Brew update failed: untracked working tree files would be overwritten by merge

cd $(brew --prefix)
git reset --hard HEAD
brew update

You need to do the following:

cd $(brew --prefix)
rm Library/Formula/argp-standalone.rb
rm Library/Formula/cocot.rb

And then do the

git fetch origin
git reset --hard origin/master
brew update

Basically, to explain a bit more:

cd $(brew --prefix)

tells cd to change the directory to whatever brew --prefix will output. If you try executing brew --prefix command you should see something in lines of:

brew --prefix
/usr/local

So the command would be in this case an equivalent of cd /usr/local. Newer brew versions have formulae under its installation prefix and Library/Formula/, so that's where you need to look for those outdated/changed files.

Note, that if you changed those formulae yourself for a particular reason (like pinning a version) this action will revert them back to default ones and may produce unwanted effects.

@TedPennings noted in comments that this worked for him, but his sequence was:

1. chown everything to my_username:admin, ie, sudo chown -R ted:admin $(brew --prefix)
2. run the two git commands above,git fetch origin and git reset --hard origin/master