At the November quarterly meeting of the Commission, changes were adopted to several contract forms.

One of those changes involved how the option fee is handled and delivered in the contract. The following FAQs are intended to avoid confusion on this change.

For a review of other major changes to the forms, see the Commission’s article “Rule and Contract Updates from the November Commission Meeting.”

What changes are being made to the delivery of the option fee?

Under the revised contract forms, which become mandatory April 1, 2021, a buyer is required to deliver the option fee to the title company, not to the seller.

What is the deadline for delivery of the option fee to the title company under the revised forms?

The buyer must deliver the option fee to the title company within three days after the effective date of the contract. Note, however, that if the last day to deliver the option fee falls on a Saturday, Sunday, or legal holiday, the time to deliver is extended until the end of the next day that is not a Saturday, Sunday, or legal holiday.

May the buyer deliver the option fee together with the earnest money?

Yes. The option fee and earnest money may be paid separately or combined in a single payment. The amount delivered will be applied first to the option fee then to the earnest money. Any amount of funds remaining after that will be applied to any additional earnest money.

Will the seller have to wait until closing to receive the option fee from the title company?

No. Under the revised forms, the buyer authorizes the escrow agent to release and deliver the option fee to the seller at any time without further notice to or consent from the buyer, and releases escrow agent from liability for delivery of the option fee to the seller. The option fee will be credited to the sales price at closing. Note, however, that any disbursement may be conditioned on the collection of good funds acceptable to the escrow agent. Title companies, which are regulated by the Texas Department of insurance, must comply with “good funds” rules before disbursing option fees.

When will the updated versions of the forms be available for license holders to use?

Because corresponding changes need to be made to two additional forms – the Notice of Buyer’s Termination of Contract (TREC No. 38-6) and the Short Sale Addendum (TREC No. 45-1)—the updated contract forms will not be available for use until after the February 2021 Commission meeting, when the Commission meets to finalize these forms. Once published on the Commission’s website, the use of these forms is voluntary until April 1st when they become mandatory.

Will title companies be ready to receive option fees?

The Texas Land Title Association is working with their members to ensure title companies are aware of the changes and prepared to receive delivery of the option fee.