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Promulgated Contracts, Forms And
Addenda
The only entity that can promulgate contract forms ✔Ans - Texas Real Estate Commission (TREC) License holders are required to use contract forms prepared by the Texas Real Estate Broker-Lawyer Committee and approved by TREC, unless ✔Ans - 1) The form is prepared by a property owner, 2) government agencies, or 3) by an attorney on behalf of a property owner. Contracts that are created by the broker-lawyer committee are promulgated by ✔Ans - TREC When negotiating real estate transactions, licensees must prepare forms using only ✔Ans - 1) TREC-approved and promulgated forms OR 2) Those otherwise permitted by TREC's rules, such as forms created by the Texas Association of REALTORS® (TAR) What if a form may be required by law, but not promulgated by TREC? ✔Ans - There's often a TREC-approved form available for licensee use, but other legally required forms that contain the same elements may be used instead. Licensees may not add to or cross out items in approved contract forms unless ✔Ans - The licensee is adding any factual statements and business details that the parties ask licensees to add, or strike out only an item or items that the parties request licensees to strike out, as is necessary to conform the contract to reflect the parties' intent. TREC-promulgated forms do NOT have to be used in the following situations: ✔Ans - 1) When a licensee acts as a party to the transaction, and not as an agent in the transaction.
- When there is a transaction for which a federal government agency (HUD, for example) requires use of a different form.
- When a contract form is prepared by a property owner or by an attorney on behalf of a property owner. When TREC has not promulgated a standard contract form for the type of transaction the licensee is doing, there are 3 options: ✔Ans - 1) Use a form that's been drafted and approved by a Texas attorney for that type of transaction (licensees should check with their broker for which forms the brokerage uses).
- Use a form prepared by the broker-lawyer committee and made available with TREC's consent for trial use by licensees.
- Use one of the many forms prepared by TAR, such as the Residential Real Estate Listing Agreement. Information About Brokerage Services form ✔Ans - Licensees must provide this form to all prospective clients or customers upon the first substantial dialogue about a specific property. This form explains the consumer's agency relationship options. It does not create a relationship. If the licensee has not already provided the Information About Brokerage Services (IABS) form—along with the disclosure regarding which party the licensee represents in the transaction —at the time an offer to purchase has been made, ✔Ans - The licensee must provide the form at the time the sales contract is provided. To insure compliance, the broker should post a link on the business's website homepage in a readily noticeable place and in at least 10-point font. ✔Ans - A completely filled out TREC IABS form labeled "Texas Real Estate Commission Information About Brokerage Service." Texas law requires licensees to provide a copy of the IABS form to both the lessor and lessee when ✔Ans - negotiating any residential lease that is for one year or more. A TREC-adopted listing contract between a real estate seller and a seller's agent must include the following provisions: ✔Ans -
TAR's Residential Real Estate Listing Agreement Exclusive Right to Sell contract prohibits the seller from ✔Ans - Listing the property with another brokerage prior to the expiration of the listing contract. It also requires the seller to allow the listing agent to show the property to potential buyers. The Keybox Authorization by Tenant ✔Ans - Authorizes the listing agent to place a lockbox and key on the property. By signing the Showing Service Information form, ✔Ans - Clients agree to allow you to use an automated service to schedule showings with and collect feedback from potential buyers. Seller's Authorization to Release and Advertise Certain Information form ✔Ans - Authorizes you to inform prospective buyers and other brokers about the information your clients have shared with you about why they are selling the property. All listing agreements belong to ✔Ans - the broker When leaving one brokerage to join another, ✔Ans - Licensees are not allowed to take their active listings with them without their broker's permission. Open listing agreements ✔Ans - Unilateral agreements in which a seller may contract with many real estate licensees to locate a buyer. Only the licensee who brings in the buyer earns the commission. Net listings agreements ✔Ans - Agreements in which the seller specifies a price desired for the property and agrees to pay the broker a commission that's any amount received more than that price.
A net listing commission is ✔Ans - an indeterminate amount based on the difference between the net listing price and the sales price. Net listings are legal in Texas, but they're only allowed with the following caveats: ✔Ans - 1) The broker is obligated under a listing contract to negotiate the best possible transaction for the client.
- A broker may not take these listings unless the client requires one and the client appears to be familiar with current market values of real property.
- The licensee must provide a broker price opinion (BPO)—or comparative market analysis (CMA)—on the property if that licensee is negotiating a listing, or if the licensee is personally making an offer to purchase the property.
- The listing agreement for that property must assure the client of receiving at least the client's desired price and must limit the broker to a specified maximum commission. The seller's agent doesn't have to split the overage with the buyer's agent unless it exceeds the maximum commission. A net listing doesn't refer to a type of listing agreement, but rather to ✔Ans - how the broker's commission will be paid. Net listings can be written for ✔Ans - 1) exclusive right to sell, 2) exclusive agency, or 3) open listing agreements There's no standard net listing addendum in Texas, so if you're going to use a net listing, you'll need to ✔Ans - have an attorney draft a special addendum or use one that's provided by your brokerage (and has been through an attorney review). All Texas buyer agency agreements must contain the following required elements: ✔Ans - 1) The names and contact information for both the broker and the buyer
- The type, amount, and other terms of compensation.
- The beginning and ending dates of the agreement
- The obligations of each party
- Intermediary status options
In Texas, all real estate transaction records must be maintained by the broker for how long? ✔Ans - At least 4 years from the date of the transaction TREC has promulgated residential sales contract forms for the transaction types: ✔Ans - 1) One to Four Family Residential Contract (Resale)
- New Home Contract (Incomplete Construction)
- New Home Contract (Completed Construction)
- Residential Condominium Contract (Resale)
- Farm and Ranch Contract
- Unimproved Property Contract
- Work files
- Disclosures A sales contract—also known as ✔Ans - a purchase contract, a purchase agreement, or an offer to purchase Sales Contract ✔Ans - A detailed sales agreement between the seller and buyer of a piece of real estate. In the sales contract, the terms and conditions of the sale, as well as the legal rights and obligations of both parties, are established. The One to Four Family Residential Contract (Resale)—the most commonly used sales contract in Texas—is used for ✔Ans - The resale of existing homes and is also referred to as the residential resale contract. The New Home Contract (Completed Construction): ✔Ans - 1) Must be used for new construction properties that are finished.
- Doesn't contain improvements, accessories, or exclusions.
- Provides that the seller of a new home is responsible for the rollback taxes (due to change of use) because the seller is the party who changed the use of the land from agricultural to residential. Rollback taxes in the Unimproved Property Contract ✔Ans - The party who changes the use of the property (say, by building residential housing on the property, thereby changing its use
from agricultural to residential) is responsible for the rollback taxes. What type of property is taxed at a much lower rate? ✔Ans - Property that has been granted an agricultural exemption If the use of the agricultural exemption property changes to a non-agricultural use, ✔Ans - Rollback taxes are assessed and can be quite substantial. The assessment is usually the difference between what the property taxes were with the ag exemption, and what they would have been without it. The New Home Contract (Incomplete Construction): ✔Ans -
- Should be used for properties where construction has yet to be completed.
- Doesn't include improvements, accessories, or exclusions in the property section because the home is unfinished, so these items don't apply.
- Buyer should receive construction plans and other construction documents, specifications, access and inspections, cost adjustments, buyer's selections, and completion information in the Property Condition section and appended to this contract.
- Is subject to Chapter 27 of the Texas Property Code. Chapter 27 of the Texas Property Code requires that buyers must ✔Ans - Send notice to the contractor by certified mail, return receipt requested, no later than 60 days before the buyers file suit to recover damages in a court of law or initiate arbitration. The notice must mention Chapter 27 and describe the construction defect. In Chapter 27, after notifying the contractor of the defect and if requested by the contractor, ✔Ans - buyers must allow the contractor to inspect and cure the defect. Chapter 27 requires that any written contract subject to this chapter ✔Ans - must contain in the contract a disclosure notice regarding the above-outlined requirements of Chapter 27.
The Residential Condominium Contract is for ✔Ans - Condominiums only and can't be used for townhomes, which is one reason why it's important to be able to distinguish the difference between townhomes and condominiums. As part of the Residential Condominium Contract (Resale), sellers are required to ✔Ans - Provide a copy of the Condominium Resale Certificate to buyers. Which contract can be used for townhomes? ✔Ans - Only the One to Four Family Residential Contract (Resale) Rather than the lot and block description that appears on the One to Four Family Residential Contract, the Residential Condominium Contract (Resale) references ✔Ans - 1) the condominium unit number, 2) building name, and 3) address Condo buyers are responsible for ✔Ans - The transfer fees charged by the association up to the amount specified in the contract, and the sellers are responsible for the excess amount. The condominium resale certificate contains ✔Ans - 1) association financials,
- frequency and amount of assessments,
- pending lawsuits,
- information about the right of first refusal The condo resale certificate must have been prepared within ✔Ans - the previous three months. What type of ownership to Townhome owners have? ✔Ans - Fee Simple Title to the land beneath their units Texas real estate sales contract must contain, at a minimum, the following information: ✔Ans - 1) Parties to the transaction
- Legal description of the property
- Sales price (the price being offered)
- Financing contingencies
- Earnest money deposit amount
- Title policy and survey requirements
- Addenda (any marked addenda must be attached to the contract)
- Requirements for property condition disclosures
- Broker's fees/compensation
- Special provisions
- Closing date and closing instructions
- Settlement expenses and prorations
- Legal notices
- Option for termination In Texas, before a contract for the sale of real estate is considered binding and executory, three things must occur: ✔Ans - First, the buyer must make a written offer on the property. Second, the seller must accept the offer in writing. Third, the buyer must be notified of the seller's written acceptance of the offer. A Texas real estate sales contract can be terminated in any of the following ways: ✔Ans - 1) The buyers exercise their rights under the termination option in the sales contract within a certain time frame
- If either party defaults
- If neither party agrees to pay for lender-required repairs or treatments to the property or lender-required repairs exceeding 5% of the sales price
- Due to destruction of the property In Texas, the statute of limitations is ✔Ans - 4 Years In Texas, the remedies for breach of contract include the following: ✔Ans - 1) Accept partial performance
- Rescind the contract unilaterally
- Sue for damages
- Sue for specific performance
Novation ✔Ans - Substitutes the original party in the contract with a new party. This fully releases the original party from all liability for performance of the contract. When a licensee helps a buyer client write an offer on a property, the licensee will get one or two checks from the client at that time: ✔Ans - 1) earnest money
- option money check (which must be written to the seller). How many days does the seller have to cure the objections in a TREC residential resale contract? ✔Ans - 15 days When a casualty loss occurs in a property prior to closing, ✔Ans - The seller must return the property to its previous condition as soon as possible before the closing date. What if repairs can't be made by the closing date when a casualty loss occurs in a property prior to closing? ✔Ans - The buyer can
- terminate the contract,
- allow the seller more time and extend the closing date, or
- accept the property in its damaged condition, with assignment of insurance proceeds from the seller if permitted by the insurance carrier. If a seller needs additional time past the closing date (due to no fault of the seller's) in order to restore the property to its original state after a casualty loss occurs, ✔Ans - The seller can extend the time up to 15 days under the terms of the TREC residential resale contract. According to the Objections paragraph of the TREC residential resale contract, how long does the buyer have to object to title defects? ✔Ans - The buyer has until the earlier of either the closing date or the number of days specified in the Objections paragraph after receiving the commitment, exception documents, and survey.
In Texas, who usually pays for the title policy? ✔Ans - The Seller T-47 affidavit—also known as the Residential Real Property Affidavit ✔Ans - A sworn statement by the seller specifying whether there were any changes to the property since the last property survey. The first paragraph of the One to Four Family Residential Contract (Resale) includes ✔Ans - The full legal names of the parties to the contract. The name of the seller(s) must match that on the deed or owner's title policy. Paragraph 6A of the TREC residential resale contract ✔Ans - Has blanks for the name of the title company and checkboxes to indicate whether the title policy will be furnished at the seller's or the buyer's expense. Paragraph 7 of the TREC residential resale contract ✔Ans - "Property Condition": addresses the buyer's access to the property for inspections. When the buyer accepts a property "as is," this means ✔Ans - The buyer is accepting the property in its current condition with any and all defects and without a warranty. However, the buyer still has the right to have the property inspected and may also negotiate repairs or treatments, regardless of which box is checked in the property condition section. If the seller doesn't make the agreed-upon repairs in the TREC residential resale contract, the buyer can ✔Ans - 1) compel the seller to do so,
- take any remedy offered by default, or
- extend the closing date up to five days to allow the seller to complete the repairs. Paragraph 12 of the TREC One to Four Family Residential Contract (Resale) reads ✔Ans - "If any expense exceeds an amount expressly stated in this contract for such expense to be
Unmarried persons buying a property together are identified as ✔Ans - "tenants in common" in TREC sales contracts Addendum for Sale of Other Property by Buyer form ✔Ans - Used when the buyer needs the money from the sale of the existing home to complete the purchase of the new home. Per the Addendum for Sale of Other Property by Buyer form, what happens if the contingency is not waived or met by the date specified in the addendum? ✔Ans - The contract is terminated automatically and the earnest money is refunded to the buyer. Notice of Buyer's Termination of Contract ✔Ans - When delivered before the expiration of the option period, it allows buyers to receive a refund of their earnest money. The Notice of Buyer's Termination Contract form is the means by which the buyer ✔Ans - Notifies the seller of the decision to terminate the contract and the reason for the termination. Under the Buyer's Temporary Residential Lease form, the parties can agree to an earlier move-in date. ✔Ans - Of no more than 90 days for the buyer Under the Seller's Temporary Residential Lease form, the parties can agree to a later possession ✔Ans - Of no more than 90 days to vacate Two forms that are used often in Texas for lease transactions ✔Ans - 1) TAR Residential Lease Application, which is used by TAR members
- Texas Apartment Association (TAA) lease form, which is used by TAA members. Licensees may not assist with drafting leases for terms that are longer than ✔Ans - 90 days Per the TAR Residential Lease agreement, the lease will be ✔Ans - Automatically renewed on a month-to-month basis upon
the expiration of the lease, unless the tenant or landlord provides a notice of termination to the other party no later than 30 days prior to lease expiration. Examples of buyer default in a sales contract in Texas: ✔Ans -
- Failing to provide the initial deposit to the escrow agent in time
- Failing to bring the full amount of money needed at closing
- Cancelling the sale even after removing all contingencies or without cause
- Failing to remove contingencies on time (or altogether)
- Failing to complete loan papers within the time frame promised in the contract Examples of seller default in a sales contract in Texas: ✔Ans -
- Failing to move out by the agreed-upon time
- Failing to provide completed disclosures or reports within the allotted time
- Failing to have contractually required tasks or work completed
- Failing to keep the utilities turned on as required for inspection purposes and final walk-through
- Failing to provide the current loan payoff information—or any other required information—to the title company or other party within the allotted time dictated in the contract When does the contingency period of a contract begin? ✔Ans - One day after the contract is executed Residential sales contract termination option paragraph ✔Ans
- For a fee, it gives the buyer the unrestricted right to terminate the sales contract (within the specified period) for any reason. If the buyer exercises the option to terminate, the seller keeps the fee. The parties can agree whether the option will be credited to the buyer, should the sale go through. If the buyer elects the termination option in the TREC residential resale contract and pays the option fee, ✔Ans - The buyer can terminate the contract and have the earnest money refunded as
In the Credit Documentation paragraph of the Texas Seller Financing Addendum ✔Ans - The buyer agrees to deliver certain documents by a certain time to show creditworthiness to the seller, who is considering financing the buyer. The Seller Financing Addendum specifies ✔Ans - 1) the credit documentation,
- the terms of the promissory note,
- defines under what conditions the property can be transferred, and
- states whether escrow for taxes and insurance is required. The Deed of Trust paragraph of the Texas Seller Financing Addendum ✔Ans - Provides for consent to property transfer and tax and insurance escrow. The Promissory Note paragraph of the Texas Seller Financing Addendum ✔Ans - Requires the terms of repayment, including the amount of the loan, the interest rate, number of payments, and any other fees associated with the financing. Under the terms of the Texas Seller Financing Addendum, the buyer's credit is deemed approved if the seller does not terminate the contract within ✔Ans - 7 days of that credit documentation being delivered to the seller. Texas Property Code says that an option to purchase real property that includes or is combined or executed concurrently with a residential lease agreement, together with the lease, is considered ✔Ans - an executory contract for conveyance of real property. The contract for deed default process in Texas states that if the buyer is in default the seller ✔Ans - must provide the buyer with a notice before taking further action. The notice must explain the buyer's options and the seller's intended remedy if the buyer fails to cure the default.
An amendment must always reference ✔Ans - the original contract, the date, the address of the property, and the names of all of the parties involved What is covered in the Attorney's Fees section of the TREC One to Four Family Contract? ✔Ans - Any parties who prevail in a legal proceeding regarding a sales contract are entitled to recover their reasonable attorney's fees, as well as the costs of the legal proceeding. Representations included in the TREC sales contract: ✔Ans - along with any covenants or warranties that are made, continue beyond the closing date. By checking off the contract addenda in the Agreement of Parties section of the One to Four Family Residential Contract (Resale) form, the parties are agreeing that ✔Ans - no changes can be made to the entire contract without the written consent and signatures of both the buyer and seller to a written amendment to the contract. The Addendum for Unimproved Property Contract, paragraph 6E (6), Located in a Certified Service Area of a Utility Service Provider ✔Ans - must disclose that the extension of water and/or sewer services may cost the buyer additional money, and that there could be a delay before a utility can provide its services. The Release of Earnest Money form serves two purposes: ✔Ans - 1) it releases all parties from their contractual obligations, and
- it provides directions to the escrow agent as to how the earnest money should be disbursed. Non-Realty Items Addendum form ✔Ans - Used if the buyer is interested in personal property not already included in the sale What is referred to in the Property section of the TREC residential resale contract? ✔Ans - Accessories - Items that
