Texas Real Estate Commission (TREC) State Practice Exam

Question: 1 / 400

What differentiates earnest money from the option fee?

Earnest money is refundable; option fee is not

Earnest money serves as a demonstration of the buyer's seriousness in pursuing the purchase of a property and is typically deposited into an escrow account. One important aspect of earnest money is that it is generally refundable under specific conditions, such as if the buyer decides to back out of the deal during the option period or if certain contingencies are not met.

On the other hand, the option fee is a distinct amount paid by the buyer to the seller in exchange for the right to terminate the contract during an agreed-upon option period. Unlike earnest money, the option fee is generally non-refundable, representing the cost of obtaining that option period.

This understanding clearly illustrates the difference between the two forms of payments, particularly highlighting that earnest money can be refunded under specific circumstances, whereas the option fee typically cannot be refunded once paid.

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Earnest money is paid to the seller; option fee is not

There is no difference; both are non-refundable

Earnest money secures the contract; option fee does not

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