What Happens If a Buyer Backs Out of Your Austin Home Sale?

by Amanda Zito

Do you get to keep the earnest money if your buyer backs out?

Sometimes. It depends on why the buyer canceled, when they canceled, and what your contract says.

If the buyer cancels during a valid option period or uses another cancellation right in the contract, they usually get their earnest money back. If they walk away without that right, you may be able to keep it.

Either way, it's frustrating. You accepted an offer, started planning your move, and may already be looking for your next home. Now you're wondering what happens next.

For sellers in Austin, Lakeway, Bee Cave, and the Lake Travis area, here's what to know.

This guide covers the standard Texas resale contract, TREC Form 20-19, effective July 1, 2026. Other contracts may work differently.

First, Check Whether the Contract Has Ended

A phone call saying the buyer wants to cancel doesn't tell you everything you need to know.

Have your agent review the contract, any written notice, and the deadlines. Notices must follow the contract's rules. Some contract terms can also end the agreement automatically.

Before signing a new primary contract, confirm where the first one stands. You don't want to promise the same home to two buyers.

You can generally keep showing the home and accept a backup offer unless you've agreed otherwise in writing. A properly written backup contract waits behind the first one. Texas resale contract, Paragraphs 19 and 21

The Option Fee and Earnest Money Are Different

These two payments are easy to mix up.

The option fee pays for the buyer's right to cancel for any reason during an agreed number of days. That time is called the option period.

Earnest money is the buyer's deposit, held by the escrow agent, usually a title company. If the sale closes, it goes toward the buyer's purchase.

If the buyer properly cancels during the option period, you keep the option fee and the buyer gets the earnest money back. Texas resale contract, Paragraphs 5 and 18

What Happens During the Option Period?

During a valid option period, the buyer can cancel for any reason.

Maybe an inspection turns up a repair they don't want to take on. Maybe their plans change. They don't have to prove something is wrong with the house.

But they do have to follow the contract. Under the standard form, written notice must be given by 5 p.m., local time where the home is located, on the last day of the option period.

For example, suppose a buyer's inspection finds a septic problem at your Lake Travis home. The buyer decides the repair is more than they want to handle and cancels before the option deadline. You keep the option fee. The earnest money goes back to the buyer.

What if the buyer doesn't pay on time?

The standard contract generally gives the buyer three days after the effective date to deliver the option fee and earnest money. Payment deadlines that fall on a weekend or qualifying holiday extend to the next business day.

If the option fee isn't paid on time: The buyer loses the right to cancel for any reason under the option provision. Other cancellation rights may still apply.
If earnest money isn't delivered on time: You may have the right to end the contract or use other contract remedies. You must give the required notice before the buyer delivers the deposit.

Have your agent confirm both payments with the title company early. Texas resale contract, Paragraph 5

Can the Buyer Still Cancel After the Option Period?

Yes, in some situations.

The option period ending doesn't remove every other cancellation right. Your contract may include conditions, often called contingencies, that allow the buyer to cancel and get their earnest money back.

Their financing falls through

The financing addendum separates approval into two parts:

Buyer approval: Whether the buyer qualifies for the loan based on their finances.
Property approval: Whether the home meets the lender's requirements, including appraisal, insurance, and required repairs.

If buyer approval is a condition of the sale, the buyer must use that cancellation right within the agreed deadline and provide the required lender statement.

Property approval has its own rules. Under the standard addendum, cancellation requires notice and a lender statement on or before the third day before closing. FHA and VA appraisal protections have separate rules.

An appraisal or loan problem doesn't automatically answer who gets the deposit. Your agent needs to review the actual financing terms, any waivers, and the paperwork. TREC Third Party Financing Addendum

Their current home doesn't sell

Some buyers need to sell their current home before buying yours.

If your contract includes that condition and it isn't met or properly waived by the agreed date, the contract can end automatically and the buyer gets the earnest money back.

The addendum also includes a process for moving forward with another offer. Your agent can explain the notice, deadline, and additional deposit needed if the first buyer wants to waive the condition. TREC Addendum for Sale of Other Property by Buyer

Required disclosures haven't been delivered

Missing disclosures can give a buyer another way to cancel.

When a Seller's Disclosure Notice is required and the buyer hasn't received it, the standard contract allows cancellation before closing. If the buyer receives it after signing the contract, they can cancel within seven days after receipt or before closing, whichever comes first.

The current resale contract includes similar terms for the Seller's Disclosure about Groundwater and Surface Water Rights when that disclosure is required.

Have your agent confirm which disclosures apply to your property and get them ready before offers come in. Texas resale contract, Paragraphs 7B and 7I

Other issues come up

Unresolved title problems, lender-required repairs, damage before closing, or missing required notices may also affect the buyer's rights.

Each situation has its own rules. That's why the reason for canceling matters just as much as the date. Texas resale contract, Paragraphs 6, 7E, and 14

When Can You Keep the Earnest Money?

If the buyer fails to follow the contract without a valid right to cancel, they may be in default. That simply means they haven't met their contract obligations.

For example, a buyer might change their mind after their cancellation deadlines have passed and refuse to close.

Under the standard contract, you may choose to end the agreement and receive the earnest money as the agreed payment for that default. This is called liquidated damages, and it releases both parties from the contract.

You may also have other legal options, including asking a court to enforce the agreement. Those choices can involve legal fees, delays, and uncertainty. The contract generally calls for mediation when informal discussions don't resolve a dispute.

Before choosing a remedy or signing a release in a disputed situation, speak with a Texas real estate attorney. Texas resale contract, Paragraphs 15–17

The Title Company Doesn't Automatically Release the Money

Even if you believe the buyer owes you the deposit, the title company follows a release process.

It may require a written release signed by both sides. If one side won't sign, the contract also allows a written demand for the money.

The escrow agent sends that demand to the other party. If no written objection is received within the contract's 15-day window, the agent may release the money, subject to allowed expenses.

If there is an objection, the money generally stays in escrow while the dispute is resolved.

There can also be financial consequences for wrongfully refusing to sign a release within seven days of receiving the request. Review the facts before signing or refusing. Texas resale contract, Paragraph 18

Who Usually Gets the Earnest Money?

These examples assume the applicable contract terms, deadlines, and notice requirements are met.

What happened?	Who usually gets the earnest money?
Buyer properly cancels during the option period	Buyer; seller keeps the option fee
Buyer properly uses a financing cancellation right	Buyer
Buyer's home sale condition isn't met or waived by the deadline	Buyer
Buyer properly cancels because a required disclosure wasn't provided	Buyer
Buyer defaults and seller chooses to end the contract and take the deposit	Seller, through the release process

What Should You Do Next?

Review the cancellation with your agent. Check the reason, notice, and deadlines before deciding what happens with the deposit.

Make a plan for the earnest money. If there's a disagreement about who gets it, involve an attorney before making decisions that could affect your rights.

Get ready for the next buyer. Once the contract's status is clear, your agent can help you return to the market or move forward with a backup offer.

Review anything new you learned about the house. If an inspection brought a problem to your attention, discuss whether your disclosures need to be updated before the next sale.

Before You Accept Another Offer

When we review an offer, I want you to understand the terms that could affect whether the sale closes.

We'll look at:

How long the option period lasts.
The option fee and earnest money amounts.
The buyer's financing deadlines and what the lender has reviewed.
Whether the buyer needs to sell another home first.
Whether your required disclosures are complete and ready.

No offer can remove every risk. But understanding these details helps you make a more informed decision.

Common Questions

Can a Texas buyer cancel for any reason?

During a valid option period, yes, as long as they follow the payment and notice requirements. After that, another cancellation right must apply for them to walk away without risking default.

Do I automatically get the earnest money if the buyer cancels?

No. A buyer who properly uses a cancellation right usually gets it back. If the buyer defaults, you may choose to end the contract and receive it through the release process.

How long does it take to release earnest money?

There isn't one timeline for every sale. It depends on whether both sides agree, whether the contract's demand process is used, and whether anyone objects.

Can I accept another offer while the first buyer is still under contract?

You can generally accept a properly written backup offer unless you've agreed otherwise in writing. Confirm the first contract has ended before moving forward with a new primary contract. Texas resale contract, Paragraphs 5, 15, 18, and 19

Let's Talk About Your Next Step

If you're selling in Austin, Lakeway, Bee Cave, or the Lake Travis area, I can help you understand an offer and plan for what comes next.

And if a buyer has already backed out, we can review where things stand and make a plan to get your sale moving again.

Visit SoldByZito.com or call or text 949-484-9486.

Amanda Zito, REALTOR®
Real Broker, LLC
TX TREC #840088 | CA DRE #01740063

This article provides general information, not legal advice. Your signed contract, addenda, and circumstances determine your rights. For a contract dispute, consult a Texas real estate attorney.