Earnest Money – Texas REALTORS®

I’m representing the buyer in a transaction. He gave me his earnest money check and now the contract is fully executed. When do I have to deposit the earnest money with the escrow agent named in the contract?

The terms of the contract determine when the earnest money must be deposited. For example, under the One to Four Family Residential Contract (Resale) (TREC 20-16, TXR 1601), Paragraph 5 states that the earnest money must be delivered to the escrow agent “within 3 days after the Effective Date.”

If the contract does not state a time period, TREC Rule 535.146 would apply. Rule 535.146 requires that unless a different time period is agreed upon in writing, any trust money, including earnest money received by the broker, must be delivered to an authorized escrow agent (or deposited in a trust account) within a “reasonable time.” The commission has determined a “reasonable time” to be not later than the close of business of the second working day after the date the broker receives the trust money.

Therefore, you should deposit your buyer’s earnest money check in accordance with the terms of the contract or, if the contract doesn’t state a deadline, by the close of business of the second working day after you received the earnest money.

My client’s contract to sell his home fell through, and the buyer and seller disagree over who is at fault and who should get the earnest money that was deposited with the title company. Now my seller wants to put the property back on the market even though the earnest-money dispute hasn’t been resolved. What should I do?

Since the parties haven't agreed on the termination of the contract and no judge has decided the issue, you shouldn't give either party advice about the termination of the contract. Tell your seller to get advice from his attorney concerning the risks of proceeding with a subsequent sale of the property without a final settlement of the issue of contract termination.

The seller's primary goal should be to have formal termination of the contract. That ensures he can put the property back on the market and sell it to someone else without risking a lawsuit that could stop a subsequent sale of the property.

A contract can be formally terminated if both parties agree to terminate—usually in writing with a release-of-earnest-money form—or if a judge orders the contract to be terminated. Because of the potential risk of an adverse ruling by a judge concerning the seller's right to terminate the contract, title companies often refuse to open a second escrow file on a property where the first contract has not been formally terminated.

My buyer clients and the sellers agreed to and signed a contract on a property. However, my clients changed their mind and no longer want to purchase property. My buyers can walk away since they haven’t paid the earnest money or option fee, correct?

No. If the contract has been properly executed by all parties, there is a binding contract even if the buyer has not deposited earnest money. Your clients are not allowed to walk away.

Earnest money is not necessary to make a valid contract. Earnest money is a buyer-performance item required to be deposited after a contract is fully executed. A contract could become effective even if no earnest money is required in the agreement.

Your buyers are still required to deposit the earnest money within the time required for delivery. If the contract calls for a termination option and your buyers timely pay for that option, they would then have the right to terminate the contract within the specified time period.

I submitted an offer to a listing agent on behalf of my client, who offered to pay $1,500 in earnest money. This listing agent reviewed the offer but said he wouldn’t present it until he received the check. He said if the seller accepts my client’s offer, then the earnest money is necessary for the offer to become a binding contract. Is this true?

No. Earnest money is not necessary to make an otherwise accepted offer into a valid contract. Earnest money is a buyer-performance item required to be deposited after a contract is fully executed. A contract could become effective even if no earnest money is required in the agreement.

While a seller could instruct an agent to only present offers that include an earnest-money check, an agent who decided himself that he will not present an offer without an earnest-money check may be violating the Code of Ethics’ instruction to present all offers as quickly as possible.

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