Contracts and Forms

Neither. Leaving both boxes blank in Paragraph 7D or altering the contract terms by adding language in Paragraph 7D(2) that does not list specific repairs could be considered to be acting negligently or incompetently if a complaint were to be filed in connection with the transaction.

The buyer should only choose Paragraph 7D(2) if he knows of specific repairs that he wants the seller to complete at the seller’s expense. Otherwise, the buyer should check Paragraph 7D(1).

Most buyers in this situation will also choose to pay a termination-option fee pursuant to Paragraph 23 in exchange for the right to terminate the contract for any reason within a negotiated number of days. During this termination-option period, an inspection can be performed, and if specific repairs are identified, the parties can negotiate to amend the contract to address these items, or the buyer can terminate the contract.

Unless a buyer is requesting in his offer that the seller agrees to do certain repairs, all buyers purchase property in its present condition (or "as is") at the time of contract execution. Paragraph 7A of the TAR contract allows for the buyer to purchase the property "as is" or to require certain seller repairs as part of the contract provisions. Regardless which choice is made in paragraph 7A, there is nothing inconsistent with either of those choices and a buyer's right to inspect the property and possibly terminate the contract under the terms of paragraph 7B, the feasibility paragraph. While a seller could refuse to permit a buyer to have inspections or a right to terminate under a feasibility period, it is generally not a good idea to try to prevent a buyer from having a right to freely inspect the property. Such a restriction might increase the seller's risk of a subsequent claim of withholding information about the condition of the property. Furthermore, most buyers are going to be reluctant to buy a property without a right to inspect the property and often would not buy commercial property without a feasibility study and a companion right to terminate if not satisfied about the viability of the proposed project. You might discuss these points with the seller's agent and see if a thoughtful reconsideration of these matters by the seller might create an opening for you to resubmit your client's offer. It should be stressed that the granting of the buyer's feasibility study period and his inspection rights do not obligate the seller to do any repairs.

While a seller can make conditions on accepting an offer or in permitting an offer to be submitted, these requirements would seem to be inadvisable.

Paragraph 7D(1) states that the "buyer accepts the property as is” at the time of the execution of the contract. Additional language in Paragraph 7D is unnecessary, but a seller could request you indicate on the MLS that the property is being sold as is.

Although a seller could refuse to permit a buyer to have inspections or a right to terminate under the termination option, it is generally not a good idea to try to prevent a buyer from having a right to freely inspect the home. Preventing a buyer from an inspection increases the seller's risk of a subsequent claim that she withheld information about the condition of the property. Furthermore, most homebuyers are going to be reluctant to buy a home without a right to inspect the home and without an option to terminate the contract if they are not satisfied about the condition of the property. Permitting the buyer to inspect a property doesn’t obligate a seller to agree to repairs.

Discuss these points with your client. Explain you aren’t an attorney and you are prohibited from practicing law, and that she is asking you to make significant changes to the standard contract form that go well beyond a factual statement or business detail, which could venture into the practice of law. Therefore, she needs to hire an attorney to draft the provisions in the contract that she will want at that time.

Before the seller refuses to permit any inspections, suggest she discuss this with an attorney. It’s likely that her attorney will counsel her to permit inspections.

You could also consider refusing to accept this listing, so you don't waste your time and resources listing a property that will be difficult to sell.

No. Even though a buyer or seller can propose an amendment to the contract at any time, merely proposing an amendment to a contract–or refusing to accept a proposed amendment–does not give either party a unilateral right to terminate an existing contract. The contract is only changed after the parties sign the amendment signifying their agreement. Without a fully executed amendment, the original contract remains in effect as written.

Keep in mind that if the buyer purchased a termination option that had not yet expired, the buyer could terminate the contract for any reason.

The refrigerator only has to stay if it is a permanently installed and built-in improvement or if it is included on the Non-Realty Items Addendum to Contract (TXR 1924, TREC OP-M). The One to Four Family Residential Contract (Resale) (TXR 1601, TREC 20-16) signed by the parties controls the conveyance and states that the contract contains the entire agreement of the parties. Statements made in previous negotiations and MLS advertisements that are not contained in the contract will not be enforceable against the seller. This situation is an example of why it is important to ensure that all material elements of prior negotiations are contained in the signed contract.

Yes. In this situation, the second offer, once accepted, can be a back-up contract only. According to Paragraph B of the Addendum for Sale of Other Property by Buyer, the seller may not compel the first buyer to waive the contingency or terminate the contract under the addendum until the seller accepts a written offer to sell the property.

The seller may not accept a second offer unless the back-up addendum is part of the second offer. Otherwise, the seller may be obligated to sell to two different buyers, especially if the first buyer waives the contingency.

Ask the listing agent for the effective date of the pending contract. This date will go in the first blank. 

Your client’s decision about the length of time he wants to stay in a backup position will determine how you fill in the last blank in the form. Some backup buyers may want to have their contract terminate within days if the first contract doesn’t terminate early, while others may want to retain their backup contract rights until after the last possible date that the pending contract might close. If your client wants his backup contract to last until or beyond the pending contract’s closing date, you can also ask the listing agent to provide the pending contract’s closing date.

Remember to tender the termination-option fee with your buyer’s backup offer if he wants an unrestricted right to terminate his contract and has provided for that in the main part of the contract.

The effective date for purposes of depositing earnest money and paying any termination option fee is the date of final acceptance. This is the date that the last party to sign the backup contract communicates acceptance back to the other party or the other party’s agent, if applicable.

If the first contract terminates, the effective date changes to the amended effective date. This is the date the seller notifies the backup buyer that the first contract is terminated and the backup contract becomes the primary contract. All performance obligations under the contract—other than depositing earnest money and paying any termination option fee—use the amended effective date for purposes of performance.

The backup buyer must deposit the earnest money and pay the option fee, if any, to the seller at the time the parties execute the backup contract. No other performance is required unless and until the backup contract becomes the primary contract. These requirements are detailed in Paragraph A of the addendum.

No. An amendment to the first contract does not terminate the first contract.

If your buyers have a backup contract with a termination option, Paragraph D of the Addendum for Back-Up Contract (TXR 1909) explains the start and end of that option period.

The addendum says that the time for giving notice of termination begins on the effective date of the backup contract. It continues without restriction until the amended effective date of the contract—the day your buyers receive notice of the first contract’s termination. At that point, the option period lasts for the time indicated in the contract.

For example, the effective date of your buyer’s backup contract with a 10-day termination option is December 1. If they become the primary contract on December 15, they have the unrestricted right to terminate from December 1 until December 25.

No.

Yes. Paragraph 6 of the Farm and Ranch Contract (TAR 1701, TREC 25-10) has specific language that deals with outstanding mineral interests that would be an exception to title in the owner's title policy and in any deed to the property. The Farm and Ranch Contractalso covers outstanding surface leases, and any farm and ranch improvements and accessories that might be involved in this sale.

A buyer interested in purchasing the property even when mineral interests have already been conveyed to or reserved by another person can list the exception documents in the offer. The seller can provide documents that contain or reserve those mineral interests to any prospective buyer to list in Paragraph 6. When listed, those interests would be acknowledged by the parties and not subject to objection by the buyer during title commitment review.

To ensure the buyer and the seller have a meeting of the minds about the nature of the title to the property and the outstanding mineral interests, the seller could provide the appropriate documents to the buyer and require the use of the Farm and Ranch Contractas a condition of accepting any offer by this buyer.

Notice must be in writing. TAR created the Seller’s Notice to Buyer of Removal of Contingency Under Addendum for Back-Up Contract (TAR 1913) form to be used for this purpose.

The earnest money is returned to the backup buyer, but the seller retains the option fee. Remember that the backup buyer retained the right to terminate the backup contract at any time while in the backup position.

The listing agreement you choose depends on how the buyer will likely use the property. If a buyer will probably use the lot for residential purposes, like building a home, the Residential Real Estate Listing Agreement, Exclusive Right to Sell (TAR 1101) would be the best choice.

To reduce the likelihood of confusing the seller, the listing broker, as a principal to the agreement, could delete the part of the agreement that applies to improvements, or add a statement in the Special Provisions paragraph indicating that the property is an unimproved lot.

These same considerations apply for selecting a listing agreement if the buyer’s likely intended use of the unimproved property would be for commercial or farm and ranch purposes.

Yes. While license holders are required by law to use a TREC-promulgated form when one exists for a particular transaction, there is an exception when your client, a principal to the transaction, requires you to use a contract prepared by his attorney. This exception only applies if the contract has been prepared by an attorney at the request of the principal. You should document that your client has made this requirement and remind him to direct any questions he may have about the contract to his attorney.

Texas Real Estate Commission rules allow you to use a form drafted by a Texas lawyer—including a brokerage’s in-house counsel—for a particular kind of transaction when no mandatory TREC form exists as long as the form contains:

• The name of the lawyer who prepared the form
• The name of the broker for whom the form was prepared
• The type of transaction for which the lawyer approved the use of the form
• Any restrictions on the use of the form.

If the form is an addendum that changes the rights, obligations, or remedies of a party under a mandatory TREC contract or addendum, it must have these additional items:

• A statement about how the addendum changes the rights, obligations, or remedies of a party, with a reference to the relevant paragraph number in the mandatory use form
• A statement that the form is not a mandatory TREC form
• A statement that TREC rules prohibit real estate license holders from giving legal advice.

Members of Texas REALTORS® have exclusive access to more than 130 forms for various types of real estate transactions not covered by mandatory TREC forms, including residential and commercial forms. See if there is a form already available for your transaction in the forms section of intinent.com.

No. The independent consideration paid for a feasibility period in the Commercial Contract-Improved Property (TAR 1801) and the Commercial Contract-Unimproved Property (TAR 1802) is non-refundable similar to the option money in the TREC residential sales contracts.  The buyer’s option to have an unrestricted right to terminate the contract for any reason requires independent consideration for the right to terminate.  If there is no independent consideration (or if the independent consideration is refundable) the option becomes unenforceable.  

In addition, Paragraph 7B of the commercial contracts indicates that the seller will retain the independent consideration regardless of whether the buyer exercises their right to terminate.

You must provide the addendum. TREC rules require a license holder to provide the Addendum for Sale of Other Property by Buyer to a buyer who wants to make a contract contingent on the sale of another property. License holders are not allowed to write language into the Special Provisions Paragraph for situations that are covered by a TREC promulgated form, such as the contingency addendum. If your client doesn’t want to use the addendum, you should advise him to consult his attorney to draft language that will reflect his intention.

No. A buyer who can qualify for a loan without having to sell her other property doesn’t need to use the addendum. However, she can still use it if she wants to make the contract contingent on the sale of her other property.

No. The addendum is drafted for a specific purpose, the sale of another property. Using the addendum for another purpose requires that it be modified by a lawyer. A broker who makes such modifications is likely engaging in the unauthorized practice of law.

Yes. If your client’s ability to perform under a contract (i.e., close the transaction) is contingent upon the closing of another property, the Addendum for Sale of Other Property by Buyer (TAR 1908, TREC 10-6) should be made part of the contract. Otherwise, the buyer risks default under the contract if he fails to close because the sale of the other property doesn’t close. Default by the buyer could result in termination of the contract and the loss of earnest money. Alternatively, the seller could also take action to enforce specific performance or other remedies through the legal system, or both.

No. If the buyer can’t close because the buyer didn’t sell her other property, the buyer will be in default. Paragraph D of the addendum states that if the buyer waives the contingency and then can’t close and fund because she did not receive the property’s proceeds, she is in default and the seller may exercise the remedies in Paragraph 15 of the sales contract. One of the remedies available to the seller is to terminate the contract and keep the earnest money.

The time periods and rights provided under the contingency addendum and the termination option are completely independent. If the buyer doesn’t waive the contingency within the three days provided for in the addendum, the contract will automatically terminate. His right to terminate within the 10-day termination option period is not diminished by his election to waive the contingency.

No. The Addendum for Sale of Other Property by Buyer doesn’t require the buyer to provide evidence to support her decision to waive this contingency. The only requirements in the addendum are that the buyer notify the seller in writing within the time stated and deposit the additional earnest money with the escrow agent in a timely manner.

Buyers should consider the risks of waiving this contingency when they don’t already have the proceeds from the sale of another property. A buyer would be in default on her contractual obligations if she waives the contingency and then fails to close solely because she didn’t receive the sale proceeds.

No. TREC contracts require the seller to complete the agreed repairs before closing, but the contracts don’t provide for the buyer to designate who makes the repairs. 

Note that the Completion of Repairs and Treatments Paragraph in TREC contracts requires the seller to either use someone who is licensed to make the repairs or, if no license is required by law, the seller must use someone who is commercially engaged in the trade of providing such repairs—unless the buyer and seller agree otherwise in writing. 

This doesn’t mean a seller can never use an unlicensed handyman for electrical repairs. It means the seller must use a licensed electrician unless there is a written agreement between the buyer and seller to use that unlicensed handyman for electrical repairs.

The Texas Property Code disclosure requirements are applicable to the sale of a property comprising not more than one dwelling unit, but do not apply to a transfer pursuant to a court order or foreclosure sale; by a trustee in bankruptcy; to or by a mortgage or beneficiary under a deed of trust or pursuant to a court ordered foreclosure or acquisition by a deed in lieu of foreclosure; by a fiduciary in the administration of a decedent's estate, guardianship, conservatorship, or trust; from one co-owner to one or more co-owners; made to a spouse or to a person or persons in the lineal line of consanguinity of one or more of the transferors; between spouses resulting from a decree of dissolution of marriage or legal separation or from any governmental entity; transfers of new residences of not more than one dwelling unit which have not been previously occupied for residential purposes; or transfers where the value of any dwelling does not exceed 5% of the value of the property.

No. Earnest money is not necessary to make an otherwise accepted offer into a valid contract. Earnest money is a buyer-performance item required to be deposited after a contract is fully executed. A contract could become effective even if no earnest money is required in the agreement.

While a seller could instruct an agent to only present offers that include an earnest-money check, an agent who decided himself that he will not present an offer without an earnest-money check may be violating the Code of Ethics’ instruction to present all offers as quickly as possible.

No. By signing the forms, the parties have instructed the broker to fill in the final date of acceptance as the effective date. If the broker failed to fill in the effective date, the broker may be placed in the precarious position of later having to determine the effective date of the contract. The final date of acceptance is a fact issue that must be resolved either by the parties with the assistance of the brokers or, ultimately, a court of law.

The effective date is determined by the final date of acceptance. The final date of acceptance is the date on which the contract becomes binding between the parties. It is the date that both buyer and seller have agreed to all terms of the contract and have executed the contract. Four elements must be satisfied for final acceptance to take place:

1. The final contract must be in writing. (This is typically satisfied when negotiations are made using promulgated forms.)
2. The buyer and seller must sign the final contract, including the initialing of any handwritten changes to the initially drafted offer, if applicable.
3. Acceptance must be unequivocal.
4. The last party to accept must communicate acceptance back to the other party or the other party’s agent, if applicable.

The effective date is the date when the last element (communicating acceptance back) is made after the other three elements are satisfied. One reason why communicating acceptance back to the other party is mandated is so the other party will know when the contract performance requirements or periods for performance begin.

The commercial contracts address the matter of the effective date in paragraph 24. The task force of commercial practitioners working on these contracts felt that because of the way that many commercial contracts are negotiated it would be appropriate to provide that the time for performance of the parties should not begin until the escrow agent receipts the contract after all parties have signed. This was done to allow for delays often experienced in commercial transactions in getting the contract to the escrow agent and to allow the parties to not have to begin performance obligations until the contract was escrowed. This means that for "the purpose of performance of all obligations" the clock does not start running for the parties until the contract has been receipted by the escrow agent. This does not mean that there is no enforceable contract prior to the receipt by the escrow agent. To the contrary, the law of offers and acceptance would still control and there would be an "enforceable" contract under the statute of frauds when the last party to accept all of the terms of the contract signs the contract and communicates that acceptance and signing to the other party. Thus, while the date for the beginning of performance is handled in a different way in the commercial contracts than in the TREC contracts, the law regarding when there is an enforceable contract is the same for both. It should also be noted that the Escrow Receipt at the end of the commercial contracts has a parenthetical reference that the day of the receipt of the contract is the "effective date."

The contract forms instruct the broker—either the listing broker or the buyer’s broker—to fill in the final date of acceptance as the effective date. It might be a good idea for both brokers to confirm the effective date between themselves when communicating final acceptance.

No. Under these facts the elements of final acceptance are satisfied on Saturday.

The effective date is the most crucial date in the contract. It is the date from which most, if not all, performance periods are measured. One of the most significant complaints that escrow agents make about real estate licensees is that, many times, licensees fail to insert the effective date in the contract.

No. Here is an example: The buyer has the right to terminate the contract within five days after the effective date, and the effective date is January 1. The buyer may terminate the contract at any time until 5 p.m. on January 6. Note that January 2 is the first day after the effective date.

Yes. The parties may establish in writing the effective date.

Not necessarily. The date of receipt of the escrow agent is evidence that the effective date of the contract is, most likely, on or before that date, but is not conclusive as to the effective date.

No. In this case, the effective date is the date the buyer is informed that the seller accepted the offer.

The buyer makes a written offer through his agent to the listing agent on May 15. The listing agent delivers the offer to the seller on May 16. The seller signs the offer as submitted on May 17 and delivers the signed offer to the listing agent on May 18. The listing agent emails the executed contract to the buyer's agent on May 19. The buyer's agent calls the buyer on May 20 and informs the buyer that the seller has accepted the offer.

The effective date in this example is May 19, the date the listing agent communicated to the buyer's agent that the seller signed and unequivocally accepted the buyer's offer.

The Farm and Ranch sales contract is still the most appropriate in this instance. Though both the Farm and Ranch sales contract and the One to Four Family Residential Contract (Resale) sales contract require the TREC Addendum for Reservation of Oil, Gas and Other Minerals if a seller wants to reserve a mineral interest, a number of other differences remain between the two contracts. Examples of some items addressed on the Farm and Ranch form but not on the One to Four Family Residential Contract (Resale) form include:• Farm and Ranch improvements and accessories • Crops • Reservations of water and timber • Option to have the sales price adjusted based on acreage revealed in the survey • Surface leases • Agricultural development districts The applicability of the above items should be considered when determining which sales contract to use. Additionally, acreage over one acre will weigh in favor of using the Farm and Ranch sales contract.

Whether an item of personal property has been so permanently attached as to constitute realty is a question of fact. Juries consider three factors when determining whether personal property has become real property:

1. Will the property damaged by removal? If so, to what extent? (This question determines the mode and sufficiency of attachment.)

2. Is the item customized for the property, or is it standard? (This determines the adaption of the item to the use of purpose of the realty.)

3. Was the installation intended to be permanent or temporary? (This question addresses the intention of the party who attached the item to the realty.)

The party's intention is the predominant factor, while the first two factors constitute evidence of that intention. Testimony of intention will not prevail, however, in the face of undisputed evidence to the contrary. [Logan vs. Mullis, 686 S.W.2d 605, 607 (Tex. 1985)]

Neither party is required to sign the Information about Special Flood Hazard Areas (TXR 1414). Because the information form was attached to the signed Seller’s Disclosure Notice (TXR 1406), an additional signature on the information form is unnecessary.

If the Information about Special Flood Hazard Areas is being provided separately from the Seller’s Disclosure Notice, it is a good idea to ask for a principal’s signature acknowledging receipt of the form. Even if the form was attached to the Seller’s Disclosure Notice, it’s still a good idea to ask any principal who has been given the form to sign the acknowledgment receipt. If the principal does not want to sign the form, the agent could note the delivery of the form in his or her file.

Note that the form should also be provided to buyers in situations where the seller isn’t required to provide a seller’s disclosure notice or where there is no flood insurance coverage on the property at the present time but there are concerns about the construction or location of the property related to special flood hazard areas.

No. A seller is not bound to accept any offer, even at full price. However, your seller could be in breach of your listing agreement by refusing to accept the full-price offer.

It depends on whether you have a sales transaction or a lease transaction.

The form titled Addendum for Seller's Disclosure of Information on Lead-Based Paint and Lead-Based Paint Hazards (TAR 1906, TREC OP-L) is a TREC form that complies with federal law. Use this form any time a TREC or TAR contract form is used in the sale of a property with a dwelling built before 1978.

The form titled Addendum Regarding Lead-Based Paint (TAR 2008) is a TAR form that complies with federal law. Texas REALTORS® should use this form when the TAR Residential Lease form is used for residential property built before 1978. This form is for lease transactions only.

A seller does not have to provide the addendum in the following situations:

1. Property constructed after January 1, 1978
2. Property sold at foreclosure
3. A dwelling where the living area is not separated from the sleeping area (such as efficiency apartments, dormitory housing, or individual rooms) 
4. Housing for elderly or disabled residents where no child under six years old is expected to reside.

There are also exceptions for rental properties, which you can read about in the legal FAQs on intinent.com.

No. Under no circumstance should a real estate license holder attempt to prepare a lease-purchase agreement. Since there is no lease-purchase agreement form for license holders to use that complies with the Real Estate License Act requirements, an attorney must prepare the agreement.

Preparing your own document or changing a lease-purchase agreement prepared by an attorney for another transaction is a violation of the Real Estate License Act. Taking such action is the unauthorized practice of law. In addition, there’s a risk you could be sued by the parties if they have a disagreement over the lease-purchase agreement you prepared.

The requirements of the Texas Property Code provisions that apply to lease-purchase transactions are complicated, and your client shouldn’t enter into one without talking to a real estate attorney.

A buyer can’t terminate a contract after the option period has ended just because the inspector found problems. However, some buyers may have an additional right to terminate in this situation. Under Paragraph 7.E., if the buyer’s lender requires that these problems be repaired as a condition of making the loan and the buyer and seller can’t agree on who will pay for the repairs, then the contract will terminate. The buyer will retain the earnest money. In addition, Paragraph 7.E. provides that if the cost of lender-required repairs exceeds 5% of the sales price, then the buyer may terminate the contract.

An exception is a right that relates to a specific property but is held by another person who may not be a party to the contract to sell a property or a mineral interest. For example, a seller of real property may sell the property with the exception that some other person already owns one-half of the mineral interests. This other person is usually identified somewhere in the chain of title.

Maybe. The answer to the question depends on the specific facts that are determined by the investigation. TREC will likely look at whether the issue at hand was a complex matter. Additionally, TREC will likely look at the specific wording in the clause to see if it properly reflected the intent of the parties. Did the drafting of the clause contribute to any of the problems for which the complaint was filed? Of course, the broker's defense will be that the clause was a "business detail" and did not constitute the unauthorized practice of law. But this will be a fact issue.

Typically, the executive right is the power to lease the minerals. Many times, it is severed when the mineral estate is sold to multiple parties. For example, if a person sells half of the mineral estate to another, the seller may decide to retain the power to lease the entire mineral estate at his discretion. Under this example, the other mineral interest owners would not be able to participate in the decision to lease the minerals.

The Broker/Lawyer Committee at TREC has on several occasions chosen not to insert a specific reservation clause into the residential contract forms and has instead included Paragraph 2E of the 1-4 Family Residential Contract (Resale) (TREC 20-17, TXR 1601) which allows buyers to make any reservations for oil, gas, or other minerals, water, timber, or other interests with an attached addendum. The committee believes that the better public policy is to provide for the conveyance of the fee simple estate (without reservations) in residential sales that utilize the standard TREC forms. Historically, these items have not been at issue during negotiations in the typical residential sale (probably due to the fact that the minerals may have been severed, the surface is too small to worry about drilling activity, and cities have regulated drilling activities within their jurisdictional limits). If a seller wishes to reserve any mineral interests at closing, the Addendum for Reservation of Oil, Gas, and Other Minerals (TREC 44-3, TXR 1905) may be used to accomplish this. Should the seller have any questions regarding their particular transaction then the broker should advise them, in writing, to seek the advice of legal counsel.

Most commonly, a bonus is paid to the lessor under a mineral lease or oil gas lease as an incentive to sign the lease. For example, an operator may agree to pay $500 to an owner as a signing bonus. There are other types of bonuses that may be negotiated.

If a seller wishes to retain any mineral interests when using the TREC Farm & Ranch Contract, the Addendum for Reservation of Oil, Gas, and Other Minerals (TREC 44-2, TXR 1905) may be used to accomplish this. If a third party owns any of the mineral interests, and the parties are using the Farm & Ranch Contract (TREC 25-15, TXR 1701), a seller may want to include that information in Paragraph 6E, Exception Documents. That way, those third-party interests may not form a basis for objection to title. Exceptions should be referenced by the specific recording data. The seller will ultimately need to determine the extent of the mineral interests and rights that they wish to reserve. This may or may not become an issue of significant negotiations between the buyer and seller. If the sellers have any questions about their particular mineral interests, or the transaction itself, then the broker will likely need to suggest, in writing, that they seek the assistance of counsel. "

It is a form of compensation to the lessor (or others) under a mineral lease. It is a share in the production. Royalties are typically expressed in fractions (e.g., one-eighth of production). However, they can be stipulated in other ways. Royalties can be sold separately from other mineral interests. The owner of a royalty retains the right to receive the royalty under an oil and gas lease; but the royalty owner may not necessarily be the mineral owner. Many times mineral owners will sell rights to royalties or they may retain rights to royalties when selling their interest. There are various types of royalty interests (e.g., overriding royalty, non-participating royalty, or a term royalty). The common elements of a royalty are: (1) the royalty owner does not have the right to use the surface; (2) it is contingent only on production (not on the profit or cost of the operator); (3) it does not carry the right to lease the minerals; and (4) it does not participate in other lease benefits (for example, bonuses or delay rentals).

The TREC residential forms and the TXR forms are silent as to the reservation or exception of any mineral interests or royalty interests. Under those forms, the seller has, therefore, agreed to convey all interests in the property, including the mineral interests (unless such is specifically reserved by an attached addendum). Additionally, in the TREC Farm and Ranch Contract (TREC 25-15, TXR 1701) form, Paragraph 6E provides space for the seller to specify the exact documents that evidence exceptions. Exceptions should be referenced by the specific recording data. Paragraph 2F of the same form provides that any reservation of oil, gas, or other minerals, water, timber, or other interests will be made in accordance with an attached addendum. Sellers may use the Addendum for Reservation of Oil, Gas, and Other Minerals (TREC 44-2, TXR 1905) to reserve all or an identified percentage interest in the mineral estate owned by the seller, as defined in the addendum. This addendum may be used in with TREC and Texas REALTORS® residential and commercial contracts.

It is an agreement between the owners of the mineral estate (or mineral interests) and a producer or operator. In exchange for compensation specified in the lease, the lessee is given the right to search for, develop, and produce the oil and gas or minerals. Commonly, the industry states that the lessee "works" or "operates" the interest leased because he performs the work. The lease can encompass the right to work all the minerals or only those specified in the lease (e.g., limited to oil and gas).

This determination is similar to determining the value of any other asset. Namely, what is the price at which a willing seller would agree to sell, and what is the price at which a willing buyer would agree to buy? This requires a familiarity with transactions involving mineral interests and royalty interests and current market prices for such interests. One should contact an expert to make this determination.

Oil and gas are the most common minerals that bring value to property in Texas. However, the definition of a mineral is broader than oil and gas and can include uranium, sulfur, lignite, coal, and any other substance that is ordinarily and naturally considered a mineral.

Money, surface rights, and possible drilling activities are probably the three most concerning factors. The mineral interests may be of value to the buyer. The buyer will also want to know if there is a possibility or likelihood that an operator will need to use all or part of the surface that the buyer controls. The buyer will also want to know if there is a possibility or likelihood that an operator will place a well or other machinery on or near the property and whether the operator may need to cross the property.

Determining the precise extent of ownership of the mineral estate requires a review of the chain of title of the property in question. The owner will need to consult with an expert, such as oil and gas attorney or landman, to make this determination. Some title companies may, for a fee, provide this service.

Briefly, a mineral interest is part of the ownership rights related to owning real property. The owner of a mineral interest owns all or part of the mineral estate. The owner of the mineral estate typically holds the right to search for, develop and produce minerals from the property. A mineral interest can be severed from the surface rights and can be sold or leased separately from the surface once it is severed from the surface. Usually, the owner of the mineral estate holds the right to use the surface to the extent that is reasonably necessary to extract the minerals (implied easement). Just as one may have multiple owners of the surface, there may be multiple owners of the mineral interests. Each mineral interest holder may have different rights. The holders of the mineral interests together own the mineral estate.

Money. The seller may believe that the mineral interests may generate some income or value to him. The determination of this value may be small or it may be significant.

A reservation is a retention of rights in the property by the seller. For example, the seller may sell a property but may reserve to himself (or others) one-half of the mineral interest in the property. Under this example, one-half of the mineral interests are severed from the property, assuming that the seller owned all of the mineral interests before agreeing to sell.

The form Information about Mineral Clauses in Contract Forms (TXR 2509) is designed to provide general information about minerals and mineral clauses. It can be given to a buyer or a seller to explain what mineral clauses are and why REALTORS® are not permitted to draft and add such clauses to contracts. This form can be signed by whoever receives it in order to acknowledge receipt of the form. Since the form is informational in nature, it is not intended to be an agreement between a buyer and a seller and should not be attached to or made a part of any contract. If a seller in a residential transaction wish to reserve all or a part of their mineral interests and rights at closing, the Addendum for Reservation of Oil, Gas, and Other Minerals (TREC 44-2, TXR 1905) may be used to accomplish this. Should a buyer or seller have any questions regarding the mineral interests or rights in a transaction then they should seek the advice of an attorney.

A number of factors probably contribute to the cause. The increased price of oil and gas, better technologies for finding and extracting oil, and the increased growth of our cities are variables that, taken together, may be part of the cause.

It's not a good idea to do so because the seller potentially could be bound to sell the property to two different purchasers if both were to accept the seller’s counteroffer. Instead, the seller could reject both offers and invite the prospects to submit better offers using the Seller’s Invitation to Buyer to Submit New Offer form (TXR 1926) or the seller could make a counteroffer to only one prospect. When a party makes an offer or counteroffer, that party gives to the other party the power of acceptance to create a binding contract.

The parties to the contract should consider several factors before deciding what contact information should be inserted in Paragraph 21. 

Time is of the essence in almost all of the notice provisions in TREC contracts. This means they require time-sensitive action. Having an agent as the point of contact to receive notices for his or her client could create delays that may result in the party losing a time-sensitive option or right provided in the contract, such as the buyer’s right to waive the contingency under the Addendum for Sale of other Property by Buyer.

In addition, the word “notices” in Paragraph 21 has contractual meaning. Giving notice to a party can affect the party’s rights and obligations in several parts of the contract, so care should be taken to provide notices in ways that don’t cause needless delay.   Some agents are reluctant to put buyers’ and sellers’ contact info in Paragraph 21 because they think direct contact with the other party is forbidden. However, as long as you’re using the contact information to provide notice to the other party, you’re not crossing the boundary of soliciting another agent’s client. 

You could use the Registration Agreement Between Broker and Owner (TAR 2401), available exclusively to Texas REALTORS®. This form allows you to register your buyer to cover the purchase of the owner's property during an agreed time period. It also contains language to provide that the owner will pay your negotiated fee should your buyer purchase the property. The agreement doesn't allow you to list the property for sale or require the owner to pay you a fee should the owner sell the property to someone else. This form could be used in situations where the broker is representing a buyer interested in farm and ranch or commercial property that is for-sale-by-owner. It is not intended to take the place of a buyer's representation agreement between a broker and his buyer client.

If a contract-related issue arises that can’t be resolved through informal discussion, the parties must submit to a mutually acceptable mediation service or provider and pay the cost for mediation equally.

TREC recently revised its contracts to change the requirement to mediate from optional to mandatory. Buyers and sellers must now attempt to resolve any contract-related dispute through mediation before going through the court system.

Editor's note: New language in Paragraph 7D of the One To Four Family Residential Contract (Resale) (TAR 1601, TREC 20-8) became mandatory Sept. 1, 2008. TREC Broker-Lawyer Committee member Dawn Moore offered the following explanation of the change. To prevent a potentially fatal contract-drafting error, TREC approved a change to Paragraph 7D of the One To Four Family Residential Contract (Resale). Paragraph 7D establishes the agreement between seller and buyer as to one of the material terms of the contract: acceptance of property condition. In order to bind the seller to the buyer, the buyer must make a firm offer complete with all material terms to which the seller can agree. If the buyer has no repairs in mind when making the original offer, the buyer checks Paragraph 7D(1). If the buyer knows of a specific item that needs repairing (either because it's visible, shows up on the seller's disclosure, or is otherwise disclosed to the buyer prior to inspections), the buyer checks Paragraph 7D(2) and inserts the specific repair. During the option period, the buyer may submit an amendment to either provision. If the seller does not accept the buyer's amendment, the buyer may terminate the contract. Note: Paragraph 7D(2) calls for specific repairs. If the agent fills in anything other than a specific repair, TREC sees it as the agent practicing law without a license. This contract is an "as is" contract with an option. This answer would apply to identical language in Paragraph 7 of all of the other TREC contracts except for the New Home Contract (Incomplete Construction).

Yes. If the buyer in this situation chooses to request an extension of the termination-option period instead of exercising the default remedies available to him in the contract, then he must agree to offer something of value as consideration to the seller to ensure that the extension is legally enforceable. This is often done by paying an additional termination-option fee. 

Extensive case law in Texas suggests a termination-option period cannot be extended without an additional option fee, so a buyer should pay another option fee to reliably extend the option period.

Use TREC’s Amendment to the contract (TXR 1903, TREC 39-8) and fill in an amount acceptable to both parties in Paragraph 6. To ensure the extension of the option period is valid, be sure to include an amount the buyer has paid seller for the additional option fee. Leaving it blank or putting zero dollars may lead to an unenforceable amendment.

The termination option ends at 5 p.m. local time to where the property is located. The Texas Real Estate Commission revised its contracts effective January 1, 2016, to implement this time deadline.

No. A seller has no legal duty to respond to an offer in any particular way. A verbal counteroffer could expedite negotiations for the sale of a property in many cases. Of course, once there is an agreement about the terms and conditions of the sale, the parties should promptly reduce the agreement to writing and sign the contract to make it a binding obligation.

A seller could respond to a buyer's offer by using the Seller's Invitation to Buyer to Submit New Offer (TAR 1926). This form would be particularly useful when the seller's proposal contains several changes to the buyer's offer. By using this form, the seller is free to consider other offers without having to be concerned about the withdrawal of a previous, written counteroffer.

No. A verbal agreement must be reduced to writing and signed by the buyer and seller to become valid. Since a contract was never created, nor signed, there is nothing for the buyer to enforce. While verbal negotiations of contracts can be a quicker way to reach an agreement, verbal agreements are not enforceable for the sale of real property.

First, present the offer to your seller and tell him that it’s on an outdated form that may not reflect recent changes to the law. Next, inform the other broker that the form was outdated and that the other broker is obligated under TREC rules to use a current form. If your seller intends to counter the offer, draft the counteroffer on a current form. If your seller wants to accept the offer on the older form and not move the sale to a current form, urge him to seek the advice of counsel before doing so. 

Yes. The language in Paragraph 12A(1)(b) does not restrict the contribution based on loan type, but does provide an order in which a seller’s contribution will be applied. If there are not any expenses that the buyer is prohibited from paying by a governmental loan program, then the seller’s contribution would next be applied to the other buyer’s expenses as allowed by the lender. Paragraph 12A(2) defines “Buyer’s Expenses.”

An amount for a seller’s contribution to the buyers’ closing costs should be in Paragraph 12A(1)(b) of the contract. If the buyers were using a government loan program for the purchase, this contribution would first cover expenses related to the program, but this does not apply in this situation. Instead, the seller's contribution would first cover the buyers’ prepaid items and then the buyers’ other expenses up to the amount listed for the seller's contribution. These expenses are defined in Paragraph 12A(2).

Checking Paragraph 6C(1) makes the survey a seller’s expense—not a buyer’s expense—so the seller will pay for the survey in addition to up to $2,000 in buyer’s expenses.

If the seller wants to limit his contribution to the buyer’s survey costs, the most direct approach is to check Paragraph 6C(2) and include the amount the seller wants to contribute in Paragraph 12A(1)(b).

Paragraph 7D(2) of the TREC contracts is the appropriate section to cover a seller's agreement to repair a specific item of the property. General phrases that do not identify specific repairs, such as "subject to inspections," are not appropriate.

Paragraph 12A(1)(b) should be used to show the seller's contribution to the buyer's closing costs. This paragraph already provides for language to limit the seller's obligation to the amount shown in the blank space. Note that the paragraph also controls the order in which the seller's contribution shall be applied to various buyer's expenses.

Again, the seller may be subject to certain requirements of the lender about which a real estate licensee should be careful not to advise his client. Instead, this question should be directed by the seller to the seller's attorney.

This question depends on the relationship between the seller and the seller's lender. As a real estate licensee, you should be careful not to advise the seller on this relationship; encourage your seller to seek the advice of an attorney.

Each MLS enacts and enforces its own rules, so consult your MLS to discover if there is an answer that could be unique to that MLS. Generally speaking, the status should be "pending." Any time a contract is executed on a listing, the MLS status should be changed to "pending." Remember, even though the sale is subject to lender approval, once the buyer and seller execute the contract, it is effective.

The contract was effective at execution. Even though the sale is subject to the approval of the lender, there is still a contract between the buyer and the seller. The effectiveness of the contract is not subject to lender approval, so the effective date should be filled in as with all contracts.

The Short Sale Addendum (TAR 1918) should always be attached to the contract in this situation to protect both the buyer and the seller because there is a contractual agreement between the parties where each has certain performance requirements and because the seller's ability to perform under the contract is subject to the lender’s approval. The addendum makes it clear that the contract is binding upon execution by the seller and the buyer, and that the earnest money and option fee must be paid as provided in the contract.

There are two factors to consider. First, the seller has agreed in the listing agreement between the seller and the listing agent to sell the property for the stated listing price. Technically speaking, if a ready, willing, and able buyer presents an offer for the listing price as advertised in the MLS and the seller refuses or is unable to accept the offer because the seller cannot cover the difference, the listing broker's fee has been earned and is payable. Second, REALTOR® members are obligated to abide by Article 12 of the Code of Ethics, which requires REALTORS® to be honest and truthful in their communications and to at all times present a true picture in their advertisements. It is perfectly foreseeable that a hearing panel could find a member in violation of the code if that member advertises a listing price in the MLS with the full knowledge and understanding that the seller is unable to accept offers at that price. NAR will soon be considering whether to adopt new rules that would better describe how the status of short-sale properties in REALTOR®-affiliated MLSs should be disclosed.

Yes, if the seller chooses to accept a back-up offer on the property, the seller should attach the back-up addendum in addition to the short-sale addendum.

As long as the seller has given the listing broker the instruction to present offers directly to the lender, the listing broker is shielded from liability from the seller.

A listing broker should always act on the instructions of the seller that fall within the scope of the agency relationship between the seller and broker. A listing broker should not present offers to a lender unless the seller instructs the broker to do so. If the seller instructs the listing broker to present offers to the lender, the listing broker has not breached the fiduciary duty that is owed to the seller; rather, the listing broker is following the instructions of the client.

No. The Texas REALTORS® provides Spanish translations for informational purposes only. You can provide a Spanish translation to help explain the contract terms, but you should ensure that your client understands he must sign the English version. There’s even a disclaimer in English and Spanish at the bottom of all of TAR’s Spanish translations that states the English version of the form must be provided to the consumer and the translation may not be used in lieu of the English version. 

If you list the square footage of a property, you should always quote the information source and let prospective buyers know if you have any reason to know that the information is false or inaccurate. Use the Notice of Information from Other Sources (TAR 2502) to report this information.

Yes, but only as specifically directed by your client. Your client should put his instructions to you in writing and specifically state what changes he would like to be made. You should advise your client to contact an attorney for legal advice about the effect of striking out contract language.

Yes. The Seller’s Temporary Residential Lease (TAR 1910, TREC 15-5) states that a tenant will provide the landlord door keys and access codes so he or she may enter the property at reasonable times to inspect it during the term of the lease or to otherwise access it as allowed by the lease. However, the buyer cannot occupy the property until after the termination date stated in the seller’s lease, unless it’s terminated earlier by reason of other provisions.

Yes. Parties can negotiate a contract where no additional rental fee for the term of the temporary lease is required.

The other terms of this agreement to sell the property, which includes the temporary lease as part of the main contract, could provide sufficient consideration for the lease to be effective and enforceable without specifying additional monetary consideration for the temporary-lease term.

The same answer would apply to those using the Buyer’s Temporary Residential Lease(TREC 16-5, TAR 1911).

Yes. Use the Notice of Landlord’s Intent Not to Renew (TAR 2217) to inform the tenant that the lease won’t be renewed. The landlord must still comply with the notice requirements in Paragraph 4B of the TAR lease. 

Yes. Paragraph 5 of the TAR Listing Agreement explains that a seller will pay the broker either a percentage of the sales price or a set fee when the compensation is earned and payable. This paragraph also lists the circumstances when compensation is deemed “earned” and “payable.”

In this situation, you could argue that the compensation was earned when you procured a buyer who was ready, willing, and able to buy the property at the listing price, and the compensation was payable when the seller refused to sell the property after your compensation had been earned. Alternatively, you could argue that the seller’s refusal to sell the property was a breach of the TAR Listing Agreement, and that compensation was earned and payable as a result of that breach.

If negotiations with your client fail and your client is not willing to pay your compensation, you may need to contact an attorney.

Have your client talk to an attorney about the legal liabilities of proceeding with a sale without the termination of the original contract. Remember, there are two ways to formally terminate a contract:

1. The parties can agree to terminate and sign a document like Release of Earnest Money(TAR 1904) that releases both parties from further obligations under the contract.

2. A judge can order a contract termination.

1. Earnest money is not "consideration" for the TREC contracts. A real estate contract is an enforceable contract if it is in writing, shows a meeting of the minds on all terms and conditions, and is signed by all parties to the contract. The promise of the seller to sell and of the buyer to buy is sufficient consideration to support the making of a contract. The failure of a party to perform an obligation required under the terms of the contract, including a failure of a buyer to timely deposit earnest money, is a default by that party authorizing the other party to exercise any of the default remedies described in paragraph 15 of the TREC contracts. 2. The formal notification by a seller in writing to a buyer would be prudent in order to eliminate an argument by the buyer that by conduct or comment the seller might be waiving his right to insist on timely performance by the buyer of his obligation to deposit the earnest money.

Where a buyer has a right to notify the seller that the contract is terminated under any provision of the contract, you should use the Notice of Buyer's Termination of Contract (TAR 1902). This form was designed to combine the notices of two prior TREC forms and to add a reference to several other paragraphs or addenda where the buyer can notify the seller that the contract is terminated. This form was promulgated by TREC with a mandatory use date of Sept. 1, 2008.

Paragraph 21 of the TREC contract requires that all notices from one party to another must be in writing. TREC has promulgated the Notice of Buyer's Termination of Contract form for use when a licensee is helping a buyer provide the appropriate notice to the seller of the exercise of his termination option. While a buyer can use any form of written notice to terminate the contract, a buyer's agent asked to help the buyer give the appropriate notice should use the promulgated form. When the appropriate box of the form has been checked, the TREC Notice of Buyer's Termination of Contract form makes it clear that the buyer intends to and is giving the appropriate notice to the seller of his election to terminate the contract under the provisions of Paragraph 23. While one might believe that the buyer has made the decision to terminate the contract under his termination option by sending the seller or his agent a signed Release of Earnest Money form, showing the earnest money being released to the buyer and indicating a release of all rights or liabilities under the contract, a court might not agree that this writing satisfied the buyer's notice requirements under Paragraphs 21 and 23 of the contract. The preferred practice would be for a buyer's agent to have a buyer who intends to exercise his termination option under the provisions of Paragraph 23 use the TREC Notice of Buyer's Termination of Contract form and send the signed form to the seller at the address specified in Paragraph 21 or by facsimile as specified in that paragraph. The Release of Earnest Money form could be signed and included with the notice form to facilitate the execution of that form by the seller. Practice Note: This same procedure of sending both the TREC notice and the release of earnest money form to the seller can be used when the buyer is giving notice to the seller of the termination of the contract under any paragraph of the contract or any contract addendum.

In this situation, you can use Amendment to Listing (TAR 1404). A provision in the amendment states that the seller is instructing the broker to cease marketing the property until further notice or until a specific date. The provision states that the listing is not terminated and remains in full effect. 

If the seller is contemplating signing a listing with another broker, the seller will likely not agree to sign the amendment and this could lead to further discussions. If you determine that you wish to terminate the listing agreement, you can use Termination of Listing (TAR 1410). This form provides for early termination of a listing and determines whether the broker will receive compensation for early termination.

No. Although TREC contracts have provisions permitting the parties to terminate the contract because of some circumstances or conditions, there are currently only two provisions that allow a party to terminate the contract unilaterally by giving notice:

1. When the buyer exercises his unrestricted right to terminate during the option period

2. When the buyer cannot obtain financing approval pursuant to the Third Party Financing Condition Addendum

If your seller wants to formally notify the buyer of her election to terminate the contract and receive the earnest money because of the buyer’s default, she can write a letter to that effect that includes an earnest money release for the buyer to sign. While the letter will not conclusively establish that the contract has been terminated, sending the letter is still a good idea because it clearly states the seller’s position that it is terminated.

TAR form 1904 used to be entitled Termination of Contract and Release of Earnest Money. The title of the form was changed for several reasons, but primarily to avoid confusion between this form and other forms that are actually notice forms executed by a buyer to notify the seller of the buyer's termination of the contract under a right contained in the contract. (Examples include the notice of termination under paragraph 23 or the third-party financing condition addendum of the TREC contracts or a notice of similar contractual termination rights that a buyer has under the TAR commercial contracts.) Notwithstanding the change of the form's title, the Release of Earnest Money form does contain language whereby the buyer and the seller release each other from all liability under the contract referenced in the form. This language has the legal effect of terminating all of the rights the parties have under the contract and thus terminates the contract itself. In your example, if both the buyer and the seller sign the form as written, then the seller can consider that the contract has been formally terminated.

The process for creating agricultural development districts was enacted in 2001 by the Texas Legislature to promote the development of agricultural facilities that result in employment and economic activity. However, to date, no such districts have been created, according to the Texas Department of Agriculture.

The provision you described is in TREC’s Unimproved Property Contract (TREC 9-11, TAR 1607) and Farm and Ranch Contract (TREC 25-10, TAR 1701) in the event a seller is located in such a district. Then he’s required to give written notice to prospective buyers prior to the execution of a binding contract to purchase the property, which can be done either separately or within the terms of the contract itself. The seller and buyer of property in an agricultural development district must also sign a notice at closing that is recorded in the deed records.

Visit the Texas Department of Agriculture’s website to learn more about Texas agricultural development districts.

Since Paragraph 5A, the Delivery of Earnest Money and Option Fee Paragraph, uses the word within when describing the time period, Day One of the option period is the day after the effective date of the contract.

For example, if your client’s effective date is January 22 with a 10-day option period, the option period will end on February 1. If your client wishes to terminate under Paragraph 5B, the Termination Option Paragraph, she must provide notice to the seller by 5 p.m. local time where the property is located on February 1.

It depends on how long the back-up buyer wants to stay in the back-up position. Some back-up buyers may want to have their contract terminate within days if the first contract doesn't terminate early, while others may want to retain their back-up contract rights until after the last possible date that the first contract might close. If your client wants his back-up contract to last until or beyond the first contract's closing date, you can also ask the listing agent to provide the first contract's closing date. 

Yes. TREC and TAR contracts use calendar days, not business days. This includes weekends and holidays.

The addendum allows the buyer to terminate under certain circumstances if he cannot obtain credit approval or if the property does not satisfy the lender’s underwriting requirements.

If the buyer cannot obtain credit approval and she wants to exercise her right to terminate the contract under the Third Party Financing Addendum, she must give written notice to the seller within the time period agreed to in the addendum. She can use the Notice of Buyer’s Termination of Contract (TXR 1902) for this purpose. If the buyer gives notice within the time required, the contract terminates, and the earnest money is refunded to the buyer. If the buyer doesn’t provide the notice within the time required, the contract will no longer be subject to the buyer obtaining credit approval. 

There is nothing wrong with the buyer submitting the addendum in this way. Just because the buyer is not making the contract contingent on buyer approval of financing (Paragraph 2A) does not mean the buyer cannot terminate due to the absence of property approval (Paragraph 2B). 

No. The Texas Real Estate Commission and the Broker-Lawyer Committee intended that a percentage would be inserted in these two blanks. That’s why the form was promulgated with percentage signs after the blanks, and the parties risk ambiguity or unenforceability of contracts by not inserting appropriate percentage figures in these blanks. The Third Party Financing Addendum is designed to limit the maximum amount of interest and loan fees that a buyer would be obligated to pay as part of his loan contingency. Inserting the word “market” instead of a stated interest rate or leaving a blank space for the maximum loan fees would defeat the purpose of the loan contingency. The market interest rate might be several percentage points higher than the buyer intended, assuming it was possible to determine what the market rate was at a particular time in the contracting process. Similarly, a buyer might be required to pay a much greater amount of loan fees than he intended if that figure was left blank and a court imposed a "reasonable" or "market" test to determine the amount of permitted loan fees.

No. A seller has no legal duty to respond to an offer in any particular way. A verbal counteroffer could expedite negotiations for the sale of a property in many cases. Of course, once there is an agreement about the terms and conditions of the sale, the parties should promptly reduce the agreement to writing and sign the contract to make it a binding obligation.

A seller could respond to a buyer's offer by using the Seller's Invitation to Buyer to Submit New Offer (TAR 1926). This form would be particularly useful when the seller's proposal contains several changes to the buyer's offer. By using this form, the seller is free to consider other offers without having to be concerned about the withdrawal of a previous, written counteroffer.

No, the Texas REALTORS® does not have that kind of form. Since your client wants to withdraw his offer before the seller has accepted it, a prompt communication of that withdrawal is essential. Call the listing agent and tell her about your client’s decision to withdraw his offer. Follow the telephone call with a fax, letter, or email confirming your telephone notification of the time and date of your client’s withdrawal of his offer. This kind of written confirmation of the verbal withdrawal of the offer can help document the timeliness of the withdrawal should an issue develop concerning the seller’s possible argument that he had already accepted the offer.

It should be noted that this same procedure could be used by a listing agent where the seller wants to withdraw a counteroffer made to a buyer so that he can sell the property to another buyer.

Yes and no. Seller's disclosure requirements do not apply to foreclosure sales, or to the subsequent sale by a foreclosing lender (Texas Property Code Section 5.008). Foreclosure sales are also exempt from the federal lead-based-paint disclosure requirements. However, a subsequent sale by the purchaser at a foreclosure sale, including a foreclosing lender that purchased the property at the foreclosure sale, is not exempt from the lead-based-paint disclosure requirements for pre-1978 property. Lenders or any other buyers who purchase such property should complete and attach the TREC lead-based-paint addendum (TAR 1906) to the sales contract and provide the federally approved pamphlet to the buyer. REALTORS® involved in those transactions must ensure compliance with the federal regulations by the selling lender (or other seller) as stated in the addendum. Remember, you risk a $10,000 penalty and up to three times the damages to someone injured each time you violate the federal lead-based-paint disclosure requirement.

No. The first sentence of Paragraph 6C(1) states: "Seller shall furnish to Buyer and Title Company Seller's existing survey." This doesn’t mean that the seller only has to furnish the existing survey if he can find it. Any party to the contract who doesn’t perform a "shall" obligation under the contract would probably be held by a court to be in default unless otherwise excused from performance by the terms of the contract.

The paragraph also states, in bold: "If Seller fails to furnish the existing survey or affidavit within the time prescribed, Buyer shall obtain a new survey at Seller's expense no later than 3 days prior to Closing Date." This means the seller will be responsible for the cost of a new survey if he can’t find the existing survey.

To avoid this situation, sellers should only agree to provide an existing survey if they have it readily available. The seller could try to obtain another copy from the surveyor or title company he used when purchasing the property so that he can fulfill his contractual obligations. Be aware that if the seller agreed to deliver the existing survey to the buyer, he is required to deliver the survey and the affidavit within the specified time.

The terms of the contract determine when the earnest money must be deposited. For example, under the One to Four Family Residential Contract (Resale) (TREC 20-16, TXR 1601), Paragraph 5 states that the earnest money must be delivered to the escrow agent “within 3 days after the Effective Date.”

If the contract does not state a time period, TREC Rule 535.146 would apply. Rule 535.146 requires that unless a different time period is agreed upon in writing, any trust money, including earnest money received by the broker, must be delivered to an authorized escrow agent (or deposited in a trust account) within a “reasonable time.” The commission has determined a “reasonable time” to be not later than the close of business of the second working day after the date the broker receives the trust money.

Therefore, you should deposit your buyer’s earnest money check in accordance with the terms of the contract or, if the contract doesn’t state a deadline, by the close of business of the second working day after you received the earnest money.

Since the parties haven't agreed on the termination of the contract and no judge has decided the issue, you shouldn't give either party advice about the termination of the contract. Tell your seller to get advice from his attorney concerning the risks of proceeding with a subsequent sale of the property without a final settlement of the issue of contract termination.

The seller's primary goal should be to have formal termination of the contract. That ensures he can put the property back on the market and sell it to someone else without risking a lawsuit that could stop a subsequent sale of the property.

A contract can be formally terminated if both parties agree to terminate—usually in writing with a release-of-earnest-money form—or if a judge orders the contract to be terminated. Because of the potential risk of an adverse ruling by a judge concerning the seller's right to terminate the contract, title companies often refuse to open a second escrow file on a property where the first contract has not been formally terminated.

Section 5.008 of the Texas Property Code lists the statutory exceptions to the seller's disclosure notice requirements. While he is acting in the capacity as executor for his mother's estate, the son is exempt under the fifth exception listed in that section. However, neither the son nor the daughter as heirs and owners of the property are exempt from the statutory requirement. Even if a seller is exempt from the seller's disclosure requirements of Section 5.008, all sellers have an obligation to disclose known defects about their property. Failure to do so exposes them to liability under the Deceptive Trade Practices Act or other civil laws. As listing agent and property manager, it is appropriate for you to share your property file and personal knowledge about defects of or problems with the property with the son and daughter so that they can incorporate that information into their seller's disclosure notice. Information that you have about the property could be the focus of any subsequent suit involving withholding information concerning the condition of the property. Licensees have a duty to disclose to any potential purchaser any significant defects that they know about the property even if the seller does not disclose that information. Failure to do so may result in sanctions by TREC or civil liability. Finally, since the son and daughter are the owners of the property, they should both sign your listing agreement and any contract on the property.

Disclosure of representation, including intermediary status, is made in the box captioned "Broker Information and Ratification of Fee" on the last page of each form.

With respect to a TREC form, TREC’s rules obligate license holders to use the most current forms that are approved for mandatory use by TREC. With respect to TAR forms, such as the Commercial Contract-Improved Property form (TAR 1801), such forms are authorized to be made available for transactions for which there is no mandatory TREC form to be used. Outdated TAR forms are removed from the blank forms section on intinent.com and from the websites of any form vendors licensed to offer TAR forms. Once the forms are removed, TAR no longer authorizes them for use and doing so would be a violation of TREC rules governing the use of forms promulgated by a trade association.

If you receive an offer on your listing on an outdated TREC or TAR contract form, present the offer to your seller and tell him that it’s on an outdated form. Next, inform the other broker that the contract form used was outdated. If your seller intends to counter the offer, draft the counteroffer on a current form. If your seller wants to accept the offer on the older form and not move the sale to a current form, urge him to seek the advice of counsel before doing so.

A seller, landlord, or agent who fails to satisfy lead-based paint disclosure requirements can be sued for triple the amount of damages and may be subject to civil and criminal penalties.

Any broker or sales agent receiving compensation from the seller or landlord—either directly or through the listing broker—is considered an agent for purposes of lead-based paint disclosure requirements.

Use TREC’s Amendment to the contract (TAR 1903, TREC 39-8) and fill in an amount acceptable to both parties in Paragraph 6. There must be an amount included in Paragraph 6. For instance, putting “$0” in the blank may risk the extension being held unenforceable.

MLS rules state that sales of listed property, including sales prices, shall be reported promptly to the MLS by listing brokers. As such, the Residential Real Estate Listing Agreement, Exclusive Right to Sell (TXR 1101) includes a notice in Paragraph 6(A) that goes over this requirement so that clients are aware of their broker’s obligations. Local MLS rules also control how, if, or when sales prices can be disclosed by brokers or used in advertising. 

It is a misconception that the status of Texas as a non-disclosure state means that a listing broker does not have to disclose sales data to the MLS. That is not true. Rather, it means that governmental entities—including local appraisal districts—cannot force anyone to provide the sales price to those entities.

A term left blank in a contract does not automatically equal a zero value, nor that the section is not part of the contract. Instead, a blank item would most likely be deemed ambiguous. When courts come across ambiguous language or terms in a disputed contract, the court may insert a reasonable term based on the facts and circumstances. If the parties cannot come to a resolution about what the term or value should be, a court would have to decide the value of that term for them.

To best protect the parties to the contract, all terms should be carefully reviewed and addressed. For example, if the paragraph says to check only one box, make sure only one is checked. Avoid leaving anything blank, and if a blank requires a dollar amount, don’t use market or TBD.

No laws or rules prohibit your buyer from making offers on more than one property at a time. Similarly, the Code does not bar you from representing a buyer making simultaneous offers on multiple properties. If the buyer has a termination option for all three properties, she has the contractual right to terminate two—or all three—of the contracts within the termination option periods. However, there is a risk involved that you may want to communicate to the buyer. If any of the option fees are not paid within the time prescribed, it may be deemed that the buyer does not have a valid termination option. In that case, the buyer may not have the ability to terminate one or more of the contracts, which could leave the buyer contractually obligated to purchase more than one property.

The purpose of the T-47 Residential Real Property Affidavit (TXR 1907) is to affirm that there have been no changes made to the property—other than those listed on the form—since the date the seller enters in the blank in Paragraph 4. That date should be the date from which the sellers have no knowledge of changes having been made to the property. At the bottom of Paragraph 4, the seller may list changes to the property that have occurred since that date or put "None" if there have been no changes.

The sellers have several options as to what date to fill in. Since the purpose of the affidavit is to affirm the existing survey, the sellers could use the date of the most recent existing survey, which may be a survey ordered by them or by a previous owner of the home. Alternatively, the sellers could use the date that they acquired the property because that could be seen as the earliest date that they have actual knowledge about any changes made to the property. It is ultimately up to the sellers to choose what date to use.

Pursuant to Paragraph 2B of the Third Party Financing Addendum, to terminate the contract based on failure to obtain property approval the buyer must, not later than three days before the closing date, give the seller a written notice of termination and a copy of a written statement from the lender setting forth the reason for the lender’s determination. If a buyer terminates the contract in accordance with Paragraph 2B, the earnest money will be refunded to the buyer. If the buyer does not terminate the contract in accordance with Paragraph 2B, property approval is deemed to have been obtained.  It is important to note that a low appraisal does not give a buyer a right to terminate the contract pursuant to Paragraph 2B of the Third Party Financing Addendum if the property meets the lender’s underwriting requirements notwithstanding a low appraisal.  Further, if the lender reduces the amount of the loan because of the low appraisal, the buyer will be required to bring additional cash to the close to make up any difference between the loan and the sales price. 

No. If the contract has been properly executed by all parties, there is a binding contract even if the buyer has not deposited earnest money. Your clients are not allowed to walk away.

Earnest money is not necessary to make a valid contract. Earnest money is a buyer-performance item required to be deposited after a contract is fully executed. A contract could become effective even if no earnest money is required in the agreement.

Your buyers are still required to deposit the earnest money within the time required for delivery. If the contract calls for a termination option and your buyers timely pay for that option, they would then have the right to terminate the contract within the specified time period.

A MUD is a political subdivision of the state that's authorized by the Texas Commission on Environmental Quality to provide water, sewage, drainage, and other services within its boundaries. The seller is required by the Texas Water Code to provide a buyer a notice to purchasers indicating that property is located within a MUD prior to the buyer entering into a sales contract. The notice must provide information regarding the tax rate, bonded indebtedness, and fees, if any, of the MUD.

The 88th Texas legislature made changes that went into effect June 18, 2023, that modify the content of the notice to provide more clarity to purchasers. MUDs are also now required to make the notice available online.

The revised notice separately lists the property tax and property assessments levied against the property for greater clarity. The revision also lists the amounts of bonds that have been issued by the MUD categorized by the type of facility the bonds will be used for: water, sewer, and drainage facilities; road facilities; parks and recreational facilities; and other facilities. Additionally, the notice must contain a disclosure informing the buyer that the information in the notice is subject to be changed by the MUD at any time and to contact the district directly for information on any proposed or pending changes.

You have a few options for obtaining copies of the notices. Beginning on June 18, 2023, MUDs were required to make the notice available on their websites. Additionally, MUDs are required to file these notices with their county property records office, so you may request a copy from the county. Lastly, the MUD is required to keep the correct notice on file and can provide a copy for an administrative fee not to exceed $10.

To look up a district's information, including the contact information for the district's agent, use TCEQ's online database of utility districts.

The date the buyer walked through the property.