Use of the TREC promulgated One to Four Family Residential contract (resale)

The Texas Real Estate Commission is making big changes to some of its most commonly-used forms.  In addition to adopting a new Consumer Protection Notice, and revamping other contract forms and addenda, the Commission has adopted significant revisions to the One to Four Family Residential Contract (Resale). (**NOTE: this link contains the legislative drafting – redline version of the contract reflecting all changes).

Formal notice of adoption of the changes was made on November 13, 2020, with mandatory use of the new form to begin on April 1, 2021.

The One to Four Family Residential Contract (Resale) is, perhaps, the most commonly used of all TREC Contract Forms. It is appropriately used for the purchase and sale of single family homes, duplexes, triplexes and four-plexes.

Some of the changes are hypertecnical, and made for purposes of clarifying ambiguities that may have existed in previous versions.  Other changes are much more profound, and one reflects our lives in a modern/digital age of “smart” everythings.

Here are some of the most important changes:

• The definition of “Accessories” in paragraph 3 is expanded to include the Seller’s transferable rights to software, apps  and hardware used  “to access and control accessories”;
• There is a whole new section(paragraph 4)  dedicated to the Seller’s disclosure of “Leases,” to include “fixture leases” (solar panels, water softeners, propane tanks, etc.) and “natural resource leases” (wind, minerals, water, etc);
• The Earnest Money and Option Fee provisions have been combined into a single paragraph.  Under the new form, both the earnest money and the option fee are to be delivered to the Title Company and may be paid separately or combined into a single payment.  The termination Option is also incorporated into this single paragraph 5;
• New paragraph 8 contains the broker or sales agent disclosure (disclosing an interest of the broker or their family in the property), and contains an express statement that the broker’s compensation agreement is contained in another written agreement;
• New paragraph 10(C) defines “smart devices” as “a device that connects to the internet to enable remote use, monitoring, and management of the property, certain non-realty items and/or items in a fixture lease  (I’m thinking Amazon and Google smart devices or maybe tablet/phone app-based controls for “smart home” systems). New paragraph 10(c) also obligates a seller to  deliver to the buyer (at the time possession is delivered) “written information containing all access codes, usernames, passwords, and applications Buyer will need to access, operate, manage, and control the Smart Devices” and to terminate the Seller’s access.  This paragraph promises to be fertile ground for disputes as it is abundant with privacy considerations!
• Paragraph 18 contains new protections for escrow agents in connection with disbursing earnest money when a contract terminates;
• The Option Fee Receipt is now specifically designed to be executed by the escrow agent (not a broker for either the buyer or seller).

As is always the case with changes to long-standing, frequently-used documents, there are more questions than answers. Changes to real estate forms (and laws) are sometimes reactionary to real-world issues that have arisen since the last revision. Other times, they seek to solve problems that don’t really exist.

Adapting to the new forms will be an interesting ride.  Stay tuned for developments, and answers to questions fielded by the agency and industry experts as the mandatory use date of April 2021 approached.

It is important during this time to note which form you are using to ensure you handle delivery of the option fee correctly.

The Texas Real Estate Commission in November 2020 approved several changes to promulgated contract forms, which go into effect April 1. The most significant of those affect delivery of the termination option fee. Here are answers to commonly asked questions about the changes.

What changes are being made to delivery of the option fee?

TREC recently adopted changes to their residential contract forms with respect to the delivery of option fees. Under the revised forms, which become mandatory April 1, 2021, a buyer is required to deliver the option fee to the title company, not to the seller.

What is the deadline for delivery of the option fee to the title company under the revised forms?

The buyer must deliver the option fee to the title company within three days after the effective date of the contract.

May the buyer deliver the option fee together with the earnest money?

Yes. The option fee and earnest money may be paid separately or combined in a single payment. The amount delivered will be applied first to the option fee then to the earnest money.

Will the seller have to wait until closing to receive the option fee from the title company?

No. Under the revised forms, the buyer authorizes the escrow agent to release and deliver the option fee to the seller at any time without further notice to or consent from the buyer and releases the escrow agent from liability for delivery of the option fee to the seller. The option fee will be credited to the sales price at closing. Note, however, that any disbursement may be conditioned on the collection of good funds acceptable to the escrow agent. Title companies, which are regulated by the Texas Department of Insurance, must comply with good-funds rules before disbursing option fees.

Texas REALTORS® is working with all forms vendors, including zipForm, to ensure the forms are posted prior to April 1. Look for the updated forms in the vendors’ libraries and on texasrealestate.com.

When am I required to use the updated versions of the TREC residential forms?

The updated versions may now be used on a voluntary basis. They are mandatory April 1, 2021.

Will title companies be ready to receive option fees?

The Texas Land Title Association is working with its members to ensure title companies are aware of the changes and prepared to receive delivery of the option fee.

Changes to the One to Four Family Residential Contract (Resale)

• Paragraph 2C: The definition of Controls was updated to include both software and applications used to access and control accessories along with dedicated hardware solely used for the accessory.
• Paragraph 4: This paragraph now contains lease information, including references to the new residential and fixture lease addenda as well as information on natural resource leases to which seller is a party.
• Paragraph 5: The revised section combines payment of earnest money and termination option in a single provision and calls for payment of the termination option fee to the title agent.
• Paragraph 10: A smart-devices section was added to clarify that those devices get transferred with the sale of the property.
• Paragraph 21: The notice information changed to allow for more email addresses by updating Fax fields to read Email/Fax.
• Paragraph 23: This paragraph was deleted to follow the changes to Paragraph 5.
• The Broker Information page now contains additional space for team names.
• Disclosure language at the bottom of the Broker Information page was updated regarding broker compensation. It now better explains—with examples—why another broker may be receiving compensation for the transaction.

Which other forms were updated?

Not every contract received the same update, so check TREC’s website for specifics.

TXRTRECName160120-15One to Four Family Residential Contract (Resale)160323-16New Home Contract (Incomplete Construction)160424-16New Home Contract (Completed Construction)160530-14Residential Condominium Contract (Resale)16079-14Unimproved Property Contract170125-13Farm and Ranch Contract190238-7Notice of Buyer’s Termination of Contract191845-2Short Sale Addendum192236-9Addendum for Property Subject to Mandatory Membership in a Property Owners Association

WATCH: TREC staff and other experts discussed these changes during the recent Texas REALTORS® Risk Reduction Forum. View this and all sessions from the Texas REALTORS® Winter Meeting at texasrealestate.com/wintermeeting.

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What is the difference between a Texas Real Estate Commission promulgated and an approved form?

What is the most common sales contract addendum in Texas?

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