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What is a Title Company’s Role in Option Money and Earnest Money?

We get a lot of questions about the differences between Option Money and Earnest Money. So, we wanted to provide some insights and updates to help answer some of those questions. Many factors or events can impact the process from beginning to end (mainly depending on the contract). However, the important thing to remember is the title company is a facilitator and neutral party. We can’t intervene like an attorney, accountant, financial advisor or mediator. Everyone in the process is a client of the title company.

With that in mind, here’s what you need to know about Option and Ernest Money.

Option Money guidelines are determined by the parties in the contract, and it:

  • Costs around $100-200 in most cases
  • Allows the buyer time to make sure they are 100% ready to purchase (Do inspections, etc.) 
  • Allows a buyer to cancel the contract without restriction (within the agreed time frame)
  • Covers a time frame usually between 5-10 days (depending on the contract)

As of 2021, the buyer provides the title company with the funds. It is one of several recent changes to option fees and contracts. That money can be released to the seller at any time, and it’s non-refundable (even if the contract is canceled). However, cancelations have to take place in a timely manner.

Earnest Money is like a down payment on your investment because it is:

  • A deposit of “good faith” money between you and the real estate agent
  • Allows time for financing, title search, appraisal and inspection before closing
  • A credit towards your down payment and other costs if the deal closes
  • An amount that’s usually 1% of the sales price – a larger amount can help your offer stand out

Some things that could put your closing funds in jeopardy include, financing issues, appraisal challenges, or even personal reasons such as losing a job. If one, or more of these instances occur it is important to update your trusted agent so they’re aware of any problems and can help you come up with a solution.   

People often will call us and ask us to intervene, give our opinion or take sides. We can’t do that.

Here’s what we need if a contract is terminated:

  • The fully executed Termination
  • The fully executed Release of Earnest Money Form (signed buyer and seller)
  • The address to send funds. 

It’s important to note that we need the Release of Earnest Money Form even if the contract was terminated during the Option period. That way, there is no confusion on who receives the funds.