Title Tip: The Option Fee and Proof of Delivery

The standard Texas residential real estate contract contains several options for buyers to terminate their contract for various reasons. While sellers may not like it, it makes sense that the person bringing the money has the most options.

The most popular option is the paragraph that requires the buyer to deliver an option fee for the right to terminate for any reason within a specified period of time. This time period is usually when the buyer will perform inspections. The option fee is payment for the buyer’s right to walk away from the contract. Whether or not they exercise that right doesn’t matter. The seller may cash an option fee check at any time and keep the option fee if the buyer terminates. Typically, the buyer gets credited for the option fee at closing when they do not terminate.

The option fee must be delivered to the seller or listing agent within three days after the effective date of the contract or the buyer may lose their rights under the option period. The crucial part of the option period is the DELIVERY of the option fee. Not receipt of the option fee. These are actually two different actions. Let me explain.

It is critical that the option fee is delivered on time. It is not necessary that it be receipted. It is helpful to all parties if this receipted section of the contract is filled out, but it is not mandatory. The receipted page of the contract is simply provided for convenience. Delivery to the seller or listing agent is sufficient even if the receipt isn’t signed. Proof of delivery of the option fee is a critical issue.

Delivery of the option fee and proof of delivery can come in many different forms. How do you both deliver and prove delivery?

• The most popular practice is hand delivery of a check to either the seller or listing agent. It is prudent to get some kind of evidence that the check was delivered. The receipt section of the contract may be signed by the seller or their agent. Or you could take a photo showing you delivering the check. It would be important to then email it immediately to the listing agent and yourself so that you have a date and time stamp showing delivery of the option fee. You need something recognizing delivery of the check.
• The payment could be couriered to the seller or listing agent. The receipt from the courier service may be sufficient to prove delivery.
• Mail the check by certified mail so that you have proof of putting it into the US mail. Depositing it in the US mail may constitute delivery.
• Transfer the funds to the seller via Venmo or another similar payment platform. Once the seller receives the payment, you could send the acknowledgment of receipt to the agents and title company.

The fact that the seller hasn’t received the payment yet doesn’t matter. Delivery is what matters.

Often the buyer’s agent will deliver the option fee check to the listing agent’s office. However, many brokerages have a policy that if the check is delivered to their office, only the manager or the listing agent on that contract may sign the receipt of the check. Or they may just need to confirm with the listing agent before accepting the payment. The purpose of this policy is to avoid inadvertent acceptance of late delivery of the option fee. If they accept and receipt an option check and it turns out it was delivered after the deadline, it could be an issue.

What happens if the option fee is delivered late? The contract clearly states that if the option fee is not delivered within the time subscribed, then there is no option period.

However, if the seller accepts a late delivered option fee, that action can ratify the option period. Talk to the title company attorney at that point. Acceptance can happen when the agent signs the receipt for the check or when a seller cashes the check. Or the option fee check may be received and accepted but not cashed.

The seller can reject a late delivery of the option fee. If the option fee is delivered after the deadline and the seller is going to reject it, the seller should immediately return the option fee check and inform the buyer’s agent that it is rejected due to late delivery. The seller can’t accept the option fee and then later argue that the buyer has no option period.

If the buyer fails to pay the option fee as agreed upon in the contract, it does not mean they are in default of the contract. It just means they no longer have an option period in which they can terminate the contract for any reason.

Any time there is an issue with the delivery of the option fee and the parties are in dispute, a real estate attorney should be consulted.

The opinions expressed are of the individual author for informational purposes only and not for the purpose of providing legal advice. Contact an attorney to obtain advice for any particular issue or problem.

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Lydia Blair (formerly Lydia Player) was a successful Realtor for 10 years before jumping to the title side of the business in 2015. Prior to selling real estate, she bought, remodeled and sold homes (before house flipping was an expression). She’s been through the real estate closing process countless times as either a buyer, a seller, a Realtor, and an Escrow Officer. As an Escrow Officer for Allegiance Title at Preston Center, she likes solving problems and cutting through red tape. The most fun part of her job is handing people keys or a check.