Title Tip: Voice Your Opinion on Contract Option Fee Changes

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Proposed changes to the Texas residential real estate contracts will soon be adopted and now is the last chance to voice your opinion on them. One of those proposed changes will affect the way buyers may deliver an option fee to a seller. Let’s take a look at the details and how it might affect buyers, sellers, their agents, and the title company.

Currently, a buyer must deliver any option fee to the seller of the property and deliver their earnest money to the title company named on the contract.

The Texas Real Estate Commission (TREC) has proposed a change to allow the option fee to be delivered to the title company in a transaction. This change will “authorize payment of option fee to escrow agent separately or combined with earnest money in single payment.” If this change passes, both the option fee and earnest money would be payable to and delivered to the title company on the contract.

The contract changes are also supposed to address any remedies for failure to timely deliver funds and authorize the tile company to pay the option fee to the seller. As with most contract modifications, there are pros and cons associated.

The Pros

Allowing delivery of both option fee and earnest money to the title company should be easier for the consumer and their agents. Currently many option fees are made by personal check and hand delivery or mailed by the buyer or buyer’s agent to the seller or seller’s agent. Sometimes, option money is paid through a funds transfer to the seller via Venmo or another similar payment platform.

The option fee payment gives the buyer the option to terminate the contract within a specific time period for any reason. During the option period, the buyer usually performs inspections. If the option fee is not delivered within three calendar days of the contract, then the buyer does not have the option to terminate for any reason. Simplifying the delivery of buyer funds should help all parties ensure the deadline for delivery is met.

When sending funds to the title company, the buyer has the option of wiring the funds, paying by check or using an approved app like Zoccam. Payment to the title company should reduce the risk to the seller by ensuring the buyer funds are valid.

Some Cons

All funds to the title company must be presented as “good funds” according to the Texas Department of Insurance. This is to protect against fraud or other criminal activities. They define “good funds” as a wire transfer, cashier’s check, certified check, money order, personal check, or cash. Title companies currently do not accept cash transfer applications like Venmo.

The title company must collect, deposit and confirm money before they will disburse funds. Funds paid by check are usually not released for 10 business days to ensure payment has cleared. If the buyer pays the option fee with a check to the title company, then the seller would not receive the buyer’s option fee from the title company until 10 business days have passed or proof of the cancelled check is presented. Those 10 business days (basically two weeks) do not start counting until the title company receives and deposits the check.

“I am very much in favor of allowing title companies to accept option checks on behalf of sellers, but not convinced the restriction of waiting 10 days for the option check to clear the bank will really make it feasible for widespread use,” says Realtor Paul Sanders of Compass Real Estate. “I am seeing more and more use of Venmo and Zelle for easy delivery of option fees. There may be more efficient alternatives just around the corner that will work even better than relying on title companies to manage option fees for us.”

Licensed Texas Realtors and the public are encouraged to review and comment on the proposed changes to the contracts by emailing general.counsel@trec.texas.gov. All proposed modifications to the current contract are on the TREC web site: https://www.trec.texas.gov/rules-and-laws#proposed . The proposed contract changes are up for adoption at the November commission meeting.

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Lydia Blair

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.

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