In a Texas real estate transaction, what is the key difference between the option fee and earnest money?
Correct Answer
D) The option fee is non-refundable to the seller, while earnest money is held in escrow by a neutral third party
The fundamental difference is that the option fee is paid directly to the seller and is non-refundable (it is consideration for the option period), while earnest money is deposited with a neutral escrow agent and is refundable under certain contract conditions.
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Related Topics & Key Terms
Key Terms:
Related Concepts
A financing contingency makes the purchase contract conditional upon the buyer obtaining mortgage approval within a specified time period. If the buyer cannot secure financing, they can cancel the contract and receive their earnest money back.
An inspection contingency gives the buyer the right to have the property professionally inspected within a specified time frame and to negotiate repairs or cancel the contract based on the findings.
Liquidated damages are a predetermined amount of money specified in the contract that the non-breaching party is entitled to receive if the other party breaches. In real estate, the earnest money deposit typically serves as liquidated damages.
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