Texas Contracts — Cheatsheet

TREC Promulgated Forms

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No TREC form for: Commercial property, 5+ unit multifamily → attorney-drafted contracts required

Attorney exception: Attorneys drafting contracts as legal counsel for their clients are exempt from TREC form requirement.

Agents CANNOT: Modify promulgated forms, add custom clauses, or use self-drafted forms → unauthorized practice of law

Key TREC Addenda

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Option Period

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Option fee = paid for the right to walk away (non-refundable) Earnest money = good-faith deposit (refundable if terminated during option period)

Earnest Money

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Proration Formula

Property taxes (paid in arrears in Texas):

Daily rate = Annual taxes ÷ 365

Seller's days = January 1 through day before closing

Seller's debit = Daily rate × Seller's days

Appears on closing disclosure as: Debit to seller, Credit to buyer

Quick example: $7,300/yr taxes. Closing Sept 15. Seller owned 257 days (Jan 1–Sept 14). Daily rate = $20. Seller's debit = $5,140.

HOA dues (prepaid): Seller prepaid → credit to seller for unused days after closing (debit to buyer)

Prepaid rent (tenant-occupied): Buyer receives credit for days buyer will own the property

Closing Cost Customs in Texas

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Form	Use Case
One to Four Family Residential Contract (Resale)	Standard resale of 1-4 unit residential property — most common
New Home Contract (Incomplete Construction)	Home still under construction at contract
New Home Contract (Completed Construction)	Newly built, finished home
Farm and Ranch Contract	Rural land with agricultural improvements
Unimproved Property Contract	Land without significant improvements
Addendum	Purpose
Third Party Financing Addendum	Financing contingency; specifies loan type, amount, max rate; buyer can terminate + get earnest money back if financing unavailable
Addendum for Sale of Other Property by Buyer	Contingency on buyer selling existing home
Addendum for Reservation of Oil, Gas, and Other Minerals	Seller retains mineral rights at closing
Short Sale Addendum	Transaction requires lender approval below outstanding loan balance
HOA Addendum	Property subject to mandatory HOA membership
Element	Rule
Option fee paid to	Seller directly (not title company, not broker)
Option fee refundability	Non-refundable — seller keeps regardless of outcome
Right granted	Unrestricted right to terminate for any reason
Earnest money if buyer terminates	Returned to buyer
Effective Date (starts option clock)	Last party signs AND executed contract received by other party or their agent
After option expires without termination	Buyer loses unrestricted right; financing contingency may still apply
Scenario	Who Gets Earnest Money
Terminated during option period	Buyer
Financing unavailable + good faith effort (Third Party Financing Addendum)	Buyer
Buyer defaults after option period (no valid basis)	Seller (liquidated damages)
Seller defaults	Buyer (+ possible damages)
Mutual agreement to cancel	Per written mutual release
TREC adjudication	Cannot — TREC has no jurisdiction over earnest money disputes
Release mechanism	Mutual written agreement signed by both parties OR court order
Cost	Who Typically Pays	Notes
Real estate commission	Seller	Per listing agreement
Owner's title insurance	Varies by county in TX; often seller in Dallas/Houston; buyer in Austin	Unlike other states, not standardized
Lender's title insurance	Buyer	Always buyer's cost
Transfer tax	Neither	Texas has NO real estate transfer tax
Survey	Negotiable	Often buyer in TX
Escrow/closing fee	Split or negotiated	Varies by county custom

Common Exam Traps

• Option fee goes to SELLER (not escrow) — earnest money goes to escrow (title company)

• Effective Date = last signature + receipt (not just the signing date)

• TREC cannot order earnest money disbursement — broker must hold; parties must litigate or mutually agree

• Custom contracts = unauthorized practice of law for licensees

• 5+ unit multifamily = commercial → no TREC form required

• Tax proration = debit seller (they owe buyer for days they owned the property)

• No TX transfer tax — this is frequently tested as a Texas distinction

• Option period expiration — buyer loses unrestricted termination right but financing addendum may still protect them

• Mineral rights are NOT automatically excluded — use the Addendum for Reservation of Oil, Gas, and Other Minerals