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Understanding Earnest Money vs Option Money in Real Estate | Garza Home Team RE/MAX

Welcome to the Garza Home Team blog at RE/MAX North San Antonio! In today’s blog post, we’ll be discussing the difference between earnest money and option money when it comes to buying and selling real estate.

When making an offer on a property, it’s common practice for buyers to provide earnest money as a show of good faith. Earnest money is a deposit that the buyer puts down to demonstrate that they are serious about purchasing the property. This money is typically held in an escrow account until closing, at which point it is applied to the purchase price of the home.

On the other hand, option money is a fee paid by the buyer to the seller in exchange for the right to terminate the contract during a specified period of time. This fee is typically paid upfront and is non-refundable, even if the buyer ultimately decides not to proceed with the purchase.

So, what’s the difference between the two? Earnest money is a way for the buyer to show the seller that they’re serious about buying the property. It’s a signal that the buyer is committed to seeing the transaction through to completion. Option money, on the other hand, is a way for the buyer to gain some flexibility during the due diligence period. If the buyer decides to back out of the contract during this period, they forfeit the option money, but they’re not on the hook for the full purchase price of the home.

One way to think of it is that earnest money is a form of security deposit, while option money is more like a fee for a “get out of jail free” card.

It’s important for both buyers and sellers to understand the difference between earnest money and option money, as they can have a significant impact on the outcome of a transaction. As a buyer, you’ll want to make sure you have enough earnest money to show that you’re serious about the purchase, but not so much that you’re putting yourself at risk if the deal falls through. As a seller, you’ll want to make sure that the option period is short enough to give you some security, but not so short that the buyer doesn’t have enough time to complete their due diligence.

At the Garza Home Team, we’re committed to helping buyers and sellers navigate the real estate process. If you have any questions about earnest money, option money, or any other aspect of buying or selling a home, please don’t hesitate to reach out to us. We’re here to help!

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