💲 Earnest Money vs. Option Money in Georgia Real Estate Contracts

Agents often focus heavily on the purchase price, yet the structure of the buyer’s upfront money can determine whether the deal is taken seriously, how disputes are resolved, and whether a seller feels comfortable accepting an offer in the first place.

Let’s break down the differences and the practical decisions agents and their clients face.

Earnest Money: The Buyer’s Good Faith Deposit

Earnest money is the buyer’s deposit demonstrating serious intent to purchase the property. In the Georgia Association of REALTORS® Purchase and Sale Agreement (GAR F201), earnest money serves several important functions.

Why Earnest Money Exists

Earnest money is designed to:

• Show the buyer is committed to completing the transaction

• Provide financial security for the seller if the buyer defaults

• Establish a dispute framework for handling funds if the contract fails

• Create leverage in negotiations when multiple offers exist

When a transaction closes, the earnest money is credited toward the buyer’s purchase price or closing costs. Either way, the buyer will receive a credit on the settlement statement for the amount of earnest money which reduces the funds they need to bring to closing.

If the transaction terminates under a contractual contingency—such as due diligence or financing—the earnest money is typically refunded to the buyer.

If the buyer defaults without a contractual right to terminate, the earnest money becomes liquidated damages payable to the seller under the Georgia Association of REALTORS® (GAR) contract.

Option Money: Payment for the Due Diligence Period

Option money is separate from earnest money and serves a different purpose.

It is the payment the buyer makes directly to the seller in exchange for a contractual right. It is something that the buyer will not get back unless it is credited at a successful closing.

The key difference is that option money is payment for a contractual right—the buyer’s unrestricted ability to walk away during due diligence, the creation or extension of some special contingency, the extension of a deadline or closing date, etc.

The Practical Difference Between Earnest Money and Option Money

Although both involve upfront funds, they operate very differently.

From a seller’s perspective, option money is the only guaranteed payment if the buyer walks away.

From a buyer’s perspective, earnest money carries more risk once contingencies expire.

Choosing the Amount of Earnest Money

Earnest money is negotiable and varies widely by market conditions.

Typical Ranges

In many Georgia transactions:

• 1% of purchase price is common in balanced markets

• 2–3% may appear in competitive situations

• Flat amounts such as $5,000 or $10,000 are often used in mid-range homes

Luxury properties frequently involve significantly larger deposits.

Earnest Money Amounts from the Seller's and Buyer's Perspective

Seller psychology

Sellers view higher earnest money as a signal of seriousness.

The amount should be based more on what will keep a buyer committed to the transaction rather than on a simple percentage of the purchase price.

The amount should be more focused on the amount that will hold a buyer into the deal rather than a certain percentage of the purchase price. The same amount represents more of a commitment for a first time homebuyer on a tight budget than it does for an investor buying multiple properties or a highly liquid parent buying a less expensive home for their child.

Buyer psychology

This is one way to make an offer standout that does not cost the buyer more money unless the buyer defaults on their contractual obligations.

Choosing the Amount of Option Money

Option money has become increasingly important in competitive markets.

Because it goes directly to the seller and is usually non-refundable, it represents the buyer’s willingness to pay for more time or more rights to terminate than they would otherwise be able to get a seller to give.

Common Ranges

Many Georgia transactions fall within these general ranges:

• $100 – $500 in slower markets

• $500 – $1,500 in typical suburban markets

• $2,000+ in highly competitive situations or luxury properties

Why Sellers Care About Option Money

Option money answers a simple seller concern:

“What happens if the buyer walks away after tying up my property?”

Option money compensates the seller for that risk.

For this reason, increasing option money often strengthens an offer more effectively than increasing earnest money.

Use Cases for Option Money

The seller can request, or the buyer can offer, option money for

• A longer due diligence period than the seller would otherwise allow

• A contingency that the seller would not otherwise be willing to give

• The extension of an existing due diligence period or contingency

• A repair or adjustment to the property that the seller may not have the funds to complete prior to closing and would not otherwise need to make

• A change to the contract terms, such as the type of financing, the approved mortgage lender, or the possession date

Who Gets Credit at Closing?

In some cases, the buyer gets credit for option money at closing. In other situations, this is additional money paid to the seller over and above the purchase price. The contract provision should make it clear whether or not the buyer will receive credit at closing to ensure that the buyer and seller are on the same page.

Choosing Who Holds the Earnest Money

The GAR contract allows several possible escrow holders.

Most commonly:

• Seller's Broker

• Buyer’s Broker

• Closing Attorney

• Occasionally a title company if the amount is extraordinarily large

Each choice carries different advantages.

Seller's or Buyer's Broker as Holder

This is historically the most common arrangement.

Advantages include:

• Immediate deposit handling

• Brokers are required under Georgia license law to follow strict escrow procedures and trust account rules

Some buyers and sellers worry about neutrality when the opposing broker is the escrow holder. It is important to remember that neither side should assume the broker holding the earnest money will be more likely to award it to their own client.

The 2026 GAR Purchase and Sale Agreement addresses this concern directly by stating that the broker’s decision regarding earnest money disbursement is not affected by their representation of a client in the transaction.

Closing Attorney as Holder

This option is gaining popularity in some transactions. Many newer brokerages have elected not to have a trust account since this reduces oversight by the Georgia Real Estate Commission.

It is a poor choice in cash transactions since the closing attorney is prohibited from making earnest money determinations in cash deals due to representation issues.

Sample Language

Final Thoughts

Earnest money and option money are more than simple deposits. They shape the risk allocation, negotiation power, and dispute resolution structure of the entire transaction.

The right combination can:

• Strengthen an offer

• Protect a buyer’s flexibility

• Provide reassurance to sellers

• Create practical solutions when negotiations arise after the contract is binding

For agents, understanding how these funds function allows you to structure offers that are not only legally sound but strategically effective.

Because in many real estate transactions, the question is not simply “What is the purchase price?”

It is also “How much commitment is the buyer willing to show before closing ever happens?”

When agents understand how to use earnest money and option money thoughtfully, they gain one of the most powerful tools available for winning offers, solving problems, and keeping deals together.

Listen to my podcast discussion:

Cheryl Conner King

Founder & Instructor

REALsmart Real Estate School

Attorney | REALTOR® | CE Instructor

📍 Based in Georgia | Teaching Statewide