Texas Transaction Guide: How Closings Work

Texas is a title company state with a transaction framework that is unique in several important ways. The option fee structure exists nowhere else in the country. There is no state transfer tax. Title insurance rates are regulated and uniform. And the Texas Real Estate Commission (TREC) publishes promulgated contract forms that are used in the vast majority of residential transactions. If you are doing deals in Texas — or planning to — understanding these mechanics is fundamental to operating effectively.

This guide covers how closings work for both retail (owner-occupant) and investment (wholesale, flip, rental) transactions. For Texas-specific wholesaling disclosure requirements under SB 1577, see our Texas compliance guide.

How Closings Work in Texas

Texas is a title company state. The title company handles virtually every aspect of the closing: ordering the title search, issuing the title commitment, preparing the settlement statement (HUD-1 or ALTA), holding escrow funds, coordinating document signing, recording the deed, and disbursing funds after closing. No attorney is required at the closing table, though either party can bring one.

In practice, the title company is the neutral third party that runs the transaction from contract execution to recording. The closer (sometimes called a settlement agent or escrow officer) is your primary contact. They will send you the title commitment for review, collect deposits, prepare closing documents, and schedule the signing appointment.

Both parties typically sign at the title company office, though remote notarization is increasingly common. Mobile notaries are available for signings at the property, a coffee shop, or wherever is convenient. Once all documents are signed, funds are wired, and the title company records the deed at the county clerk's office. The transaction is considered closed when the deed is recorded.

For investment deals, picking the right title company matters. Not every title company is comfortable with assignments, double closes, or transactional funding. You want a title company that has handled wholesale transactions before and will not stall or reject your deal structure. More on this below in the wholesale-specific section.

Termination Rights and Due Diligence

Retail / Owner-Occupant Deals

Texas uses a unique structure that separates termination rights from earnest money. The standard TREC contract (One to Four Family Residential Contract, TREC 20-17) includes two distinct mechanisms:

Option fee: This is the headline feature that makes Texas different. The buyer pays a negotiated fee — typically $100 to $500 on retail deals — directly to the seller (not to the title company, not into escrow). In exchange, the buyer gets an unrestricted right to terminate the contract during the option period for any reason whatsoever. No justification needed. The option period is typically 7 to 14 days on retail transactions. If the buyer terminates during the option period, the seller keeps the option fee but must return the earnest money. If the buyer does not terminate, the option fee is credited toward the purchase price at closing.

This is fundamentally different from an inspection contingency in other states. An inspection contingency typically requires the buyer to identify a deficiency as a reason for termination. The Texas option period has no such requirement — the buyer can walk for any reason, including simply changing their mind.

Earnest money: Separate from the option fee, the buyer deposits earnest money with the title company. On retail deals, 1% of the purchase price is typical. This money is held in escrow and credited toward the purchase price at closing. If the buyer terminates during the option period, the earnest money is returned. If the buyer defaults after the option period expires, the seller may be entitled to keep the earnest money as liquidated damages (the TREC contract includes a liquidated damages provision).

In addition to the option period, retail TREC contracts include a financing contingency (if the buyer cannot obtain financing by a specified date, they can terminate and get their earnest money back) and provisions related to the property condition. Survey objections, title objections, and property condition matters all have their own resolution mechanisms in the TREC contract.

Investment / Wholesale Deals

Off-market investment deals to end buyers in Texas typically strip out all of the retail protections. No option period, no inspection contingency, no financing contingency. The buyer is purchasing at a discount because the property needs work, and the non-refundable deposit reflects that understanding. The deal is as-is, where-is, with full knowledge that repairs are needed.

On the buy side (wholesaler contracting with the seller), many wholesalers do negotiate an option period — typically longer than retail, often 21 to 30 days — to give themselves time to find an end buyer. The option fee is usually $10 to $100, sometimes as low as $1 (though a nominal option fee can raise suspicion with sophisticated sellers). This option period is the wholesaler's safety valve: if they cannot find a buyer, they can terminate and lose only the option fee.

On-market investment deals (listed on MLS with a realtor) use the standard TREC contract, which includes the option period by default. Experienced investors may waive the option period or shorten it to make their offer more competitive. But the contract framework is the same as retail because realtors use the promulgated TREC forms.

Earnest Money

Retail Deals

One percent of the purchase price is the standard earnest money amount on retail transactions in Texas. On a $300,000 home, that is $3,000. The earnest money is deposited with the title company within the timeframe specified in the contract (typically 1-3 business days after contract execution). The title company holds it in escrow until closing, at which point it is applied as a credit toward the buyer's purchase price.

If the buyer terminates during the option period, the earnest money is fully refundable — the seller keeps only the option fee. After the option period expires, the earnest money becomes at risk. If the buyer defaults, the seller can claim it as liquidated damages under the TREC contract, though in practice earnest money disputes sometimes require mediation or legal action to resolve.

Investment and Wholesale Deals

On the buy side (wholesaler to seller), earnest money is typically $500 to $2,000, kept intentionally low to limit risk. Combined with a low option fee and a long option period, the wholesaler's total exposure is minimal until they have a buyer locked up.

On the sell side (wholesaler to end buyer), earnest money ranges from $2,000 to $5,000 or more and is typically non-refundable from day one. The end buyer is a cash investor who has evaluated the deal, knows the numbers, and is committing. The non-refundable deposit protects the wholesaler from an end buyer who ties up the deal and then walks away, potentially causing the wholesaler to lose the contract with the original seller.

Who holds the earnest money: on retail and most investment deals, the title company holds all deposits. In some off-market wholesale transactions, the wholesaler holds the end buyer's deposit directly. This is more common in established relationships where the buyer trusts the wholesaler, but it creates liability and is not best practice. The safest approach is to have all deposits held by the title company as a neutral third party. For more on earnest money in investment deals, see our guide to non-refundable deposits.

Who Pays for What

Retail Transaction Customs

Texas has strong customs around who pays which closing costs, and the TREC contract includes checkboxes that reflect these norms:

• Owner's title policy: Seller pays. This is the default on the TREC contract and is the overwhelming custom statewide. Title insurance rates in Texas are regulated by the Texas Department of Insurance (TDI), so the premium is the same regardless of which company you use.
• Lender's title policy: Buyer pays (if financing).
• Transfer tax: None. Texas has no state-level real estate transfer tax. This is a significant cost advantage compared to states where transfer taxes add $1,000-$5,000+ to every transaction.
• Recording fees: Buyer typically pays deed recording; seller pays any release-of-lien recording.
• Survey: Negotiable. The TREC contract includes a checkbox for who provides the survey. If the seller has an existing survey, they may provide it. Otherwise, the buyer typically pays for a new one ($400-$600 for a standard residential survey).
• Closing fee / escrow fee: Split between buyer and seller is common, or one party may cover it. This is negotiable.
• Agent commissions: Seller pays both the listing agent and buyer's agent commissions (5-6% total is customary, though post-NAR settlement practices are evolving).
• Tax prorations: Property taxes are prorated to the date of closing. Texas property taxes are paid in arrears, so the seller typically owes a proration credit to the buyer for the portion of the year they occupied the property before closing.

Investment Transaction Customs

Investment deals, especially off-market wholesale transactions, diverge from retail customs. No agent commissions (no agents involved). The seller often still pays for the owner's title policy, but this is negotiable — on distressed properties where the seller is motivated, they may push back on any cost. The buyer (investor) may agree to cover title insurance or closing fees to get the deal done.

On the sell side, the end buyer typically covers their own closing costs. The assignment fee (in an assignment deal) or the spread (in a double close) is factored into the settlement, not added as a separate line-item cost to the buyer. For a detailed breakdown, see our closing costs by state guide.

Title Work and Insurance

The title company orders the title search from a title plant or abstractor. The title examiner reviews the chain of title going back at least 40 years (the standard in Texas) and issues a title commitment. The commitment lists the conditions under which the title company is willing to insure the property, including any exceptions (easements, liens, encumbrances) that will remain after closing.

Owner's title policy: Protects the buyer (new owner) against defects in the title. The seller pays for this in Texas. The premium is a one-time payment at closing based on the sale price, calculated using TDI-regulated rates.

Lender's title policy: Required by any mortgage lender. Protects the lender's interest. The buyer pays for this. It is issued simultaneously with the owner's policy at a reduced premium.

Common title issues in Texas include: unreleased liens from prior mortgages, tax liens (Texas property taxes are notoriously aggressive about placing liens), judgment liens, boundary disputes (especially in rural areas or older subdivisions), and mechanics' liens from unpaid contractors. On distressed properties — the kind wholesalers typically deal with — title issues are more common than on retail deals. Budget extra time for title clearance on these transactions.

For background on how title insurance works and who pays in different states, see our title insurance guide.

Wholesale-Specific Closing Notes

Assignment deals: In an assignment closing, the wholesaler's assignment fee is visible on the settlement statement. The end buyer sees exactly how much the wholesaler is making. Some buyers do not care; others will push back if the fee looks disproportionate. If you want to keep your spread private, a double close is the standard approach. For Texas-specific assignment disclosure requirements under SB 1577, see our Texas compliance guide.

Double closes: Texas title companies generally support double closes (also called simultaneous closings or back-to-back closings), but not all of them do. You need to confirm with the title company upfront that they are comfortable with the structure. In a double close, you buy the property at one closing (the A-to-B transaction), then immediately sell it to the end buyer at a second closing (the B-to-C transaction). This requires either your own cash or transactional funding.

Transactional funding: Short-term loans (typically same-day or 1-3 day terms) used to fund the A-to-B side of a double close. The transactional lender provides the purchase funds, you close on the buy side, then immediately close on the sell side and repay the lender from the second closing proceeds. Rates are typically 1-2% of the loan amount plus a flat fee. Several Texas-based transactional lenders operate in this space.

Investor-friendly title companies: Not every title company understands wholesale transactions. Some will refuse assignments, reject transactional funding, or require modifications to your contracts that slow down the deal. Find a title company that has closed wholesale deals before and knows the mechanics. Ask other wholesalers in your market for recommendations — this is one of the most important relationships you will build. For tips on finding the right title company, see our investor-friendly title company guide.

Timeline: Assignment closings can close as fast as the title company can produce the commitment — often 7-10 days for clean titles. Double closes take marginally longer because two sets of documents need to be prepared, but many title companies can turn them same-day once title is clear.

Typical Closing Timeline

Retail (financed): 30-45 days from contract execution to closing. The timeline is driven by the lender's underwriting process, appraisal scheduling, and title work. The 7-14 day option period runs concurrently.

Cash investor: 7-14 days is standard for a cash deal with clean title. If the title company can expedite the commitment, some deals close in 5-7 days. Title issues (liens, boundary problems, probate situations) can extend the timeline to 30+ days regardless of whether the buyer is paying cash.

What affects timeline in Texas: Title issues are the primary bottleneck. Property tax liens must be cleared before closing. If the property is in probate or has multiple heirs, expect delays. HOA transfer fees and document requirements can add a few days. Rural properties may require a new survey, which takes 1-2 weeks to schedule. County recording offices in large metros (Harris, Dallas, Tarrant, Bexar) are generally efficient, but smaller counties can be slower.

Key Differences from Other States

• Option fee structure: Texas is the only state that uses a paid option fee for an unrestricted termination right. Every other state uses inspection contingencies, due diligence periods, or attorney review periods. The option fee is not held in escrow — it goes directly to the seller on execution.
• No transfer tax: Texas has no state-level real estate transfer tax. This saves investors $1,000-$5,000+ per deal compared to states like Florida ($0.70/$100), Georgia ($1/$1,000), or Pennsylvania (2% split). Over a portfolio of transactions, this adds up significantly.
• Regulated title rates: Title insurance premiums in Texas are set by the Texas Department of Insurance. Every title company charges the same rate. You do not need to shop for rates — shop for service, responsiveness, and comfort with your deal structure.
• TREC-promulgated contracts: Most residential transactions use TREC-promulgated forms. These are standardized, well-understood, and extensively litigated. They include specific provisions for option fees, earnest money, property condition, title, and closing. Using non-TREC contracts is legal but uncommon for residential deals and can create complications with title companies and lenders.

Frequently Asked Questions

What is the difference between an option fee and earnest money in Texas?

An option fee is a separate payment made directly to the seller (not held in escrow) that gives the buyer an unrestricted right to terminate the contract during the option period for any reason. Earnest money is a good-faith deposit held by the title company and applied to the purchase price at closing. Both are part of a standard TREC contract, but they serve different purposes and are handled differently. For a deeper comparison, see our option fee vs inspection period breakdown.

Does Texas have a real estate transfer tax?

No. Texas is one of a small number of states with no state-level real estate transfer tax. This is a meaningful cost advantage for investors doing volume — you save $1,000-$5,000 per transaction compared to states with transfer taxes of $1-$4 per $1,000 of sale price.

Who pays for title insurance in Texas?

The seller customarily pays for the owner's title insurance policy. The buyer pays for the lender's title policy if they are financing the purchase. Title insurance rates in Texas are regulated by the Texas Department of Insurance — they are the same regardless of which title company you use. See our title insurance guide for how this compares to other states.

Do investment deals in Texas include an option period?

Off-market investment and wholesale deals to end buyers typically have no option period. The buyer is purchasing at a discount because the property needs work, and the deposit is non-refundable from day one. On-market investment deals listed with a realtor will usually include an option period because TREC contracts include it by default, but many experienced investors waive it to strengthen their offer.

How long does a Texas real estate closing take?

Retail closings with financing typically take 30-45 days. Cash investment deals can close in 7-14 days, sometimes faster if title is clean and the title company can turn the commitment quickly. The main bottleneck is title work — the title company needs to complete the title search and issue a commitment before closing can be scheduled.

Disclaimer

This guide is for informational purposes only and does not constitute legal advice. Transaction customs vary by county and can change based on market conditions, contract terms, and the parties involved. Texas wholesaling is also subject to SB 1577 disclosure requirements — see our Texas compliance guide for those details. Consult a licensed real estate attorney or experienced title professional in Texas before relying on any information presented here.