Earnest Money in a Texas FSBO Sale: Who Holds It, Who Keeps It, and How Disputes Actually Resolve

Earnest money is the buyer's skin in the game — a deposit that says they are serious about closing. In a Texas resale, it is almost never held by the seller and almost never held by the buyer. It sits in escrow at a title company, governed by the terms the parties agreed to in TREC 20-17. As a FSBO seller in Bexar County, your job is to understand three things: how the money gets into escrow, what triggers its release, and what to do when the buyer walks and refuses to sign.

Earnest money vs. option fee — they are not the same

This is the single most common mix-up in FSBO deals, so handle it first. TREC 20-17 treats them separately and the amounts, destinations, and consequences are different.

• Option fee (Paragraph 23): a small payment — commonly a few hundred dollars in the San Antonio market, though negotiable — that buys the buyer an unrestricted right to terminate during the option period (typically 5–10 days). It is paid directly to the seller, not the title company. It is almost always non-refundable. It can be credited to the sales price at closing if the parties check that box.
• Earnest money (Paragraph 5): a larger deposit — often 1% of sales price in this market, but there is no statutory minimum — delivered to the escrow agent (the title company named in Paragraph 4). It is refundable or forfeitable depending on why the contract terminates.

If a buyer hands you a single check marked "earnest money" and expects it to cover both, stop and rewrite. Two instruments, two recipients.

Who holds it

The escrow agent named in Paragraph 4 of TREC 20-17. In San Antonio FSBO deals, that is typically a local branch of a title company — Independence Title, Alamo Title, Texas American Title, Stewart, Chicago, or one of the regional shops. The buyer picks or the parties agree; there is no legal requirement that you use any particular company. The title company is a neutral stakeholder. They are not your advocate and not the buyer's advocate. They hold the funds and disburse per the contract or per a signed release.

You, the FSBO seller, should never take possession of earnest money. Doing so creates personal liability, tax headaches, and a fight you do not want if the deal breaks.

The delivery clock

Paragraph 5 requires the buyer to deliver earnest money to the escrow agent within 3 days after the Effective Date. The Effective Date is the date the last party signs and that signature is communicated to the other — not the date the offer was written. Miss that window and the seller has a termination right, but you have to act on it; the contract does not self-destruct.

If you are the seller and day 4 arrives with no receipt from the title company, call the title company first to confirm, then send written notice of default if the money is not in. Keep everything in writing and time-stamped.

When the buyer gets it back

In a typical Texas resale, the buyer is entitled to a refund of earnest money if any of the following happens:

• Buyer terminates during the option period (Paragraph 23) — a pure walk-away right.
• Buyer terminates under a financing contingency in the Third Party Financing Addendum within the approval deadline.
• Property appraises low and the buyer terminates under the appraisal terms the parties negotiated.
• Seller defaults — fails to deliver clear title, refuses to close, breaches a repair obligation under the Amendment (TREC 39-9), etc.
• Title objections under Paragraph 6 that the seller cannot or will not cure.
• The property is damaged before closing beyond the casualty thresholds in Paragraph 14.

When the seller keeps it

The seller's path to earnest money is narrower. Under Paragraph 15, if the buyer defaults — fails to close, fails to perform after the option period expires, walks without a contractual basis — the seller may either terminate and receive the earnest money as liquidated damages, or enforce specific performance. You do not generally get both, and you do not get to keep the earnest money and also sue for additional damages unless the contract and the facts support it.

The trap: after the option period ends, a buyer who gets cold feet often tries to manufacture a financing or inspection reason to terminate. Read the addenda carefully. A late, vague termination notice is not automatically a valid one.

The release of earnest money

Here is where FSBO sellers get stuck. The title company will not release earnest money on its own judgment. It needs either:

1. A Release of Earnest Money signed by both parties (TREC 38-8 or the title company's equivalent form), or
2. A court order.

If the deal closes, release is automatic through the closing statement. If the deal dies and both sides agree who gets the money, you sign the release, the title company cuts checks, done — usually within a few business days.

The fight happens when both sides believe they are entitled to the funds and neither will sign.

When the buyer refuses to sign the release

Texas has a statutory pressure mechanism. Under Property Code § 1101.602 and the corresponding TREC rules, once one party makes written demand on the escrow agent for release of the earnest money, the escrow agent must give notice to the other party. If the other party does not object in writing within 15 days, the escrow agent may release the funds to the demanding party.

Practically:

• Send a written demand to the title company citing the contract basis (e.g., "Buyer failed to close on the Closing Date and did not terminate under any contingency; Seller is entitled to the earnest money under Paragraph 15").
• Copy the buyer.
• Wait out the 15-day objection window.
• If the buyer objects, the title company will continue to hold the funds until the parties agree or a court rules.

If the dispute persists, your venue in Bexar County depends on the amount. Earnest money fights under $20,000 fit in Justice Court (the four JP precincts, filed through eFileTexas). Above that, County Court at Law or District Court. Most FSBO-level earnest money disputes are small enough for JP court, where you can appear without a lawyer, though the contract may entitle the prevailing party to attorney's fees under Paragraph 17.

What most people get wrong

• Treating the option fee as refundable. It is not, unless you wrote it that way. A buyer who terminates during the option period gets earnest money back; the option fee stays with the seller.
• Letting the buyer deliver earnest money to the seller. Always to the escrow agent. A personal check to the seller is not contract-compliant delivery and creates a mess if the deal breaks.
• Assuming the title company will "decide." They will not. They are a stakeholder, not a judge. Without a signed release or a court order, funds sit.
• Missing the 15-day demand procedure. Sellers routinely let contested earnest money sit in escrow for months because nobody starts the clock. Send the written demand.
• Confusing the Effective Date with the contract date. The 3-day earnest money delivery clock runs from the Effective Date — last signature communicated — which the parties or the title company must record in the blank on page 9.
• Forgetting the Amendment (TREC 39-9). Any change to closing date, repairs, or price after execution needs a written amendment. Verbal "we agreed to push a week" is not a defense to default.
• Not naming the title company on the contract. If Paragraph 4 is blank or ambiguous, you have a contract with no escrow agent and a buyer with no place to send the check.

Before you sign anything

Building a FSBO deal in Texas is manageable when you treat the TREC forms as the operating manual they are. Read every paragraph that references money, dates, or termination — 5, 6, 9, 14, 15, 21, 23 — and know where the refund paths are before a buyer ever walks. When the stakes exceed what you are comfortable handling alone, a flat-fee transaction attorney or a Texas real estate attorney is a short call that can save a much longer one.

If you are listing FSBO in San Antonio, you can post your home free at /list-your-home, and if you decide mid-process that a pro makes more sense than fighting an earnest money claim alone, /agents will connect you with local agents who handle these disputes every month. More FSBO-specific walkthroughs live at /resources.