I’m getting callers who think that the parties do not have an executed contract until they actually deposit the earnest money. That isn’t true.
Earnest money is not necessary to make an otherwise accepted offer into a valid contract. Earnest money is a buyer’s performance obligation and is required to be deposited after a contract is fully executed. If a buyer does not pay the earnest money in the time required by the contract, a seller could potentially exercise his options under a default provision. A contract could become effective even if no earnest money is required in the agreement.
—Laura Miller, staff attorney
I am somewhat confused (and always have been) by everyone – e.g., TR legal, agents, title companies, etc. – referring to when an offer has been fully signed, effective dated, and delivered to the other party as an “executed contract,” or, much less, a “fully executed contract.” At this point, the contract is an executory contract. It is not until all obligations in the contract are fulfilled (and this could be post closing and funding, e.g., in the case of a temporary lease) that it becomes an executed contract or fully executed contract. The same goes for a lease. I… Read more »
That’s because real estate is it’s own language. Didn’t they teach you that in the school you went to?
I agree with you Jeremy in context. My instructor shared what Steve said. He went on to say that it is common to say ‘executed’ however it is not executed until it is closed. Effective is the word he suggested using.
you may be confusing contract law with real estate law, your definition of executive contract (one that has all of the obligations completed) is incorrect. Go back to your Principles of Real Estate book (reference guide), it will provide you a more detailed understanding of what is needed to create an “executed contract”. It is more complicated than a “signed” document. The contract itself only gives direction as to how a contract is to be dated, “by the brokers”, but it doesn’t define how or when it becomes an executed contract. That happens when all of the required elements are… Read more »
The point I was making has nothing to do with the elements of a valid contract, which said elements are the same for any contract whether it is for real estate or not (except that the Statute of Frauds requires that a real estate contract be in writing). I have read my Principles book and I am convinced that I am 100% correct! I would invite you to submit my initial comment (verbatim) to your association’s attorney and only ask if there is anything incorrect in my statements.
So Steve, if I understand what you’re saying, the signed contract is not executed until after closing because that is an obligation in the contract. Am I understanding this correctly?
I’m studying for my broker’s exam right now and it has been a great refresher. I agree with Steve that an ‘executed’ contract is one that has been fully performed. For our 1-4 that means it isn’t executed until it closes/funds. In the meantime, it’s an executory contract.
Not exactly…I want people to focus on the phrase “executed contract” and what exactly that means. What I am saying is that one does not have an “executed contract” until after all of the obligations of both parties have been fully performed, which is typically after closing and funding (unless there are some obligations that occur post closing and funding, e.g., the seller might have a temporary leaseback). Until all of those obligations have been performed the contract is an “executory contract.”
What if the earnest money check is insufficient?
That’s a great question!
that is a default, again on performance of the buyers part
If they don’t replace it with sufficient funds before the 3rd day, as stated in the contract, then the seller has the right if they choose, to terminate the contract.
Cashier’s Check is preferred
We had a contract executed last year and buyers agent never delivered the earnest or option. Buyers Agent tried numerous time to get this from her client. We terminated at 5:00 on the third day when no funds were delivered. It was also a Friday before a holiday weekend.
hopefully you had another offer in hand that seller wanted to accept??
What happens in the case a seller doesn’t want to honor validity of the contract until the earnest money is deposited at the title company?
I had two cases with this scenario and my answer to them has always been: consult with your attorney.
Worse still is when a Listing Agent doesn’t want to recognize the validity of the contract until EM and Option Fee is delivered. I just want to grab ’em by the collar and shake ’em… but I just bite my tongue and ignore them. Gotta get the deal done.
In a court of law the contract is executed whether a seller or an agent wants to recognize that fact or not. A person can say whatever they want and do whatever they want even if it is against the law
What if the buyer pays cash to the seller who is a home builder? Is earnest money still required? Is it legal for a buyer to negotiate with a builder all cash and not file with the county property
Thanks for the replies.
Exactly. We no longer have an Earnest Money contract. We have an option period so option money must be given to Seller by a certain date. The contact then when accepted can require additional earnest money in see that clause after option period is over and buyer and seller agree.
This is a bit off topic, however the time frame to deliver the option fee should be increased to be at least 5 days in my opinion.
In this hot of a market, 3 days is time enough. If they have up to 5 days then the Sellers are waiting and could possibly have another offer they want to accept. I like 3 days!
I think it should stay at 3; I’ve been in the business 22 years so I remember when we didn’t have this deadline and it was a mess- the listing agent sometimes had to beg for the option check. There have been times when I’ve paid the option check myself and gotten reimbursed by the buyer if they were out of town.
Given the availability of options to pay Option Fee electronically, I disagree. Buyer can deliver option fee money via Zelle, PayPal, Venmo, or GoOptionPay.com (as long as the Seller agrees to accept one of these forms of payment). I’ve done all and had great success!
I had listing in Kingsville, Texas, seller’s live in Kanas 40 minutes out of town. Buyer closed on a Thursday, Seller was mail-out, seller received email with UPS label to send hard copy back and emailed Notarized copy back, ( got hard copy to UPS Thursday afternoon which missed pickup went out Thursday) did not get to title company Thursday after courthouse closed 4pm. So deed could not be recorded until Monday because Courthouse decided to close Friday because of Virus. Buyer’s wanted keys, when is property theirs. Lender called and said contract is closed and funded. Contract states “Closed… Read more »
I may be totally wrong but I have never cared when the deed is recorded. When the money is in the sellers hands (or account) the buyers get the keys. Done Deal.
I’m listing the family home, and as such such I’ll be listing broker, executor, and one of three beneficiaries. Are there specific forms to disclose these relationships. Or just put it in agent remarks?
I put a contract on a home- followed all required deadlines and ended up canceling after we could not come to terms after the inspection. I was supposed to deposit option and earnest $ but don’t remember getting info on how to do- so did not deposit. Assuming i owe the option $ but not the earnest $?