Earnest Money

Earnest money is a deposit of funds that serves as evidence of the buyer’s financial capability and genuine intent to purchase. These funds are held in escrow and applied to the buyer’s down payment or closing costs at final settlement.

Texas-Specific Nuance & Citation

According to TREC Rules §535.146 and standard contract forms, earnest money must be deposited into a trust or escrow account within 3 calendar days of the contract’s effective date (or by the end of the next business day if the 3rd day falls on a Saturday, Sunday, or holiday).

The Trap

Candidates often assume earnest money is required to make a contract legally binding. In Texas, earnest money is not a legal requirement for contract validity—mutual promises are the consideration. However, it is almost always contractually required by promulgated agreements.

Worked Example

A buyer enters an agreement on Friday. They must deliver the earnest money to the escrow agent by the following Monday. If the buyer fail to deliver the funds, they are in default of the contract, and the seller can demand delivery or terminate the contract under Section 5.