Legal FAQs for REALTORS®
— Contracts and Forms
Termination of Agreements
Follow-up to above question regarding earnest money and contract termination: (updated Feb. 17, 2005)
1. Earnest money is not "consideration" for the TREC contracts. A real estate contract is an enforceable contract if it is in writing, shows a meeting of the minds on all terms and conditions, and is signed by all parties to the contract. The promise of the seller to sell and of the buyer to buy is sufficient consideration to support the making of a contract. The failure of a party to perform an obligation required under the terms of the contract, including a failure of a buyer to timely deposit earnest money, is a default by that party authorizing the other party to exercise any of the default remedies described in paragraph 15 of the TREC contracts. 2. The formal notification by a seller in writing to a buyer would be prudent in order to eliminate an argument by the buyer that by conduct or comment the seller might be waiving his right to insist on timely performance by the buyer of his obligation to deposit the earnest money.
I discovered that the TREC notice form for a buyer to terminate the contract under the Third Party Financing Condition is no longer available on ZipForm. What form should I use? (updated Oct. 15, 2008)
Where a buyer has a right to notify the seller that the contract is terminated under any provision of the contract, you should use the Notice of Buyer's Termination of Contract (TAR 1902). This form was designed to combine the notices of two prior TREC forms and to add a reference to several other paragraphs or addenda where the buyer can notify the seller that the contract is terminated. This form was promulgated by TREC with a mandatory use date of Sept. 1, 2008.
After completing inspections on one of my listings, the buyer requested the seller repair several items shown on the inspection report. The seller refused to do any of the repairs. During the option period, I received a Release of Earnest Money form (TAR 1904) signed by the buyer and his agent showing the earnest money being returned to the buyer. No Notice of Buyer's Termination of Contract form (TAR 1902) has been received by the seller or the listing agent. Does the Release of Earnest Money form satisfy the buyer's notice of termination requirements under Paragraph 23 of the contract? (updated Jan. 21, 2010)
Paragraph 21 of the TREC contract requires that all notices from one party to another must be in writing. TREC has promulgated the Notice of Buyer's Termination of Contract form for use when a licensee is helping a buyer provide the appropriate notice to the seller of the exercise of his termination option. While a buyer can use any form of written notice to terminate the contract, a buyer's agent asked to help the buyer give the appropriate notice should use the promulgated form. When the appropriate box of the form has been checked, the TREC Notice of Buyer's Termination of Contract form makes it clear that the buyer intends to and is giving the appropriate notice to the seller of his election to terminate the contract under the provisions of Paragraph 23. While one might believe that the buyer has made the decision to terminate the contract under his termination option by sending the seller or his agent a signed Release of Earnest Money form, showing the earnest money being released to the buyer and indicating a release of all rights or liabilities under the contract, a court might not agree that this writing satisfied the buyer's notice requirements under Paragraphs 21 and 23 of the contract. The preferred practice would be for a buyer's agent to have a buyer who intends to exercise his termination option under the provisions of Paragraph 23 use the TREC Notice of Buyer's Termination of Contract form and send the signed form to the seller at the address specified in Paragraph 21 or by facsimile as specified in that paragraph. The Release of Earnest Money form could be signed and included with the notice form to facilitate the execution of that form by the seller. Practice Note: This same procedure of sending both the TREC notice and the release of earnest money form to the seller can be used when the buyer is giving notice to the seller of the termination of the contract under any paragraph of the contract or any contract addendum.
A seller under a listing agreement wants me to take her property off the market. Do I have to terminate the listing to do this? I’m concerned that the seller might list with another broker in a few days. (Updated April 11, 2014)
In this situation, you can use Amendment to Listing (TAR 1404). A provision in the amendment states that the seller is instructing the broker to cease marketing the property until further notice or until a specific date. The provision states that the listing is not terminated and remains in full effect.
If the seller is contemplating signing a listing with another broker, the seller will likely not agree to sign the amendment and this could lead to further discussions. If you determine that you wish to terminate the listing agreement, you can use Termination of Listing (TAR 1410). This form provides for early termination of a listing and determines whether the broker will receive compensation for early termination.
My client has a contract to sell her home, but the buyer hasn’t deposited the earnest money despite numerous requests from his agent. My client thinks the buyer is in default, and she wants to terminate the contract and receive the earnest money. Is there a form to give notice to the buyer that the contract is terminated? (updated Dec. 9, 2014)
No. Although TREC contracts have provisions permitting the parties to terminate the contract because of some circumstances or conditions, there are currently only two provisions that allow a party to terminate the contract unilaterally by giving notice:
1. When the buyer exercises his unrestricted right to terminate during the option period
2. When the buyer cannot obtain financing approval pursuant to the Third Party Financing Condition Addendum
If your seller wants to formally notify the buyer of her election to terminate the contract and receive the earnest money because of the buyer’s default, she can write a letter to that effect that includes an earnest money release for the buyer to sign. While the letter will not conclusively establish that the contract has been terminated, sending the letter is still a good idea because it clearly states the seller’s position that it is terminated.
The Texas Association of REALTORS® used to have a form that terminated the contract as well as provided for the release of earnest money, but now all I can find is a form entitled Release of Earnest Money (TAR 1904). My seller wants to be sure that the contract has been terminated, and that the earnest money is released back to the buyer, who could not obtain financing. What form should we use? (updated Aug. 12, 2004)
TAR form 1904 used to be entitled Termination of Contract and Release of Earnest Money. The title of the form was changed for several reasons, but primarily to avoid confusion between this form and other forms that are actually notice forms executed by a buyer to notify the seller of the buyer's termination of the contract under a right contained in the contract. (Examples include the notice of termination under paragraph 23 or the third-party financing condition addendum of the TREC contracts or a notice of similar contractual termination rights that a buyer has under the TAR commercial contracts.) Notwithstanding the change of the form's title, the Release of Earnest Money form does contain language whereby the buyer and the seller release each other from all liability under the contract referenced in the form. This language has the legal effect of terminating all of the rights the parties have under the contract and thus terminates the contract itself. In your example, if both the buyer and the seller sign the form as written, then the seller can consider that the contract has been formally terminated.
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