Changes to the Option Fee in TREC Residential Contracts

Texas Residential Contracts Option Fee

In the fall of 2020, the Texas Real Estate Commission approved several important changes to contracts and addenda that took effect April 1, 2021. TREC forms used by sellers, buyers, and agents should now use form contracts that reflect those changes.

The biggest change relates to the option fee process found in paragraph 5 of the TREC contract. An option fee allows the buyer to terminate a contract for any reason within a specified number of days. If the option fee is not delivered within a certain time, the buyer then loses the option to terminate the contract. Since a failure to deliver checks on time creates the possibility of non-compliance and losing the option period, TREC simplified the process. Before April 1, 2021, the option fee had to be delivered to the seller within three days of the contract’s effective date.

Under the revised forms, the buyer is now required to deliver the option fee, not to the seller, but to the title company. The updated language in paragraph 5.A (3) of the Revised Option Fee Receipt identifies the payee as “Escrow Agent” instead of “Seller/Broker.”  Delivering the option fee to the title company allows the buyer to combine the option fee and the earnest money into a single payment, which also simplifies the option fee process. The seller may request the option fee be paid out by the title company prior to closing without first checking with the buyer. (Paragraph 5.A (4).

TREC implemented these changes to alleviate some complications associated with a buyer's maintaining his or her right to terminate based on consideration paid to the seller. However, the law in Texas regarding contractual options remains quite complicated. A purchaser or seller should consult a real estate attorney familiar with contract law and options.

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