Who issues the receipt for the earnest money under the one to four family residential contract?

May 18, 2020

Recently, I’ve fielded several phone calls from agents asking for clarification regarding the delivery deadline for the earnest money and option fee. 

You may recall that paragraph six of the One to Four Family Residential Contract states that buyers must deliver the earnest money to the escrow agent within three days. However, it then states that if the third day falls on a weekend or legal holiday, the deadline is extended to the next business day. Many agents are confused by this, though, because they think that all weekend days and legal days are excluded from counting the delivery days. 

For example, let’s say the contract’s effective date is on a Thursday, so the agent counts Friday as day one, skips over Saturday and Sunday, and counts Monday as day two and Tuesday as the delivery deadline for the earnest money. This is incorrect. If the effective date is on Thursday, then Friday still counts as day one, but Saturday is counted as day two. Since day three is a Sunday, the delivery deadline falls on Monday. 

“The option money is delivered to the seller or their broker, and they’re both assumed to be available seven days a week.”

If the buyer’s agent misunderstands this, mistakenly tells their buyer they have until Tuesday to deliver the funds, and the deadline is missed, the seller has the right to cancel the contract. Of course, this right of cancelation is nullified if the earnest money is delivered at any point after the deadline and is accepted by the escrow agent. 

When it comes to the option fee, paragraph 23 of the One to Four Family Residential Contract sounds similar to paragraph six: The buyer has three days to deliver the option money to the seller (or by extension, their broker). 

The difference is that there is no exception for weekend days and legal holidays, and the rationale behind this is simple. The option money is delivered to the seller or their broker, and they’re both assumed to be available seven days a week. The earnest money is delivered to the escrow agent, and most title companies aren’t open on weekends or legal holidays. 

If you’re still unsure about the delivery deadline for either of these fees or have any other real estate questions, don’t hesitate to give me a call. I’m here to help. 

The Texas Real Estate Commission is making big changes to some of its most commonly-used forms.  In addition to adopting a new Consumer Protection Notice, and revamping other contract forms and addenda, the Commission has adopted significant revisions to the One to Four Family Residential Contract (Resale). (**NOTE: this link contains the legislative drafting – redline version of the contract reflecting all changes).

Formal notice of adoption of the changes was made on November 13, 2020, with mandatory use of the new form to begin on April 1, 2021.

The One to Four Family Residential Contract (Resale) is, perhaps, the most commonly used of all TREC Contract Forms. It is appropriately used for the purchase and sale of single family homes, duplexes, triplexes and four-plexes.

Some of the changes are hypertecnical, and made for purposes of clarifying ambiguities that may have existed in previous versions.  Other changes are much more profound, and one reflects our lives in a modern/digital age of “smart” everythings.

Here are some of the most important changes:

• The definition of “Accessories” in paragraph 3 is expanded to include the Seller’s transferable rights to software, apps  and hardware used  “to access and control accessories”;
• There is a whole new section(paragraph 4)  dedicated to the Seller’s disclosure of “Leases,” to include “fixture leases” (solar panels, water softeners, propane tanks, etc.) and “natural resource leases” (wind, minerals, water, etc);
• The Earnest Money and Option Fee provisions have been combined into a single paragraph.  Under the new form, both the earnest money and the option fee are to be delivered to the Title Company and may be paid separately or combined into a single payment.  The termination Option is also incorporated into this single paragraph 5;
• New paragraph 8 contains the broker or sales agent disclosure (disclosing an interest of the broker or their family in the property), and contains an express statement that the broker’s compensation agreement is contained in another written agreement;
• New paragraph 10(C) defines “smart devices” as “a device that connects to the internet to enable remote use, monitoring, and management of the property, certain non-realty items and/or items in a fixture lease  (I’m thinking Amazon and Google smart devices or maybe tablet/phone app-based controls for “smart home” systems). New paragraph 10(c) also obligates a seller to  deliver to the buyer (at the time possession is delivered) “written information containing all access codes, usernames, passwords, and applications Buyer will need to access, operate, manage, and control the Smart Devices” and to terminate the Seller’s access.  This paragraph promises to be fertile ground for disputes as it is abundant with privacy considerations!
• Paragraph 18 contains new protections for escrow agents in connection with disbursing earnest money when a contract terminates;
• The Option Fee Receipt is now specifically designed to be executed by the escrow agent (not a broker for either the buyer or seller).

As is always the case with changes to long-standing, frequently-used documents, there are more questions than answers. Changes to real estate forms (and laws) are sometimes reactionary to real-world issues that have arisen since the last revision. Other times, they seek to solve problems that don’t really exist.

Adapting to the new forms will be an interesting ride.  Stay tuned for developments, and answers to questions fielded by the agency and industry experts as the mandatory use date of April 2021 approached.