Earnest Money in Texas: Who Holds It, When It Is Due and Who Gets It

What is earnest money in a Texas contract?

Earnest money is a deposit the buyer puts down to show they are serious. In the TREC resale contract, the amount is written in paragraph 5A. The parties choose it. The form does not set a number, and we will not suggest one here.

The money is not paid to the seller on day one. It goes to an escrow agent named in the contract, who holds it until closing or until the deal ends. At closing, paragraph 18B says the earnest money is applied first to any cash down payment, then to the buyer's expenses, and any excess is refunded to the buyer.

Who holds the earnest money?

The contract names the escrow agent in paragraph 5A, with an address. In practice this is often a title company, but the form leaves the choice to the parties. Paragraph 18A says the escrow agent is not a party to the contract and is not responsible for whether the buyer or seller performs.

Paragraph 18A also says the escrow agent is not liable for interest on the money. It is not liable for loss of the money if a bank fails, unless that bank is itself acting as escrow agent. These are useful facts to share with a client who asks where their money sits.

When is earnest money due?

Paragraph 5A says the buyer must deliver the earnest money within 3 days after the Effective Date. It can be paid with the option fee or separately. Both go to the escrow agent and are made payable to the escrow agent.

If the last day falls on a Saturday, Sunday or legal holiday, the time is extended to the end of the next day that is not one. The form also has a place for additional earnest money, to be delivered within a number of days written into the contract.

Time is of the essence for paragraph 5, according to paragraph 5E. Strict compliance with the time is required, so treat the date as a hard deadline.

What are the key earnest money deadlines at a glance?

This table pulls the numbers from Form 20-19 into one place. The page in the form is the rule, so check it in the contract your client signs.

What happens if the buyer is late with the earnest money?

Paragraph 5C gives the seller choices. If the buyer fails to deliver the earnest money on time, the seller may terminate the contract, or use the seller's remedies under paragraph 15, or both. The seller does this by giving notice to the buyer before the buyer delivers the earnest money.

That last phrase matters. Once the buyer delivers the money, the seller can no longer use that late delivery as the reason to terminate. Even so, a late deposit puts your client in a weaker spot. Get the money in on time.

When does the buyer get the earnest money back?

The contract spells out clear paths in paragraphs 5B and 15, and other paragraphs add more.

• The buyer ends the contract during the option period. Paragraph 5B says any earnest money is refunded to the buyer (the option fee is not).
• The seller defaults. Paragraph 15 says the buyer may terminate and receive the earnest money, or may pursue specific performance and other relief.
• The contract has other termination rights tied to specific paragraphs, such as financing. Read each paragraph and its deadlines in the form your client signs, and ask the broker or an attorney how they apply.

When can the seller keep the earnest money?

If the buyer fails to comply with the contract, the buyer is in default. Paragraph 15 then lets the seller either enforce specific performance and seek other relief, or terminate the contract and receive the earnest money as "liquidated damages." That second choice releases both parties from the contract.

Whether a buyer is actually in default can depend on facts and law. Do not tell a client they will win or lose the money. Paragraph 23 reminds everyone that TREC rules prohibit brokers and agents from giving legal advice, so suggest an attorney.

How does an earnest money release work?

Paragraph 18C sets a process for when a contract ends and the parties disagree about the money.

• Either party or the escrow agent may send a release of earnest money to each party. The parties sign counterparts and return them to the escrow agent.
• If a party will not sign, either party may make a written demand to the escrow agent for the money.
• If only one party makes written demand, the escrow agent promptly gives a copy to the other party.
• If the escrow agent gets no written objection from the other party within 15 days, the agent may pay the money to the party who made the demand, reduced by unpaid expenses incurred on behalf of the party receiving it.
• Notice of an objection is effective when the escrow agent receives it.

What if someone refuses to sign a release?

Paragraph 18D adds a penalty for stalling. A party who wrongfully fails or refuses to sign a release acceptable to the escrow agent within 7 days of receiving the request is liable to the other party for damages, the earnest money, reasonable attorney's fees and all costs of suit.

Paragraph 17 adds that a buyer, seller, either broker or the escrow agent who prevails in a legal proceeding related to the contract may recover reasonable attorney's fees and costs. These two paragraphs are strong reasons to send your client to an attorney early if a dispute starts.

How can a new agent help a buyer protect their deposit?

You cannot control the outcome of a dispute. You can control the process.

• Read the earnest money and option paragraphs aloud with the client before they sign.
• Write the delivery deadline for the earnest money and option fee on your calendar the day the contract is signed.
• Ask the escrow agent for a written receipt, and keep a copy in the file.
• Give every notice in writing and keep proof of when it was sent.
• Keep your tone neutral if a dispute starts. Do not give legal conclusions, and tell the client to speak to an attorney.

Where do you go next?

Earnest money works together with the option period. Read our guide to the Texas option period next. For the bigger picture, see what a new agent should do first, the first 90 days and our plain-words look at how agents get paid.

How The Bauer Group fits

The Bauer Group is a Frisco brokerage welcoming licensed DFW agents. Opportunities are earned, not guaranteed. If you want to talk about how you would handle your first contracts with support nearby, you can start on the join page.

Education only, not legal, tax or financial advice. Confirm licensing and contract rules with TREC and your broker, and send clients to an attorney for legal questions. Last reviewed October 29, 2026.