From the Legal Hotline: Delivering the Option Fee
We often get questions about the different requirements for delivery of the option fee and delivery of the earnest money in the TREC residential contracts approved for mandatory use. The earnest money should be delivered to the title company, while the option fee should be delivered directly to the seller. Both should be delivered within three days after the effective date of the contract. However, if the last day to deliver the earnest money lands on a Saturday, Sunday, or legal holiday, this deadline is extended until the next day that is not a Saturday, Sunday, or legal holiday. The time to deliver the option fee is not affected by the weekend or legal holidays.
Iman Ali, associate counsel
Why can’t the option fee come out of the earnest money if the deal breaks up as is done in the commercial world? Delivery of an option fee is a big source of friction in a transaction. Why make this hard? Feels like it is designed to create a false sense of value to an agents participation in a transaction and the lawyers making the rules don’t want to mess with it at their title companies. I am sure there are war stories some can tell to argue against this. In the vast majority of transactions, option fee delivery is… Read more »
I’ve often wondered the same. I think it may be because if the Option Fee in Residential transactions was tied to the EM, it would affect all of the other clauses that refer to the disposition of the EM to the Buyer, that TREC didn’t want to create even more ambiguities than already plague the 1 to 4. One could argue that the state should just adopt the practice, but that would probably require major sweeping revisions wherever EM disposition is involved. The other consideration might be that the 1 – 4 is promulgated by TREC and the Commercial Contracts… Read more »
So what form is used to sell commercial property if you are not a member of TAR? If your are a member of TAR you can use TAR and TREC forms both as needed depending on the kind of Sale? New agent and wondering due to other new agents not sending forms with contract that are really information but the seller wanting a copy of what the buyer signs. Example: Buyer signed Inspection Information and agent didn’t send copy with contract. Seller wanted to see form signed and selection made by Buyer to have inspections.
Thank you,
Gaylene
AMEN! Truer words were never spoken
“directly to the seller”…does this also mean directly to the sellers agent within this 3 days?
My exact thought… why can’t it all be part of the transaction to one party? Seems the client has to deliver to the seller the option and then another trip to the title company which all parties will eventually end up at closing in the same place; deduct it then.. etc..
I agree. Why do we as a buyer’s agent have to go get the contract to title and then getting the option fee to the seller/seller’s agent. I don’t trust the post office to deliver the option fee in a timely manner. It would be way easier to have one place (title) to deposit all the money necessary for a contract!
I’m with you there. The Title company is good enough to hold a down payment toward the house, but not $100 (regardless if it is to be refunded at closing or not)?? SMH
Diana the answer to your question is yes deliver to seller’s agent.
I think when you take the Contract to Title Company you should take the Earnest and Option Fee at the same Time .No delay and will save a lot of trips to pick up Option for the Seller . also so agents know where the Fees are.
Title companies can’t receipt it for you… if you work with a particular Title Company regularly, they’ll often hold it for you for Seller pick-up, but that’s all they can do… at least that’s been my experience.
Please don’t ever leave an Option Check, for pickup, w/the title company.
The Option Fee works well because it helps Buyers to have at least some monetary risk during the Option Period, and the Sellers to at least receive something for taking their property off market if the Buyer terminates. During the recent hot market with Buyers getting frustrated over submitting offer after offer and getting beat out, it probably limited the number of offers that Buyers submitted on different properties simultaneously. And there are apps that let Buyers pay the Option Fee remotely (Venmo, Zoccam), so it doesn’t have to be a chore.
You’re so right, if buyer opts of deal. What about Seller not returning option check when deal goes through as agreed.
If it goes through as agreed, then the Title Company handles crediting the Buyer for the Option Fee provided that’s what was specified in Paragraph 23’s checkbox.
The earnest money and option fee have different purpose and I think it makes sense to keep them separate. The option fee is consideration for the seller giving the buyer the unilateral right to terminate the contracact for a period of time. There isn’t anything the seller can default on that would make the money revert to the buyer, so the seller should be paid the money directly, and quickly since the buyer’s option starts right away. The earnest money may be kept by the seller or revert back to the buyer depending on the conditions of contract default, so… Read more »
Most all the methods you all have suggested have been discussed for some time, but you only have 3 days to deliver the Option Fee or these is no option period. I have worked with agents for many years that wanted an easy way out without having to hand deliver the option fee to the seller’s agent or broker’s office and they do not treat it with the urgency required to be sure your buyer’s have a way to get out of the contract, if after inspecting and the seller’s refuse to make some necessary repairs. I have on more… Read more »
What if the seller accepts the option money when received more than 3 days later?
I would like to know the response to this question myself. What if the option is receipted and cashed by the seller? Doesn’t this mean it was accepted? Even though it was past the 3rd day?
Consider this-the buyer’s agent who writes a cash contract with $5,000 earnest money with no option time tells the buyer to deliver the earnest money to the title co. Two weeks later, 2 days before closing the buyer changes his mind. One problem, neither the buyer or his agent ever took earnest money to the title company (buyers choicein acash deal) and title company never notified either agentthat there was no earnest money. Seller has no recourse and TAR attorneys say agent has no liability either. Scary
I’ve had similar situations in the past, so what I now tell every buyer (or buyer’s agent) is that my sellers won’t respond to an offer that isn’t accompanied by earnest money. (If they prefer to send the money to the title company, that’s fine, but it would need to be there before seller responds.) There can infrequently be some extenuating circumstances, but it can also help sort out the tire kickers faster.
Unless directed in writing from your seller you cannot hold up presenting an offer based on someone tendering earnest money to a title company without a contract. In our area there is not one single title company that would take an earnest money check without an executed contract. Besides how do you direct an agent to deliver an earnest money check to a title company that hasn’t even been decided on by the parties? You are opening up another can of worms with who chooses title and remember once earnest money is held in escrow that buyer has a vested… Read more »
Stephanie, if you will reread my initial comment, I didn’t say “hold up presenting an offer”, I said “seller won’t respond”. My sellers know exactly what is going on. To answer your first question, the buyer would simply write the check to the title company they’ve written in to their offer. While I’m no title company legal expert, I don’t think a title company agreeing to hold a check pre-contract equates to “held in escrow”. (I could be wrong. I’d like to hear from a title company if I am.) Again, I’m no lawyer, so I don’t know what “multiple… Read more »
Jarrod Marcus, may I remind you that this is a public and professional forum? I don’t disagree with your message, but using profanity to make your point is beneath the professionalism of a public speaker at a Realtor Convention. And whether you like it or not, you are functioning as a public speaker before a Realtor assembly, that is being read by non Realtors as well. It’s inappropriate, and demeans the profession. Please work to improve your delivery. Thanks.
Mr. McDonald- If you prefer a different euphemism, how about the writer can go defecate in his fedora. It annoys me that there are agents who play by their own rules that circumvent the intent of a contract promulgated by TREC. It was a waste of our time have to deliver checks, just to get an offer presented that may never go. In the old days, we used to send over a copy of the EM check with the offer. We seem to have gotten away from that as an industry, probably because there’s no guarantee that check is good,… Read more »
Stephen Williams – you make a valid point that the money is not actually tied up. However, I am not a courier service, And running checks around town on deals that may not actually be accepted is a waste of other agents time. We are coming off over five years of multiple offer circuses. I have had listings with 20 offers, and it is unreasonable to expect 19 agents to deliver checks for nothing. If one is unfortunate enough to get stiffed on the earnest money, there is a TREC form for the seller to terminate. Yes, they lose three,… Read more »
Jarod Marcus – I think the biggest issue here is that we operate in different markets. If your scenario leads to the assumption that an offer will typically not be accepted, or even eventually lead to a contract, I get your point. But that’s not the case in my market. One other thought; the same buyer who stiffs you on earnest money is probably not responsible enough to expedite the termination. The form you state requires that buyer’s signature. I’m not sure how you can predict how soon they’ll sign it.
Multiple offers have been the norm in DFW since around 2012. And TREC 50-0 does NOT require a buyers signature.
This doesn’t make a lot of sense to me. The failure to submit earnest money, regardless of who was charged with delivering it, could be a default in the agreement unless other wise stated in the contract. It is not the earnest money but the promises and other considerations that bind the contract. I would think the Seller would still have recourse and is entitled to all of their rights and remedies under the DEFAULT provision, including but not limited to Specific Performance, regardless of whether the earnest money was paid. I also find it incredible that the title company,… Read more »
The contracts are clear. Earnest money to Title Company for receipt. Option Fee to Sellers (or to the Sellers’ agent as they represent the Sellers.) Title companies should not have to babysit agents concerning the Option Fee, nor do they want the burden of responsibility by accepting it! If the title company delays delivering it to the Seller, then who’s legally responsible for missing that clearly stated timeframe? Title companies have enough responsibilities as it is so Agents… do the job that you’re being paid by your Sellers to do. Why does this issue continue to surface? It shouldn’t be… Read more »
The purpose of the Option Fee is to provide a ‘consideration’, a thing of value, to the Seller – not the Title Company – such that upon exercise, the SELLER, without any other action needed, receives compensation for the very real cost of taking the property into Active Option Contract. We are supposed to put the Seller’s needs above all others – INCLUDING OUR OWN. Respectfully, my friends, we get paid WELL to sell property, and if we have to drive a couple of hours, so be it. Beyond that, as others have said, your client can forward an electronic… Read more »
My buyers delivered the option fee check and earnest money to the title company same day as we terminated the contract. My buyer got cold feet. I sent the sellers agent a Termination Agreement but have not received sellers signature. The agent is refusing to release the earnest money due to her not receiving the check in her office for her sellers within the 3 days. Hard lesson learned. I’m a new agent and have closed 4 deals, all with my buyers dropping off both checks to the title company with no problems. I understand that it should’ve been to… Read more »
The entire notion of the option fee is unnecessary. I’m licensed in another state and they handle this due diligence period in a much better fashion and with considerably less ambiguity. Have a due diligence contingency with options for buyer non- acceptance of property and seller options to keep the deal together. Balance the contract so sellers are able to protect their rights to sell and not be at the full discretion of the buyers. And mitigate the lender rights. Lenders have too much latitude in the Texas 1-4 Family. And it gives buyers the opportunity to pull stuff like… Read more »
What happens when there is an amendment to extend the option period and the option money is not delivered within 3 days, but the seller accepts the option money anyway. Does the buyer then still have the unrestricted right to terminate and receive their earnest money back within the extension days?
What happens if the buyer does not deliver the option money? The agent insists it was mailed but hasn’t been received seven days into the deal.
So, the option fee has not been delivered. The buyer no longer has an option, thus the contract just goes forward and the buyer cannot terminate for any reason and get their earnest money back. Is this a correct statement?
I know this is an old conversation but in case you are tagged on this, there are more option for the buyer to terminate a contract, the Third Party Financing Addendum has a termination option if the buyer can’t obtain financing. Also, if there is an issue on the title commitment.
Is the option fee “paid” is given to seller’s agent but not delivered to Seller?
We had an offer on our home. Contracts were signed, EM and option fee delivered. Then buyers wanted additional option time to have inspection done. X number of days were given to buyers by sellers in writing along with a $10 option fee to be paid by buyers to sellers. The X number of days passed, and the sellers had people come inspect our home for specific areas. Our agent told us yesterday that the buyers never paid the extension option fee of $10 and that their agent said they were no longer going to pursue the purchase. Then their… Read more »
If you haven’t paid the earnest money or the option as the buyer can you back out of contract if you discovered undisclosed problems with the house? ex..new roof
Can the buyers agent receipt the option fee on the contract?
This is Completely wrong according to TREC;
earnest money must be deposited by the close of business of the second working day after execution of the contract by the principals, unless a different time is agreed upon in writing by the principals to the transaction. [Rule 535.146(b)(3)]