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April 02, 2021

Everything You Need to Know: Updates to the One to Four Family Residential Contract (Resale)

Everything You Need to Know: Updates to the One to Four Family Residential Contract (Resale)

As of April 1, 2021, Texas real estate agents are required to adopt and use the newly updated One to Four Family Residential Contract (Resale) from TREC. For the most part, much of the purchase contract remains the same, but there are a few updates you’ll want to be aware of. In this article, we’ll review the TREC updates so you know exactly what to do the next time you go to write an offer.

So what’s changed and what hasn’t? Below, we’ll tackle these updates section-by-section. If you don’t see a particular section of the contract listed, don’t worry, that just means there haven’t been any updates to that section, and you can keep on keepin’ on. Alright, let’s jump into it!

Here's a quick summary of sections that have been updated. We'll dive into exactly what's been updated in these sections below.

  • 2. Property
  • 4. Leases
  • 5. Earnest Money and Termination Option
  • 8. Brokers and Sales Agents
  • 9. Closing
  • 10. Possession
  • 18. Escrow
  • 21. Notices
  • 22. Agreement of Parties
  • 23. Consult an Attorney Before Signing
  • Broker Information
  • Option Fee Receipt

2. Property

First things first, paragraph 2 has some slight changes in language that you should take note of. Right off the bat, there’s a very minor update—so minor it might not be worth noting, but we promised to tell you everything you need to know, and we intend to follow through with that! Starting with paragraph 2, TREC has simply replaced “Property” with (Property). Some more noteworthy updates have been made to sections 2B and 2C.

B. Improvements

The language “owned by Seller and” has been removed when referring to improvements made to “all other property attached to the above described real property.” Although a minor change, this is likely due to the addition of a new fixture leases section under paragraph 4, which we’ll dive into in more detail below.

C. Accessories

In the Accessories section, which describes the often less obvious items that would be included with the sale—like curtains and curtain rods—there are two changes to make note of.

First, this section now specifies “security systems that are not fixtures.” This relates to security systems like Ring or SimpliSafe where doorbells, cameras, and alarms are not always permanently installed. These types of security systems are now the norm, rather than the exception, and will now convey by default with the property.

Second, is the added definition of “controls,” which refers to accessories like garage door openers and even access to security system software, which must be provided with the sale of the property. In other words, if the software is used to control the security system, then the software—in addition to the hardware—will convey with the property.

4. Leases

Big changes have been made to paragraph 4, so you’ll likely want to give this section a bit more attention. What was previously the “License Holder Disclosure” (moved down to paragraph 8), is now the new “Leases” section. The mention of “Leases” previously appeared in paragraph 10 of the One to Four Family Residential Contract (Resale).

This section relates to any leases of the property that the seller is aware of. This not only includes residential leases, but also fixture and natural resource leases. In this section, the seller acknowledges that they are (or are not) aware of any leases that may affect the property. If they are, the appropriate boxes must be checked and the related addendum must be included with the contract.

It also states that after the contract has been executed, the seller cannot create a new lease, amend an existing lease, or convey (sell or transfer) ownership interest in the property without the written consent of the buyer. For instance, in regards to ownership interest, the seller couldn’t allow the tenant to remove a security system from the property because it is an accessory.

A. Residential Leases

If the property is subject to an existing residential lease or leases, this box must be checked and the Addendum Regarding Residential Leases must be completed and attached to the contract. In other words, this applies when the property is currently being leased by one or multiple tenants. Previously, if there was an existing residential lease, it was commonplace for the buyer to assume the lease with all changes negotiated outside of the TREC contract.

B. Fixture Leases

If any fixtures on the property are currently being leased by the seller, this box should be checked and the Addendum Regarding Fixture Leases must be included with the contract. Common examples of fixture leases include leases for solar panels, propane tanks, water softeners, and security systems. Although these types of leases aren’t very common, this section is entirely new to the Texas purchase contract so be sure not to overlook it. Before this update, these types of leases were generally disclosed on the Seller’s Disclosure Notice.

C. Natural Resource Leases

If the seller is a party to a Natural Resource Lease on the property, this box must be checked. In this case, “Natural Resource Leases” are defined as any existing oil and gas, mineral, water, wind, or other natural resource lease that affects the property. In areas of Texas where oil wells and wind turbines are more prevalent, this will be an important change to note.

If there is a natural resource lease and the box is checked, the seller is required to provide the buyer with a copy of all the Natural Resources Leases. When filling out this section, one of the following boxes must be checked:

(1) If the seller has already delivered a copy of the Natural Resource Lease(s), check this box.

(2) If the seller has not yet delivered a copy of the Natural Resource Lease(s), this box should be checked. If this is the case, the seller must provide the lease(s) within 3 days of the executed contract. You must also provide the number of days the buyer has to terminate the contract after they’ve received the lease(s) from the seller. If the contract is terminated during this time, the buyer’s earnest money will be refunded.

5. Earnest Money and Termination Option

Another section with a significant update in the new form is paragraph 5. What was previously paragraph 23, the “Termination Option” section, has been moved up and combined with “Earnest Money” in paragraph 5. In addition to this, updates have been made to the language regarding the earnest money payment.

A. Delivery of Earnest Money and Option Fee

Most of this section stays the same regarding when and who the earnest money must be delivered to. The new change here is the ability to pay the option fee to the escrow agent combined with or separate from the earnest money. This change will likely allow the escrow agent to hold onto the funds until closing and include them in the final proceeds to the seller. In contrast to today, where it’s customary to treat these funds like a prepayment and deduct them from the final proceeds to the seller.

(1) Regarding additional earnest money, there are no major changes.

(2) No changes regarding the last day to deliver the earnest money if it falls on a weekend or legal holiday.

(3) In this section, TREC has clarified the order in which the application of credited funds will be applied. If the buyer is credited funds at closing, it states that those funds will first be applied to the option fee and then the earnest money.

(4) Some slight changes to this section of paragraph 5A. The language has been updated to allow the escrow agent to deliver the option fee to the seller without getting additional consent from the buyer. It also states that the option fee will be credited to the sales price at closing. Previously, there was the option to choose whether or not the option fee would be credited at closing.

B. Termination Option

This language, previously appearing in paragraph 23 of the contract, largely stays the same. The only change is the removal of the option to choose whether the option fee is credited at closing or not (as detailed above).

C. Failure to Timely Deliver Earnest Money

No changes to this language relating to the seller’s right to terminate the contract if the buyer fails to deliver the earnest money within the required time. Just a format change.

D. Failure to Timely Deliver Option Fee

Same goes here. Just a small format change. This language previously appeared in paragraph 23 of the contract.

E. Time

Again, no changes here except formatting. This language previously appeared in both the Earnest Money and Termination Option paragraphs and is now combined here.

8. Brokers and Sales Agents

The “Brokers’ Fees” section has been renamed the “Brokers and Sales Agents” section. Just some slight formatting changes here.

A. Broker or Sales Agent Disclosure

Previously the “License Holder Disclosure” appearing in paragraph 4, this section is now included in paragraph 8 and has been renamed to “Broker or Sales Agent Disclosure.” Other than that, no changes have been made to the language.

B. Brokers’ Fee

No changes to the Broker’s Fee section.

9. Closing

Only minor changes to this section. Due to the new “Leases” paragraph, section (5) of paragraph 9 regarding residential leases has been removed.

10. Possession

Besides a very minor formatting change to the “Buyer’s Possession” title of section A, a new “Smart Devices” section has replaced what was previously the “Leases” section of paragraph 10. Let’s take a closer look:

A. Buyer’s Possession

Minor format change capitalizing the section title.

B. Smart Devices

An entirely new section to the Texas purchase contract, the “Smart Devices” paragraph defines these to be any device that connects to the internet allowing for remote use, monitoring, or management of the property, any included non-realty items (as laid out in the Non-Realty Items Addendum), or fixture lease items that have been assigned to the buyer. Examples of smart devices under this definition would include devices like Ring doorbells and Nest thermostats.

(1) This section also dictates that the seller must provide any access codes, logins, or application information needed for the buyer to access and manage these devices in writing.

(2) It also states that the seller must remove any access or connection they have to the smart devices from their personal devices including phones and computers.

18. Escrow

Mostly minor updates have been made to paragraph 18 regarding fund disbursement and expense deductions made by escrow agents. Only sections A and B have updated language. Sections C, D, and E of paragraph 18 remain unchanged.

A. Escrow

The addition to this section states that the escrow agent is allowed to determine the form of payment for the earnest money and option fee. In other words, they may dictate that they do not accept forms of payment like personal checks, credit cards, or cash.

B. Expenses

Language has been added to this section to clarify which type of expenses an escrow agent may deduct from the earnest money. Essentially, the escrow agent can deduct any expense that they incurred on behalf of the party entitled to the earnest money.

21. Notices

Not much has changed in paragraph 21, just a minor update that combines the email and fax fields for the buyer and seller.

22. Agreement of Parties

With the addition of the “Leases” section in paragraph 4, there are two new addenda included in section 22: the Addendum Regarding Residential Leases and Addendum Regarding Fixture Leases. If boxes 4A or 4B have been checked, the appropriate addendum must also be checked and attached to the contract.

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23. Consult an Attorney Before Signing

What you previously knew as paragraph 23, “Termination Option,” has been combined with paragraph 5, now referred to as “Earnest Money and Termination Option.” With that, the “Consult an Attorney Before Signing” has been renumbered to 23.

Broker Information

A few minor updates have been made to the “Broker Information” page. A new field, “Team Name,” was added for associates.

In addition to that, the language previously found on the bottom of the Broker Information page relating to the broker agreement has been replaced with an informational disclosure. It notes that a separate commission agreement between the listing broker and the other broker exists outside of this contract.

Option Fee Receipt

On the “Option Fee Receipt,” a very minor change was made to replace the “Seller or Listing Broker” signature field with an “Escrow Agent” signature field.

There you have it! Everything you need to know about the recent TREC updates made to the One to Four Family Residential Contract (Resale). Don’t forget, as of April 1, 2021, all Texas real estate agents are required to use the updated version of the purchase contract.

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Disclaimer: *The information provided in this article is meant for informational purposes only and is not intended to constitute legal, financial, tax, or insurance advice. Jointly encourages readers to contact their attorney or other advisors for advice regarding these matters.

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