Contracts and Promulgated Contract Forms
The contract that does the work
Texas license holders must use TREC-promulgated forms for the transactions they handle. The workhorse is the One to Four Family Residential Contract (Resale). Learn its architecture by paragraph: parties and property, sales price and financing, earnest money, title policy, property condition, closing and possession, default, termination option, and notices. Addenda - Third Party Financing, HOA, Seller's Disclosure, Non-Realty Items - plug into the main form.
Three dates candidates confuse
- Execution date - when each party signs.
- Effective date - when the last party accepts and that acceptance is communicated back.
- Closing date - the date stated in the contract.
Contract deadlines run from the effective date unless the form says otherwise.
Money traps
Earnest money must be deposited into the escrow or trust account no later than the end of the next business day after the contract is fully executed. When a buyer pays an option fee, the fee is non-refundable, buys an unrestricted right to terminate during the option period, and is credited to the sales price at closing if the sale closes.
Other frequent test points
- Time is of the essence; a later addendum can amend the original in writing.
- The Third Party Financing Addendum is the buyer's escape hatch if financing fails. Without it, a loan denial can look like a default.
- Leases longer than one year and all listing/agency agreements must be in writing.
- Never have a party sign a blank form, and never alter a promulgated form without the parties' written agreement.
Worked example
A buyer pays a $250 option fee for a 10-day option period and terminates on day 9. The seller keeps the $250; the earnest money is refunded to the buyer.