Which trec contract should be used to sell or purchase a new condominium?
When it comes to buying and selling a home, the Purchase Contract is a major player in the process. As a legally binding contract, it’s essential that you understand exactly what you’re agreeing to when you sign on the dotted line. In this guide, we’re taking an in-depth look at a Texas Purchase Contract, what each section means, and what you should look out for. Show
This guide answers the following questions:
What is a Purchase Contract?A Purchase Contract, also sometimes referred to as a Purchase Agreement or Purchase and Sale Agreement, is a contract between two parties detailing the agreed upon terms and conditions for the sale of a home. The purchase contract is usually prepared by the buyer’s agent in a transaction. When a buyer wants to make an offer on a home, their agent will draw up a purchase contract, which they’ll then deliver to the seller’s listing agent. What does a Purchase Contract include?In general, the Purchase Contract or Agreement includes:
Don’t worry, we’ll go over these in more detail in a bit! The Different Types of Texas Purchase Contracts
The Purchase Contract: Terms You Need to KnowNow, before we do a deep-dive into the components of a Purchase Contract, here are a few terms you should know:
Understanding the Texas Purchase Contract: What Are You Really Signing?Now that we know what a purchase contract is and when it’s used, let’s walk through each section in detail so you know exactly what to expect when it comes time for you to use this document. Since the One to Four Family Residential Contract (Resale) is the most frequently used, we’ll use this form as our example. Alright, let’s jump into it! 1. Parties: This is the first section included in the purchase contract and identifies the two parties involved in the transaction–the seller and the buyer. 2. Property
Pro Tip: The list of improvements included in the purchase contract is only a base definition of what may be included. Not sure whether an item comes with the house? Consider how permanently an item is installed. A general rule of thumb: if you were to remove the item from the house and it leaves a hole, then it would be included in the sale. For instance, a countertop microwave wouldn’t come with the house but a microwave installed above the stove would. Want to keep your TV wall mount? Remove it before you put your home on the market. If not, it would be included with the house unless specified in the listing.
3. Sales Price: Shows the total sales price, how much of the sales price is being paid by the buyer in cash, and how much of the sales price is being financed either by a third-party, the seller, or a loan assumption. A loan assumption is when the buyer takes on the existing loan of the seller. 4. License Holder Disclosure: Discloses whether the buyer holds a real estate license in Texas. 5. Earnest Money: Indicates the amount of earnest money the buyer will provide and who will act as the escrow agent. If any additional earnest money is to be provided after the contract is signed, this will be noted as well. 6. Title Policy and Survey A. Title Policy: Indicates who will pay for the owner’s title insurance policy and the company that will be issuing the policy. A list of exceptions to the title policy is also included. The owner’s title policy is customarily paid for by the seller and the lender’s policy is customarily paid for by the buyer in the state of Texas. B. Commitment: States that the title company must deliver the title commitment to the buyer on behalf of the seller within 20 days of the contract being executed. After that time period, there will be an automatic extension of 15 days or 3 days prior to closing (whichever comes first). If the seller does not provide the commitment by that time, the buyer can terminate the contract and be refunded their earnest money. C. Survey: There are three options that can be checked here. The first box indicates that the seller must provide an existing property survey to the buyer within a specified number of days, as well as a Residential Real Property Affidavit (more commonly referred to as a T-47 Affidavit). A T-47 Affidavit is a form that the seller completes identifying any modifications to the property since the survey was issued. In the case that the seller is unable to provide an existing survey along with a notarized T-47 Affidavit within the noted timeframe, the buyer will obtain a new survey at the seller’s expense. If the survey has been delivered to the buyer but has been deemed unacceptable by the title company or the buyer’s lender, a checkbox will indicate whether the seller or buyer will pay for a new survey. If there is no survey and a new survey has to be drawn, the second box indicates that the buyer will pay and the third box indicates that the seller will pay. D. Objections: After receiving the title commitment, exception documents, and survey, the buyer has a certain amount of time to object to items that might affect the title policy. If the buyer presents any objections, then the seller must resolve these objections within a specified time or the buyer can terminate the contract and get their earnest money back. E. Title Notices: Elaborates on items related to the title policy.
7. Property Condition
Pro Tip: This does not mean the buyer forfeits their right to have the property inspected, that they are unable to negotiate, or that they waive their right to terminate the contract during the option period. After the closing date, when all negotiations are complete, the buyer accepts the property as-is.
Pro Tip: Typically, the seller pays for the buyer’s Home Warranty, but this is negotiable. The Home Warranty shields the seller in the event that something breaks in the home after the buyer has moved in. For example, if the A/C quits the day after closing, the Home Warranty would cover the cost of repairing or replacing the A/C unit. This brings both peace of mind to both the buyer and the seller in case something goes wrong with the home during that first year after it's sold. 8. Brokers’ Fees: States that whoever is responsible for paying the broker fees is outlined in a separate agreement. 9. Closing: Sets forth the closing date. If the property does not close on the specified date, closing can be extended by 7 days if objections were made in paragraph 6. If either party fails to close on the date, they will be in default of the contract and paragraph 15 will apply. This section also outlines the responsibilities of both the buyer and seller at closing:
10. Possession
11. Special Provisions: This section is for factual statements and business details that are applicable to the sale. A common inclusion is if the buyer or seller is a licensed agent or if they are related to their agent. However, if provisions are included in this section, an attorney should be consulted. Any items listed in this section should not be included in the contract or addenda. 12. Settlement and Other Expenses (A) Describes the expenses that must be paid by the seller and the buyer at or prior to closing. (1) Lists the expenses that must be paid by the seller.
(2) Lists the expenses that must be paid by the buyer. (B) If any expense exceeds the amounts set forth in the contract, then the contract can be terminated. It also states that the buyer cannot pay for fees that are prohibited by the FHA, VA, Texas Veterans Land Board, or other government loan program regulations. 13. Prorations: Lists the expenses that may be prorated including taxes for the current year, interest, maintenance fees, assessments, dues, and rents. For these expenses, the seller will pay a prorated amount up to the date of closing and the buyer will pay a prorated amount after the date of closing. For taxes, the seller will credit and transfer their portion to the buyer at closing and the buyer will be responsible for paying the taxes. Sometimes the estimated taxes paid at closing differ from the actual amount due. If this is the case, the parties agree to work together for any adjustment to the amount due by each party. 14. Casualty Loss: If the property is damaged or destroyed by a fire or other type of casualty after the contract has been executed, the seller must restore the property to its original condition by the closing date. If the seller is unable to do so due to factors beyond their control, the buyer can (a) terminate the contract and receive their earnest money back, (b) extend the closing date up to 15 days to allow the seller more time to restore the property, or (c) accept the property in its damaged condition and receive proceeds from the seller’s insurance and a credit from the seller at closing in the amount of their deductible. 15. Default: If either party fails to meet the requirements set forth by the contract, they will be in default which means they’ve violated the terms of the contract. If the buyer is in default, the seller may (a) enforce specific performance in which case the buyer must purchase the home regardless of why they defaulted or (b) terminate the contract and keep the earnest money as damages. If the seller defaults, the same options apply to the buyer. 16. Meditation: If the buyer and seller are in dispute and unable to resolve the issue through informal discussion, then the dispute will be brought to a mediator. The cost of the mediator will be split equally between both parties. 17. Attorney’s Fees: In the event that a dispute is brought to court, the losing party may be required to pay for the attorney and court fees of the winning party. 18. Escrow
19. Representations: States that all covenants, representations, and warranties in the contract will continue past closing. In other words, any claims made in the contract must still be true after closing. If claims are found to be untrue after closing, then the seller is in default. This section also states that the seller may continue to show the property and receive, negotiate, or accept backup offers, unless explicitly prohibited in a written agreement. 20. Federal Tax Requirements: If a seller is considered to be a “foreign person” as defined by the IRS, then additional tax laws apply. 21. Notices: Defines how notices must be received to be deemed effective and includes the contact information for both the buyer and seller. This information will be used by the escrow agent to deliver documents to either party. 22. Agreement of Parties: States that the contract can not be changed unless a written agreement is made. This section also lists common addenda and provides a place for less common addenda to be included. 23. Termination Option: Sets forth the amount of the option fee that the buyer agrees to pay the seller (due to the seller 3 days after the contract has been executed) and specifies the time frame in which the buyer is allowed to terminate the contract for any reason. If the buyer terminates the contract during that time, the option fee will not be refunded but the earnest money will. This section also states whether the option fee will or will not be credited to the sales price at closing. 24. Consult an Attorney before Signing: Real estate agents are prohibited from giving real estate advice and the Texas Real Estate Commission (TREC) encourages both parties to consult with their attorney before signing as the contract is a legally binding document. This section includes a place for attorney contact information, the signatures of both the buyer and seller, and the broker to write in the date of execution. Additional Pages: Included on the following page is each broker’s information and the agreed upon commission to be paid to the buyer’s agent. The last page includes acknowledgements for the receipt of the option fee, earnest money, contract, and any additional earnest money. The option fee receipt is signed by the listing agent or seller and the contract and earnest money receipts are signed by the escrow agent. Common Purchase Contract Addendum
There you have it! Everything you need to know about the Texas Purchase Contract. What happens next? Once the seller has officially accepted an offer, both parties will sign the purchase contract and the closing process will begin. Still have unanswered questions about the Texas Purchase Contract? Don’t hesitate to reach out to our Jovio agents who are available around the clock to answer any questions you might have. *The information provided in this article is meant for informational purposes only and is not intended to constitute legal, financial, tax, or insurance advice. Jovio encourages readers to contact their attorney or other advisors for advice regarding these matters. What is the purpose of the one to four family residential contract?It is used for the resale of residential properties that are either a single family home, a duplex, a tri-plex or a four-plex. It is not for use for condominium transactions, new homes being sold by a builder, or farm and ranch properties.
What is the Texas Real Estate Commission Real Estate Purchase Agreement called?The most commonly used residential sales contract in Texas is the One to Four Family Residential Contract (Resale) promulgated by the Texas Real Estate Commission as form number 20-13.
What is the purpose of paragraph 23 of the one to four family residential contract?Under Paragraph 23, Termination Option, buyers may pay a fee for the option to terminate the contract within a negotiated number of days. The option fee must be paid to the sellers—not to the title company—within three days after the effective date.
What is the purpose of paragraph 24 of the one to four family residential contract?Buyer wishes to purchase a 10-day option to terminate the contract. How long does the buyer have to pay the option fee? What is the purpose of paragraph 24 of the One to Four Family Residential Contract? The parties may add contact information of their attorneys.
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