Key Takeaways
- The One to Four Family Residential Contract (Resale) is the most commonly used TREC promulgated form
- The contract contains 23 numbered paragraphs covering all aspects of the transaction from parties to closing
- Key paragraphs include Property (2), Sales Price (3), Financing (4), Earnest Money (5), and Closing (9)
- The option period allows buyers to terminate for ANY reason by paying a non-refundable option fee
- Special Provisions (Paragraph 11) is where license holders can add factual statements—not legal provisions
One to Four Family Residential Contract
The One to Four Family Residential Contract (Resale) is the most commonly used TREC promulgated form. It's used for the sale of existing residential properties of 1-4 units.
Contract Structure
The contract contains 23 numbered paragraphs:
| Paragraph | Topic |
|---|---|
| 1 | Parties |
| 2 | Property |
| 3 | Sales Price |
| 4 | Financing and Closing |
| 5 | Earnest Money |
| 6 | Title Policy and Survey |
| 7 | Property Condition |
| 8 | Broker's Fees |
| 9 | Closing |
| 10 | Possession |
| 11 | Special Provisions |
| 12-23 | Additional terms and conditions |
Key Paragraphs Explained
Paragraph 2: Property
Identifies the property being sold:
- Legal description (or address with commitment to provide legal)
- Improvements and accessories included
- Exclusions (items NOT included)
- Reservations (mineral rights, etc.)
Paragraph 3: Sales Price
| Component | Description |
|---|---|
| Cash portion | Amount paid at closing |
| Financing | Loan amount (if applicable) |
| Total | Sum of cash and financing |
Paragraph 4: Financing and Closing
Specifies the financing arrangement:
- Cash (no financing)
- Third party financing (with addendum)
- Assumption (with addendum)
- Seller financing (with addendum)
Paragraph 5: Earnest Money
| Element | Description |
|---|---|
| Amount | Negotiated deposit |
| Holder | Title company or escrow agent |
| Delivery | Within specified days of execution |
| Default | Remedy if party defaults |
Key Point: Earnest money is NOT the same as the option fee. Earnest money is refundable if the buyer terminates properly.
Paragraph 7: Property Condition
The buyer accepts the property:
- "As Is" based on inspections, OR
- Subject to agreed repairs
The option period (covered separately) allows buyer to:
- Inspect property
- Negotiate repairs
- Terminate for any reason
Paragraph 9: Closing
| Element | Description |
|---|---|
| Date | On or before specified date |
| Location | At title company or attorney's office |
| Prorations | Taxes, HOA dues, etc. divided |
| Costs | Who pays what closing costs |
Paragraph 11: Special Provisions
This paragraph is for factual statements and business details:
| Allowed | Not Allowed |
|---|---|
| Property descriptions | Legal language |
| Factual statements | Contingencies |
| Business terms | Contract modifications |
| Repairs agreed to | Attorney-drafted provisions |
Exam Tip: Paragraph 11 is frequently tested. Remember: factual statements only—no legal provisions!
The Option Period
The option period is unique to Texas and allows buyers to terminate for ANY reason.
| Element | Description |
|---|---|
| Option fee | Non-refundable payment to seller |
| Option period | Number of days (negotiated) |
| Buyer's right | Terminate for any reason |
| Deadline | Must terminate before period expires |
What can a Texas license holder add to Paragraph 11 (Special Provisions) of the promulgated contract?
During the option period in Texas, a buyer may terminate the contract: