningful earnest deposit that goes hard when the option period ends. The calendar has value, especially if you’re coordinating a purchase on the other end.

Investors who buy regularly in a market know these rhythms. The best ones state their terms plainly because it saves everyone time.

Handling edge cases that derail closings

I’ve seen three recurring snags that have nothing to do with buyer commitment and everything to do with process. Knowing them up front lets you write cleaner contracts and avoid fights over deposits.

First, title surprises. Unknown liens, child support judgments, old mortgages never released, or probate issues. If the buyer terminates for a legitimate title defect you can’t cure, even hard earnest money often becomes refundable under the contract. This is fair. What you can do is scrub title early. Have a title company run a preliminary commitment before you accept offers. Share it. A clean commitment cuts option time and keeps both deposits on track.

Second, access. Investors move quickly when they can. If the house has a dog, a tenant, or sticky locks, every day becomes a negotiation. Lost access during the option period is a common reason buyers ask for an extension. If you need to sell fast, consider bridging that week with a lockbox and clear written permission. It’s a small step that protects your option fee clock and keeps earnest money from slipping into limbo.

Third, utility shutoffs. A buyer can’t meaningfully inspect without power and water. If your services are off, say so in the contract and allow enough option time. Alternatively, turn them on for a week. I’ve watched deals die because a buyer tried to guess the HVAC condition in a 95-degree house with no electricity. That kind of guess leads to re-trades or terminations inside the option window, and you’re back to square one.

Wholesalers, assignments, and your deposits

The phrase we buy houses for cash attracts two types of buyers: those with actual cash ready to wire and those who assign contracts to others. Many wholesalers play it straight, but your contract needs to tell the truth. If assignment is allowed, require written notice of any assignment and do not release the option fee or adjust timelines because of it. Keep your earnest money and option parameters intact. If the end buyer misses the option deadline, the earnest money still goes hard. I also like to see “no marketing on the property” clauses during the option period if you still occupy the home, to avoid surprise yard traffic.

If you prefer a single counterparty, you can mark the contract “not assignable.” Some wholesalers will walk, which may be a benefit if your priority is certainty. Others will still buy directly if the deal is strong enough. Either way, your deposits are the spine of the agreement. Make them bite.

Credit vs. non-credit option fees

Whether the option fee applies toward the purchase price depends on local norms and your leverage. Crediting the fee at closing softens the sting for the buyer and can make them more willing to put up a bigger number. Not crediting it means the fee is purely the price of time. In a hot submarket, I’ve secured uncredited option fees of 1,000 to 2,500 on houses in the 200,000 to 300,000 range. In a slower area, crediting the fee helped get the deal done without arguing over a few hundred dollars.

One nuanced approach that works well: credit the option fee if the buyer does not request a price reduction, and forfeit the credit if they re-trade after inspections. This encourages a more accurate initial offer and prevents “automatic” renegotiation, a practice that frustrates sellers even when the math is sound.

How much is enough

There isn’t a single right number, but strong ranges exist.

For properties under 300,000, I look for option fees between 500 and 2,500 and earnest money at or above 1 percent. For 300,000 to 600,000, option fees of 1,000 to 5,000 and earnest money of 1 to 2 percent feel appropriate. Above that, push higher on earnest money and keep option periods very tight, because holding costs for vacant high-end homes cut both ways.

Length of the option period matters just as much. urgent house sale Three to seven days covers most cash investor due diligence. Ten days should be rare, justified by access issues or complex title history. More than ten days undermines the premise of a quick, confident cash purchase.

Reading sincerity in the offer

The language around the deposits tells you a lot about a buyer’s operating style. Watch for these signals in the written terms:

The earnest money deposit is due within one business day, not “upon acceptance” or “within three days.” The option period begins the day after execution and is defined in business days if weekend access is a concern. The contract specifies when earnest money becomes nonrefundable and lists the limited exceptions. The buyer provides bank verification or uses a reputable local title company familiar with their deals. The buyer’s inspection window includes specific allowances for licensed inspector access, sewer scoping, or HVAC evaluation, which indicates they plan to truly verify, not delay.

When an investor sends an offer with clear, tight deposit mechanics, they’ve done this before. That doesn’t guarantee a smooth path, but it stacks the deck in your favor.

How to compare two cash offers the right way

Price tempts. Terms protect. If you have two offers that both promise to close quickly, sketch the cash timeline and write their deposit mechanics next to it. Here’s how I approach it in practice, keeping to the essentials and ignoring the noise of email chatter.

Say Offer A is 220,000, with a 1,500 option fee for five days and 2,000 earnest money that goes hard at day six, and a 14-day close. Offer B is 218,000, with a 3,000 option fee for three days and 5,000 earnest money hard at day four, and a 10-day close. I’d take Offer B nine times out of ten. You might net slightly less on paper, but you trade for speed and stronger commitment. If your moving truck is scheduled, that difference matters sell my house fast more than the extra 2,000.

Now reverse the facts. If you have time, if you want to let a tenant finish a lease month, and if you’re comfortable with a longer runway, maybe Offer A is fine. The point is to choose based on your constraints, not just the headline price.

Avoiding pitfalls in contract drafting

Some traps show up repeatedly.

One is vague language about when the earnest money hardens. Spell it out by date or by a clear event, such as 5:00 p.m. on the last day of the option period. Another is loose contingency language that resurrects buyer flexibility after the option period ends. If an appraisal, financing, or further inspection contingency survives past the option window, you don’t really have a firm deal.

A third trap involves extensions. Life happens. A surveyor can run late. A payoff statement can take a week. If you’re willing to grant an extension, tie it to additional nonrefundable consideration paid directly to you, not just a handshake. For example, “seller agrees to a three-day extension in exchange for 1,000 additional nonrefundable option consideration.” That keeps incentives aligned.

Finally, confirm where the money sits. The escrow holder should be a title company or attorney, never an individual buyer or a friend’s LLC. Request proof of the wire or an escrow receipt, not a screenshot of a banking app.

Where fast sales and fair terms meet

When you see billboards that say we buy houses, the pitch is speed and simplicity. The best operators deliver both by structuring deposits that make it hard for either side to wander. Sellers get paid for the time off market during the option period. Buyers get a short window to verify what they’re buying without playing games. After that, earnest money carries the risk to the finish line.

If your priority is to sell my house fast, ask for meaningful deposits, short windows, and clear triggers. If you’re the buyer, win the trust of a wary seller with a reasonable option fee, quick deposits, and clean language that shows you close when you say you will.

The paperwork is small, but it’s not trivial. Those two checks at the start of a deal do more to predict the ending than any slogan or handshake ever will.

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Pub: 09 Sep 2025 00:13 UTC

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