Conquer Your Texas
Real Estate Exam
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The correct answer is A. This question asks where the option fee and earnest money end up after a timely option termination. Under the current TREC resale contract (TREC 20-18), the buyer delivers both the earnest money and the option fee to the escrow agent, made payable to the escrow agent. The buyer authorizes the escrow agent to release the option fee to the seller at any time. If the buyer gives notice of termination on time, the option fee is not refunded and any of it left with the escrow agent goes to the seller, while the earnest money is refunded to the buyer. The option fee pays for the right to walk away, so using that right does not bring it back. Earnest money, by contrast, backs the buyer’s performance of the contract, so it goes back to the buyer after a timely option termination. This buyer paid on time and terminated within the option period, so the seller gets the option fee and the buyer gets the earnest money back. B: Students who treat both payments as deposits pick this. The option fee is not refunded after termination. C: A timely option termination returns the earnest money to the buyer, so the seller does not keep it. D: The contract tells the escrow agent where each payment goes. No court order is needed.

Exam tip
On the current TREC resale contract, both the earnest money and the option fee go to the escrow agent. After that they part ways. The option fee is released to the seller and is not refunded if the buyer terminates in time, and the earnest money is refunded to the buyer. If the sale closes, the option fee is credited to the sales price. An option that says the buyer pays the fee to the seller describes an older form.