Ernest Money Contract

What is an Ernest Money Contract?

The term "earnest money contract" is a generic expression applied to the type of contract used in the sale and purchase of real property (land) in Texas. The real property may be unimproved (no structures have been built on the land), or it may be improved with structures of some kind (for example, a home, or a commercial building).  The real property may be used for residential purposes (for example, a home), or it may be used in a commercial setting (for example, a commercial building located on land used in conjunction with the business).

Occasionally the buyer named in the earnest money contract desires to transfer the right to purchase the property to another person or entity (for example, the buyer executes an earnest money contract as an individual, but after signing the contract the buyer’s certified public accountant or attorney suggests that purchasing the property by an entity with limited liability may be prudent, say as a limited liability company).  The buyer, if permitted in the earnest money contract, could assign the buyer’s right to purchase the property before closing to a newly formed entity controlled by the buyer.  If the contract assignment is not permitted by the earnest money contract, but the seller does not object to the assignment, the earnest money contract could be amended to permit the assignment and then the buyer may assign the buyer’s rights under the earnest money contract to the buyer’s newly formed entity.

What are common concerns related to an Ernest Money Contract?

The Texas Real Estate Commission (TREC) publishes several specialized earnest money contracts, for example: the One to Four Family Residential Contract (Resale); the Unimproved Property Contract; the Farm and Ranch Contract; the New Home Contract (Incomplete Construction); the New Home Contract (Complete Construction); and the Residential Condominium Contract (Resale).  And the Texas Association of Realtors (TAR) also publishes its own copyrighted earnest money contracts for a variety of sale and purchase circumstances.  And most Texas real estate attorneys have also developed their own customized earnest money contracts (which may be identified by any number of titles) to fit a variety of circumstances.

Attorneys are authorized to draft and modify the substantive content of all earnest money contracts no mater what the document may be called.  If you don’t understand a contract or a document you have been requested to sign, don’t sign it!  You may always engage the services of a Texas attorney to explain the document, and to negotiate its content or modify it if necessary.

I regularly assist clients in drafting, reviewing, interpreting, modifying, and negotiating all forms of earnest money contracts.