In Texas, earnest money is a deposit made by a buyer to demonstrate their serious intent to purchase a property. While it is common in real estate transactions, earnest money is not a requirement under Texas law. The amount of earnest money can vary, but a typical guideline is approximately 1% of the contract price. For instance, on a $500,000 contract, the earnest money might be around $5,000. This deposit serves as a form of security for the seller, indicating that the buyer is committed to following through with the purchase.

According to the Texas Real Estate Commission (TREC) One to Four Family Residential Contract (Resale), the earnest money must be delivered to the escrow agent, usually within three days after the effective date of the contract. The escrow agent, typically the title company, holds the earnest money in a neutral account until the transaction is either completed or terminated. The earnest money can be combined with other payments such as the Option Fee, or it can be delivered separately. If the earnest money is not delivered within the specified time frame, the seller has the right to terminate the contract or seek other remedies.

It is important to note that if the third day falls on a Saturday, Sunday, or legal holiday, the deadline for delivering the earnest money is extended to the next business day. For example, if the effective date of the contract is Monday, the buyer would normally have until Thursday to deliver the earnest money. However, if Thursday is a legal holiday, the deadline would be extended to Friday. Similarly, if the effective date is Thursday, the three-day deadline would typically fall on Sunday, and the deadline for delivering the earnest money would be extended to Monday, assuming it is not a legal holiday. This extension ensures that buyers are not penalized by deadlines falling on days when financial institutions or title companies are closed.

It's important to note that the earnest money is typically made payable to the title company, which acts as the escrow agent. The contract specifies that if the transaction proceeds to closing, the earnest money is applied first to any cash down payment and then to the buyer's expenses. However, if the transaction does not close, the disposition of the earnest money depends on the terms of the contract and the circumstances of the termination. If a buyer defaults on the contract, the seller may retain the earnest money as liquidated damages. Conversely, if the seller defaults, the buyer is entitled to a return of the earnest money.

In transactions involving new home construction, it is common for builders to use private contracts, which may have different terms regarding earnest money, including its refundability. These private contracts can vary significantly from one builder to another. Therefore, it is crucial for buyers and their agents to carefully review these contracts and consult with a real estate attorney if there are any questions about the handling of earnest money.

In conclusion, earnest money in Texas serves as a financial commitment from the buyer, held by the escrow agent, usually the title company, to ensure the buyer's intent to purchase. It is not a legal requirement but is a standard practice in most transactions. The specific terms, including the amount and refundability, are outlined in the contract, and any variations in these terms, especially in builder contracts, should be reviewed carefully with the assistance of legal counsel. Understanding the deadlines for delivery and the potential extensions for weekends and holidays is crucial to maintaining the buyer's standing in the transaction and ensuring that the contract remains in good faith.​