Practically

Q. Under the revised Texas Real Estate Commission (TREC) contracts, can I deliver the option fee to either the seller or the escrow agent? A. No. The revised TREC contracts provide that the option fee shall be delivered to the escrow agent (this is usually the title company). There is not a provision to deliver it directly to the seller. Note that the revised TREC contracts permit the option fee to be delivered in a separate payment or in a combined payment with the earnest money. Q. What if the buyer deposits the earnest money and option fee in one sum and gets the amount wrong? A. The contract provides that money received by the escrow agent first be applied to the option fee and then to the earnest money. So, if both sums are given in one check and the check is short, the earnest money will not be paid in full, and the buyer will be in default under the contract–unless the full amount is paid within the required timeframe.

What the Law Says

According to Texas case law, there must be consideration to have a valid option period. The promulgated TREC contracts provide for a negotiated amount of money as part of the consideration for the option period. Failure to pay the agreedupon option fee in a timely manner means no option period will be created and the buyer will not have a right to terminate

The parties sign a contract that requires $3,500 in earnest money and a $150 option fee be deposited with the escrow agent within three days after the effective date. The effective date is Monday, April 5. The buyer writes one check in the amount of $3,560 and gives it to the buyer’s agent to deliver to the title company on April 7. The agent does not notice that the buyer has transposed the numbers, and he delivers the check to the Title Company on April 8 and sends a copy of the check to the seller’s agent. As of 12:01 a.m. on April 9,

The buyers’ agents should keep track of the required dates for delivery of the option fee and earnest money to the escrow agent (three days after the effective date). Do this promptly. There is no reason to wait until the last day. If the earnest money and option fee are delivered in one payment, check the math and double-check the math to make sure the correct

Q. When does the seller get the option fee from the escrow agent? A. When the seller asks for it, or, if the seller does not ask for it, at closing. Note that the escrow agent does not need the contract for any reason under that contract provision. If the earnest money is not paid or not paid in full, the TREC contracts provide the seller can terminate the contact or pursue default remedies in the contract, or both, by providing notice to the buyer before the buyer deposits the required earnest money.

amount is delivered. Sellers’ agents should also keep track of the time. If the earnest money is late and the seller elects to send a Notice of Termination, the seller’s agent should ensure it is delivered in a manner that documents the time it was sent. This could be important if the seller has a more desirable back-up contract waiting in the wings.

permission from the buyer to deliver the option fee to the seller. The contract terms contain that permission already.

For Example

the buyer will have failed to deliver the required earnest money under the contract, since $150 will be applied to the option fee first, leaving $3,410 to be applied to the earnest money. This is $90 less than the contract required. Now the race is on. If the buyer realizes the mistake and gets the additional $90 to the title company before the seller sends a termination notice, the contract term will be fulfilled. If the termination notice is sent first, the seller can proceed with seller’s rights under the contract.

Best Practice

Bonus Question

Nothing in this publication should be construed as legal advice for a particular situation. For specific advice, consult an attorney. Lewis (kerri@2oldchicks.com) is a member of the State Bar of Texas and former general counsel for the Texas Real Estate Commission (TREC). Wukasch (avis@2oldchicks.com) is a broker and former TREC chair.