We often get asked about when the option fee should be released to the seller when using the One to Four Family Residential Contract (Resale) (TXR 1601, TREC 20-17). Assuming the buyer has paid the option fee, then according to Section 5A(4), the escrow agent is authorized to release and deliver the option fee to the seller at any time without further notice to or consent from the buyer. If the parties end up completing the sale, then the option fee will be credited to the sales price at closing.
Laura Miller, Staff Attorney
Does anyone feel that if seller defaults, the buyer should be refunded the option fee?
it doesn’t matter what someone “feels” – what matters is the language of the contract and the law. If a seller actually defaults, the contract (and the law) provide the potential remedies. One is specific performance, or seek other relief provided by law, or both. But what’s important to know about an option fee is that it is consideration for the option period itself – kind of a mini agreement inside the contract agreement. The performance of that option period agreement is completed separately and stands alone. That’s why the defaulting or terminating buyer doesn’t get the fee back either.… Read more »
No, otherwise confusion is brought into the equation. It’s much cleaner to have “one understanding”, that being – the buyer will NEVER get option money back EXCEPT at CLOSING & FUNDING… end of story”. Leave the rest to small claims court. If a seller truly did default and the default was plain to see, the buyer could theoretically be granted option fee and more back from seller.
In my opinion the option fee once paid is never refundable to the buyer under any circumstance except credited at closing. The option fee and period is a simple exchange. Money is paid in exchange for something, in this case the right to terminate for a specified period of time. Wanting a refund of the option fee for any reason other than at closing would be like me paying on the first of the month for a gym membership and then not using the gym during the month and going back in and asking for my money back. Not going… Read more »
I’m no lawyer, but I think we could all benefit to remember that the option fee was always to be a “nominal” amount, and I believe it’s only purpose was to validate the purchase of a termination option.
No. it is a minimal fee buyer pays seller in compensation for taking the property off market and reserving it temporarily for the buyer. add to that the inconvenience of seller leaving his property for inspector to perform the inspection. I see it a separate deal irrelevant to whether the transaction was terminated by the seller or the buyer for that matter. it is only fair!
Maha, Stephen is correct. It is not compensation for the seller according to the terms of the contract. It is a simple purchase of an unrestricted right to terminate.
How long can title hold onto the Option Money? I was party to a situation where the title company received the option fee on Sunday 06/25 (that’s when they receipted the contract) but then would not release the the option money to the sellers until 07/11… because they said their company’s policy is to wait 10 business days and then release funds on the 11th business day. I don’t know anywhere were it takes 10 business days to get clear funds anymore? Seemed excessive. I really like this company otherwise so I’m not naming names, and this was the first… Read more »
If the Option Fee was paid with a check the title company would want to make sure the check clears before releasing it to the Seller. I have seen that a number of times. It’s not unusual.
Title company took a week to release option check after we had terminated. The buyer had sent the wire 2 weeks before. Then when I went in to pick it up they couldn’t find it, they placed it in the wrong file. They ended up overnighting it to seller.
What is the point of doing the option period, if the escrow agent would deliver it to the seller anytime? Sounds truly pointless, because if the parties get to the closing table and escrow agent sent them the fee whenever they wanted to during the contract.. I mean, why have to go back and re add credit to the buyer? Why not just keep it like it was, until the buyer terminates under the option period OR lastly the transaction is sold? Some of these changes, do not even make sense to me. Just saying.
If the property is destroyed by fire and is a total loss, I the buyer should be refunded the option fee.
Title companies require a 10 day hold on checks and delivery of option fee to the seller. Is that still correct?
I don’t worry about option fee as listing agent. I do worry about EM. If buyers are default, we don’t need to use release EM form because buyers will never want to sign. I did send my concerns to HAR. I think we need to have same rule as option fee. Title company the escrow agent is authorized to release and deliver the option fee to the seller at any time without further notice to or consent from the buyer.