The Texas option fee is what a buyer pays for the option period, a negotiated number of days when you can terminate the purchase contract for any reason. Under the current TREC One to Four Family Residential Contract (Resale), form 20-19, you deliver the option fee to the escrow agent within 3 days after the Effective Date. If you terminate on time, by 5:00 p.m. local time on the last day, you lose the option fee but get your earnest money back. If you close, the option fee is credited to the sales price.
I'm Taylor Ring, a Mortgage Loan Officer with Fairway Independent Mortgage Corporation (The Wood Group) in Belton. The option period overlaps the busiest stretch of your loan, so I want you to know how it works. Everything here comes from TREC's current forms and TREC's own FAQs, read October 18, 2026. For the deposit side of the contract, see my guide to earnest money in Texas.
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What the Termination Option Is
Paragraph 5B of the TREC resale contract gives the buyer "the unrestricted right to terminate" by giving the seller notice within the number of days written in the blank. That window is the Option Period. In exchange, the buyer agrees to pay the option fee on time.
TREC's Frequently Asked Questions make three points clear:
- It's negotiable. The termination option is a negotiable contract term. You don't have to pay for one to buy a house.
- There's no automatic cooling-off period. TREC says there's no automatic three-day or 72-hour right to change your mind. Your termination rights are whatever the contract gives you.
- No reason required. If you paid the agreed option fee, you can terminate for any reason by giving written notice during the option period.
The current form is TREC No. 20-19, which TREC lists with an effective date of July 1, 2026. It replaces TREC No. 20-18.
How the Option Fee Works vs. Earnest Money
Both go to the same escrow agent, but they do different jobs.
| Option Fee | Earnest Money | |
|---|---|---|
| What it does | Buys the unrestricted right to terminate during the option period | Good-faith deposit backing your promise to buy |
| Delivered to | Escrow Agent, within 3 days after the Effective Date | Escrow Agent, within 3 days after the Effective Date |
| If you terminate in the option period | Not refunded; goes to the seller | Refunded to you |
| Before closing | Escrow Agent may release it to the seller at any time | Held by the Escrow Agent |
| At closing | Credited to the sales price | Applied to your down payment, then your expenses |
Source: TREC form 20-19, Paragraphs 5 and 18.
You can pay them separately or combined, payable to the Escrow Agent. If combined, Paragraph 5A(3) applies the money first to the option fee, then to the earnest money, then to any additional earnest money.
How much is it? TREC doesn't set an amount. The contract has a blank, and you and the seller agree on the number. One rule matters a lot: if no dollar amount is stated, or you don't deliver the fee on time, you don't get the unrestricted right to terminate (Paragraph 5D).
Deadlines: Delivery, Counting Days, and 5:00 p.m.
Paragraph 5E says time is of the essence and strict compliance is required. Here are the dates that count:
- Option fee delivery: within 3 days after the Effective Date. The Effective Date is the date of final acceptance written on the contract.
- Weekend and holiday rule for delivery. If the last day to deliver the option fee or earnest money falls on a Saturday, Sunday, or legal holiday, Paragraph 5A(2) extends it to the end of the next day that isn't one.
- How days are counted. TREC's FAQ says the first day starts the day after the Effective Date, and each day is a calendar day. With a 7-day option period and an Effective Date on the 1st, the period runs through the 8th.
- Termination notice: by 5:00 p.m. Paragraph 5B says notices must be given by 5:00 p.m., local time where the property is located, by the date specified.
The weekend extension in 5A(2) is written for delivering money. Paragraph 5B doesn't repeat it for the option period itself, so plan around the actual end date and ask your agent or an attorney if you're unsure.
Notices must be in writing. Paragraph 21 says they're effective when mailed, hand-delivered, sent by overnight courier, or sent electronically to the other party or their agent. TREC's Notice of Buyer's Termination of Contract (form 38-8) has a box for terminating under Paragraph 5.
What Buyers Typically Do During the Option Period
TREC's FAQ describes the option period as the time to inspect and negotiate repairs. In practice:
- Schedule inspections right away. Paragraph 7A lets you use inspectors you choose who are licensed by TREC or otherwise allowed by law. The seller must keep the utilities on. Hydrostatic testing needs the seller's separate written permission.
- Read the seller's disclosures and any HOA documents you've received.
- Get homeowners insurance quotes. The Texas Department of Insurance says companies consider a home's age, condition, construction, location, and claims history.
- Negotiate. Repairs or a price change go on TREC's Amendment to Contract (form 39-11), which has boxes for a new sales price, seller repairs, and lender-required repairs.
- Decide. Terminate by the deadline, or let the option period end.
Accepting the property "As Is" under Paragraph 7D doesn't stop you from inspecting, negotiating repairs in an amendment, or terminating during the option period. The form says so directly.
Need more time? Amendment box (7) covers an additional option fee for an extension, and you check whether that extra fee will or will not be credited to the sales price. Box (8) is how a buyer waives the termination option early.
How the Option Fee Is Credited at Closing
Paragraph 5A(4) authorizes the Escrow Agent to release the option fee to the seller at any time without further notice. TREC's article on changes to delivery of the option fee confirms the seller doesn't have to wait until closing, though title companies follow "good funds" rules before paying it out.
Either way, the form says the option fee will be credited to the Sales Price at closing. If you buy, it isn't extra money on top of your price. It counts toward what you pay.
Your earnest money is handled separately. Under Paragraph 18B, it's applied first to any cash down payment, then to your expenses, with any excess refunded. My guide to closing costs in Texas walks through that document.
An additional option fee paid under an amendment is different. It's credited only if the amendment says it will be.
How the Option Period Interacts With Your Financing
This is where I come in. The option period and your loan approval run on separate clocks.
- The option period isn't a financing contingency. It's an unrestricted right to terminate, but only until the deadline. After that, your right to terminate depends on the contract's other provisions.
- Buyer Approval has its own deadline. If your contract uses the Third Party Financing Addendum (form 40-11) and is subject to Buyer Approval, you can terminate within the days written in that addendum if you can't get approved. You give notice plus the lender's written statement of the reason, and your earnest money is refunded. If you don't terminate by then, the contract is no longer subject to Buyer Approval.
- Property Approval runs longer. If the lender decides the property doesn't meet its requirements, such as appraisal, insurability, or lender-required repairs, you can terminate on or before the 3rd day before the Closing Date with the lender's statement and get your earnest money back.
- You have to try. The addendum requires you to apply promptly and make every reasonable effort to get approved, including furnishing the documents your lender asks for.
Here's what I suggest:
- Get pre-approved before you write an offer, and send me the signed contract the day it's executed.
- Turn in documents fast. The more underwriting we finish early, the more you know before your option period ends.
- Don't open new credit or change jobs while you're under contract.
For FHA and VA loans, Paragraph 4 of the financing addendum adds a required appraisal provision. For other loans, TREC's Addendum Concerning Right to Terminate Due to Lender's Appraisal (form 49-1) lets the parties waive, partially waive, or add a right tied to the appraised value. For program basics, see my FHA loan requirements in Texas guide or my VA loans page.
This is general information, not legal advice. TREC's contract tells you to consult an attorney before signing.
Frequently Asked Questions
How much is the option fee in Texas?
TREC does not set an option fee amount. The contract leaves it blank, and the buyer and seller negotiate the number. If no dollar amount is filled in, or the buyer does not deliver the fee on time, the buyer does not get the unrestricted right to terminate.
When is the option fee due in Texas?
Under TREC contract 20-19, the buyer must deliver the option fee to the escrow agent within 3 days after the Effective Date. If the last day falls on a Saturday, Sunday, or legal holiday, the deadline moves to the end of the next day that is not one.
Is the option fee refundable if I terminate?
No. If you terminate during the option period, the option fee is not refunded and goes to the seller, but your earnest money is refunded to you. If you close on the home, the option fee is credited to the sales price.
How long is the option period in Texas?
There is no standard length. The buyer and seller fill in the number of days. Days are calendar days starting the day after the Effective Date, and the termination notice must be given by 5:00 p.m. local time where the property is located on the last day.
Is the option period the same as a financing contingency?
No. The option period is an unrestricted right to terminate that ends on its deadline. Financing protection comes from the Third Party Financing Addendum, which has its own Buyer Approval deadline and a separate Property Approval right that runs until 3 days before closing.
Questions Before Your Option Period Starts?
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Related Guides
Sources
- TREC: One to Four Family Residential Contract (Resale), TREC No. 20-19
- TREC: Third Party Financing Addendum (40-11), Amendment to Contract (39-11), and Notice of Buyer's Termination of Contract (38-8)
- TREC: Addendum Concerning Right to Terminate Due to Lender's Appraisal (49-1)
- TREC: Frequently Asked Questions and Changes to Delivery of Option Fee
- Texas Department of Insurance: Home insurance guide
Taylor Ring, NMLS #2809683 | Fairway Independent Mortgage Corporation, NMLS #2289 | The Wood Group of Fairway, 127 Lake Rd Ste 300, Belton, TX 76513 | Equal Housing Opportunity. This is not a commitment to lend. All loans are subject to credit approval and program guidelines, and approval, rates, and program availability are not guaranteed. This article is general information, not legal advice; your contract's terms control, so consult a real estate attorney with questions. Not affiliated with or endorsed by the Texas Real Estate Commission or any government agency.