The Texas Real Estate Commission met November 10 to consider several important issues. Meeting details and materials can be found at TREC’s website.
As anticipated, the commission approved changes to promulgated contract forms. These changes are expected to be effective on a voluntary basis as of February 16, 2021, and mandatory April 1, 2021. Not every contract received the same update, so check TREC’s website for specifics.
Updated Consumer Protection Notice
There was an amendment to the Consumer Information form to alert consumers that inspectors are required to carry E&O insurance. If your website or communications directly link to the Consumer Protection Notice on TREC’s website, no action is necessary. However, if you have saved a copy of the form on your website, you will need to update to the new version before February 1, 2021.
Updates to the One to Four Family Residential Contract (Resale)
- Paragraph 2C: The definition of Controls was updated to include both software and applications used to access and control accessories along with dedicated hardware solely used for the accessory.
- Paragraph 4: This paragraph now contains lease information, including references to the new residential and fixture lease addenda as well as information on natural resource leases to which seller is a party.
- Paragraph 5: The revised section combines payment of earnest money and termination option in a single provision and calls for payment of the termination option fee to the escrow agent.
- Paragraph 8: The previously proposed version removed the language stating the brokers’ fees obligations. This language was added back in.
- Paragraph 10: A Smart Devices section was added to clarify that those devices get transferred with the sale of the property.
- Paragraph 21: The notice information changed to allow for more email addresses by updating the email to read Email/Fax.
- Paragraph 23: This paragraph was deleted to follow the changes to Paragraph 5.
- The Broker Information page now contains additional space for team names.
- Disclosure language at the bottom of the Broker Information page was updated regarding broker compensation.
The commission will hold a special meeting to propose updating forms previously omitted from consideration. This meeting will ensure conformity with changes to Paragraphs 5 and 23, so that all forms will be ready for the March 1 effective date.
New Addenda
The new Residential Lease Addendum was approved with changes from the previously proposed version. Language was added to Section A to notify the parties that use of the addendum does not terminate an existing lease. Additionally, Section B3 was reworded to require sellers to disclose information to the best of their knowledge rather than make affirmative representations.
The new Fixture Lease Addendum was also approved with clarifying changes. Notably, the addendum makes clear that all rights to leased fixtures—such as propane tanks and solar panels—are governed by the fixture leases. New sections were also added to clarify whether the buyer is assuming the fixture lease or if the seller will remove the fixtures.
Texas REALTORS® Appointed to TREC Committees
Three Texas REALTORS® members were appointed to important TREC committees: Kelea Youngblood (Austin) and Mike Crowley (San Antonio) will serve on the Education Standards Advisory Committee, and Bob Baker (Collin County) will serve on the Broker Responsibility Working Group.
I think allowing or requiring the title company to handle the option fee is a huge mistake. It creates additional liability and work for them if they are now responsible for getting the option fee out. How is that going to work? Does the listing agent or seller have to go pick it up? We’ve been using Venmo for delivering the fees if the buyer or seller is not local to the property and it works out well. Is this a choice or required? I just think it’s a bad decision.
If there’s a dispute, then once again title will just sit on the seller’s option fee or keep it from the seller? Horrible idea. It belongs to the seller, NOT the title company period. It’s non refundable so there’s ZERO reason to give it to anybody else. Politics are involved in this decision to keep the fee from the seller, total crap.
This is a ridiculous statement. You obviously are uninformed and did not read the draft language on the new contract(s) that spells out explicitly what happens. Take some time to read the contractual drafted language before you spill out a bunch of nonsense. This is in no way political.
No true, Everyone does not use Venmo.
So who cares.. I don’t have Venmo, but the option fee belongs to the seller.. Title company should not be in the middle.
The option fee will be auto credited to the seller. if the seller wants to have possession of those funds, all they have to do is ask. The title company has zero obligation to perform anything other than getting those funds to the seller at their request. nothing else to add in. ONE check can be sent to title from buyers within 3 days. makes it less of a hassle for them to get two checks within two different dates to two separate people. Title companies are now using electronic payments too and pretty soon it’ll be very quick and… Read more »
It is not a huge mistake. Do you really trust agents to receipt Option Fees? Venmo is great but that’s not what every seller wants or uses. It’s good. Title companies are good at handling money….this option fee is just a drop in the bucket for them to handle.
I agree that having the title company handle option fee money is not a good decision.
Has anyone been successful at having the earnest money released to the party who did not default? I have and the title company does not just release it to them, they don’t want to be liable (even though the contract terms are clear) they wanted my seller to take it to court. I’ve seen that happen time and time again. The option is the only thing that really is guaranteed that the seller gets to keep in a default but it seems like that will change. I hope not, but it seems like it will!
Do you use a personal Venom account?
TLTA was in favor of this change.
I have been doing it this way with my out of state, corporate buyer for several years. I’ve never had a problem. Title company simply cuts a check to the seller and sends via FedEx. Super simple
Most of my clients are relocations from all over the country due to military. They almost all send both option and earnest money to title via wire transfer and a quick email asking title to split it and release the option to the seller. Then the listing agent, as the sellers rep goes to title, picks it up and receipts it. I (as well as almost everyone in the Waco/Temple/Ft Hood area) write every contract to where the option is credited back to the buyer at closing any way and I have never had anyone ever counter wanting to keep… Read more »
Since the earnest money must be in within 3 business days and the option fee must be in 3 actual days, it seems to me that there is a problem. One or the other must be changed to include either all days or only business days but they should be the same.
Yeson coordinating due dates.
What if the title company is closed for the weekend or holidays? Will this affect the 3 days?
Delivering option fee to the title company is a mistake in my opinion. The fact that there are different dates for delivery on option and earnest money poses a problem – business days vs. actual days. Also, how is the title company to deliver/credit the option fee? Are they now required to deliver the option fee? Or is the agent/seller to pick up a check? Too many unknowns…
No longer different dates for delivery.
There are no unknowns if you read the revised language on the contract, the redline versions linked in this article.
Making the option payment to title along with the EM is a long overdue change. Title can receipt both checks at the same time and just mail the check to the seller like they do now.
I agree that having the title company receipt the option fee & earnest money then mail option fee to Seller should be considered. However, some Buyers/Investors are notorious for not delivering the option fee. They rush to get the inspection done within 24 to 48 hours of the effective date, terminate contract within the 72 hours & never deliver the option fee. Sometimes they fail to deliver earnest money as well citing having “terminated the contract”. Aligning the dates would be appropriate i.e. deliver within 3 business days. Not sure how to address the inspections being done before the funds… Read more »
It was time to combine the EM and Option Fee. Most sellers are confused when they receive the option check. In addition it created a burden to take the EM check to one location and then the need to track down the sellers agent to deliver the option check. Now the title company can hold both and distribute as needed at closing or termination. The delivery times for both have been made identical so no issues as to delivery.
I like this change as well. It is more streamlined.
I think this is a much needed change. So glad to not have to take the time to deliver the option fee check to a seller, or their agent/broker. I tried to deliver an option fee check to a broker’s office one time, and the office manager of the broker said they did not accept the option fee check. I called the Legal Hotline in Austin and the attorney said that was correct, the broker did not have to accept them. I called the regional office of this brokerage firm, and they said that their offices did not accept the… Read more »
18 year broker here, mostly listing agent. Sorry, this is nonsense. It’s non refundable. It belongs to the seller, period, and should be given to the seller. A “burden” to deliver a check and locate the seller’s agent? Wow. Who did you just negotiate a sales contract with? Did they suddenly disappear? Just amazing. There’s no good reason to create a step and give it to the title company to hold. Title is caught with disputes over earnest money, now this will be yet another issue to deal with and there’s the potential for the seller to get nothing for… Read more »
I don’t know that the title companies will be happy with this, but I’m not. I don’t see how it puts more money in title company pockets. If it’s “too much trouble” for an agent to make sure an option fee is delivered in a timely manner, then find something else to do. In order to protect my buyer, I have driven 2 hrs to deliver a check personally when I couldn’t get it there any other way. I’m not bragging. It’s part of my duties. And why should there be a dispute over it? This makes no sense to… Read more »
The problem is when you have a listing agent that works and lives in Conroe but list a vacant property in Galveston. This is only one example. It seems to happen multiple times. Only alternative is to use Fed Ex and hope it arrives in time or drive 100 miles. I like the change.
If a seller is confused about getting an option check, the agent did a poor job explaining what an option and fee is. As for the title company receiving, that makes perfect sense as long as it not held hostage in escrow. A big selling point of the option is the seller can cash immediately vs fighting over the earnest money. For that very reason, a buyer can offer a large option fee to entice acceptance over someone offering $100 with similar earnest. Seller cashes and has a good time while off market. I don’t care who signs for it… Read more »
Both the earnest money and option fee 3-day rule should be business days.
Considering both are to be delivered to the title company which is closed on
weekends.
Option money should be 3 actual days. If it was a 3 day option period, they could be out of the contract before the seller even got the money and not even pay the seller the option fee. This has happened to me on a listing. They never even paid it and opted out on day three. I have been notifying all buyers and sellers that the earnest money is done electronically in today’s market. NO ONE has complained yet. It is so fast and has a huge electronic trail and email trail for proof. Then I send it to… Read more »
If the buyer doesnt pay the fee, they dont have the option to terminate.
We need to get a grip here…. this change is being made for OUR convenience. Title will be holding the option fee until one of two things occur- the sale closes and it is credited back to the buyer, OR, the sale terminates within the option period and title has the clear go-ahead to send it to the seller WITHOUT any authorization from the buyer. It can be separate from the earnest money, or a part of it. How many of our seller’s either forget or don’t understand to cash the option check already? This makes everything simpler.
The seller can also request that the title company give them them the option fee, but the title company has the right to wait until the buyers payment is regarded as good funds. Normally 10 days on a personal check.
I have implemented GoOptionPay as the alternative for delivering the option directly to the listing agent. Fees are involved; however, the value is there for being streamlined and convenient for all parties. I do not think this is the title companies responsibility.
I’m curious. How many of the agents/brokers who replied to this article saying it’s a bad idea sent an email to TREC saying that they didn’t want to have this “service”. I personally think it will be a good thing to have someone else be responsible for the option fee. Also, the deadlines for both fees will be the same and will be off the agent’s back and on title’s. I don’t know if anyone asked title about this before passing this version of the One to Four concerning option though. Too late now. It becomes effective in mid February… Read more »
I can see this as a train wreck…How do we trust the TITLE companies to receipt the funds ON TIME so that buyers aren’t accused of not delivering the option fee to be able to enforce the option period? And we will have to possibly amend the contract if it’s after closing time on Friday night when we receive and acquire the option fee. You don’t have access to title companies on weekends…so if the contract reads “calendar ” days” And there are many Monday s that are holidays….as I said a train wreck…..Not a good idea. Sorry
Coming from an Escrow Officer of 22+ years, I assure you that us as title handling the option fee check will not be an issue. Specifically with my process and my office procedures currently, we overnight the check via FedEx with signature required for delivery to the seller directly or to the listing agent. There are times when delivering the EM and option checks to two separate locations is difficult. There are times with delivering the checks period is difficult. Our process now is that we offer to send a FedEx label(s) to the buyer and/or agent to send both… Read more »
Was option delivery an issue? Because I’ve never had an issue. Especially now that there are great online resources like gooption pay and other digital resources.
Our commercial contracts have had this option for a long time during feasibility periods (unrestricted right to terminate “option periods”), for many years. Contrary to the people that think this is a bad idea it has worked just fine with commercial transactions utilizing that selection on our Texas Realtor drafted commercial contracts. You have to be pretty naïve to think this change was made without title companies’ involvement and input and they do know it is a non-refundable fee. The contracts are promulgated and if you actually take some time to read the new drafted language you might understand the… Read more »
Thank you to everone that donates their time and expertise on the committees that constantly make improvements and adjustments needed with our changing times. I know you all put a ton of thought, research and discussion into these changes and I am grateful to you for serving the real estate community to continually make our processes and documents better. Great job and kudos to you all! 🙂
I disagree with putting this responsibility on the title company. I know this is real convenient for the buyer’s agent, and will keep them from being responsible for protecting their clients termination option, however, we keep taking away from the agent’s responsibility until needing an agent will be obsolete. We already have agent’s that suggest their buyers serf the internet and locate homes they would like to see and are working on getting their client a one-time showing code to view the property by themselves. A lot of agents do not want to go to the inspection since the inspector… Read more »
Being a designated supervisor you should know better James. Delivery of an option fee is not an agent’s responsibility. It is the contractual responsibility of the buyer, who is a party to the contract. If you are counseling licensees to take possession of, and deliver, option fee checks then you are placing unnecessary risk and potential harm to your agents’ and company. Any knowledgeable broker, real estate attorney, E&O attorney or risk management team would tell you that the parties to the contract should handle the time sensitive contractual performance requirements of a contract. It is our responsibility to assist… Read more »
This is a great idea – will save tons of time delivering option fees. Both parties go to the title company anyway so this saves everyone a trip.
Great video by Dawn Moore, Allegiance Title: http://www.youtube.com/watch?v=cZs8YZ2o6fA
Why do we need a fee for the option period? Let’s just do away with it completely.
I think it’s a great change. Now we can drop it off at title. Before dropping option fees at title was frowned upon. If title has an obligation to release it, then they’ll release it. Now title companies and agents can finally enter 2021. Buyer’s can literally wire the money to title. This makes things easier for everyone. They need to take it a step further and require title companies to have a user friendly way to wire funds. We as agents don’t need to touch anyone’s money unless that person cannot/will not wire the funds.
Why didn’t the Vacant Land Contract get the same change?
Are there any articles or videos about the changes to condo contracts related to reserves/fees, etc? I have not been able to find much information on this and it is a big change!
The TREC contract states in paragraph 5. A (4) “the option fee will be credited to the Sales price at closing”. Therefore, the seller does not keep the option fee if the property closes (it goes back to the buyer at closing). I am the seller and closing on a contract. The title company put the $300 option money towards the amount the buyer owes on the property (example: $100,000 cost of property-$300 option fee paid= 99,700 owed). So ultimately, as the seller I gave up something and didn’t receive anything in return. We close 10.06.2021 TREC needs to address… Read more »