Sales Contract for 1-4 Family Residential Properties

1. PARTIES – The Parties

📌 "The parties to this contract are..."
This contract is a legal agreement in which one party (the seller) agrees to sell their property to the other party (the buyer) under specific terms and conditions.

This section lists the full legal names of both the buyer and the seller. These are the individuals who are parties to the contract. If there are multiple buyers or sellers, each name must be listed separately. If the buyer or seller is a company, trust, or other legal entity, the entity's full name and its authorized representative must also be included.

🎯 Example Scenario:

Seller: Mehmet Yilmaz and Elif Yilmaz
Buyer: Ahmet Demir

In this example, a married couple is selling the home and an individual buyer is purchasing it.

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🏡 Note to Sellers (as explained by the agent):

"Mr. and Mrs. Yilmaz, this section lists you as the sellers. It is very important that we use your full legal names here, because by signing this contract, you are committing to sell this property to the buyer under the stated conditions. If anyone else appears on the title — such as a co-owner — their name must appear here as well."

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🧑‍💼 Note to Buyers:

"Mr. Demir, we are listing your full legal name here as the buyer. This means all rights and obligations under this contract belong to you. If anyone else will be co-purchasing the home with you (a spouse or partner, for example), their name must also appear here — because when applying for a mortgage or processing the title, all names must match exactly."

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📘 Detailed Notes – Things to Watch For:

• Spelling errors in this section can have serious consequences. Always use the exact name as it appears on official government-issued ID.
• For married couples, both spouses must be named. Under Texas law, even if one spouse is not on the title, they may still need to be a party to the contract.
• If the transaction is on behalf of a company, both the company name and the authorized signatory must be listed.
• The information in this section forms the legal basis for resolving any future disputes.

2. PROPERTY – Property Description

📌 "The Property includes land, improvements, and accessories..."
This section defines exactly what is included in the property being sold. When you buy a home, you are not just purchasing the space between the walls — you are also buying the land the structure sits on, any permanent fixtures, and certain accessories. This section is critical for preventing misunderstandings between the parties.

A. LAND

This section contains the legal description of the lot on which the home sits. It typically includes the subdivision name, lot and block number, and the physical address.

🧾 Example:

"Lot 8, Block 4, Lakeview Subdivision, Fort Bend County, Texas, known as 4512 Willow Lake Drive, Richmond, TX 77407"

👩‍💼 Note:

"This section contains the official legal description of the property as it appears in public records. This information is verified by the title company and must match the deed exactly."

B. IMPROVEMENTS

This section covers all structures permanently attached to the land, including the home itself, garage, patio, fencing, built-in lighting, and any built-in kitchen appliances that are not intended to be removed.

🏠 Example:

Built-in oven, kitchen-mounted microwave, fixed shower heads, water heaters, central HVAC system.

👩‍💼 Note:

"If the home has any built-in appliances — such as a built-in dishwasher or a wall-mounted TV bracket — these are included in the sale. If the seller wants to take any of these, that must be stated explicitly."

C. ACCESSORIES

Portable items that will be conveyed with the home are listed here. These are movable items that support the function of the property.

📌 Common examples:

• Garage door openers
• Security system equipment
• Irrigation system control panel
• Curtains and blinds (if wall-mounted)

👩‍💼 Note:

"Accessories are items the seller has agreed to leave behind. These are included in the sale price."

D. EXCLUSIONS

Anything the seller intends to take must be listed here. Otherwise, the buyer may assume these items are included with the home.

🛑 Example:

"The dining room chandelier belongs to the seller and is not included in the sale price."
"The chairs at the dining table will be taken by the seller."

👩‍💼 Note to sellers:

"If there is anything in the home with sentimental or personal value that you plan to take with you, we need to list it here. Removing something that is not excluded in the contract can cause problems."

E. RESERVATIONS

If the seller wishes to retain certain rights related to the property, those are written here. This typically involves technical matters such as mineral rights or water rights.

🧭 Example:

"Seller reserves all subsurface mineral rights."

👩‍💼 Note to buyers:

"This type of reservation usually doesn't affect you directly, but it could come into play if oil, gas, or other natural resources are found on the property. It's worth checking with the title company to understand the full implications."

3. SALES PRICE – The Purchase Price

📌 "The Sales Price will be paid as follows..."
This section details how the total purchase price will be paid. How much will the buyer pay in cash? How much will be financed? What is the total purchase price? All of this is spelled out here.

A. Cash Portion

This is the amount the buyer will pay directly out of pocket — without a loan.

💰 Example:

"Buyer will pay $120,000 in cash."

👨‍🏫 Note to buyers:

"You will pay this amount at or before closing from your own funds, typically by wire transfer or certified check."

B. Sum of All Financing

The amount the buyer will borrow through a mortgage loan is entered here. This represents the financing portion from the lender.

🏦 Example:

"Buyer will obtain a mortgage loan of $280,000 from XYZ Bank."

👨‍🏫 Note to buyers:

"If the loan process is not completed and you have a financing contingency in place, you may be able to exit the contract. Without that protection, you could still be obligated to purchase even if the loan falls through."

C. Total Sales Price

A + B equals the total purchase price. Both the cash portion and the financed amount together determine the final price of the home.

📌 Example:

"Total sales price is $400,000."

👨‍🏫 Note to sellers:

"This is the total offer price for your home. It is the amount you will receive at closing — though some closing costs will be deducted from your proceeds."

🎯 Example Scenario:

• Ahmet Bey wants to purchase a home.
• Home price: $450,000
• He will pay $150,000 in cash.
• He will finance the remaining $300,000 through a mortgage.

The contract section would be filled in as follows:

• A. Cash: $150,000
• B. Financing: $300,000
• C. Total Sales Price: $450,000

📌 Things to Watch For:

• If the buyer is using a loan, the loan approval process directly impacts the transaction timeline.
• While the total price matters most to the seller, certain deductions will be made at closing (taxes, commissions, etc.).
• The figures listed here are verified by the title company with official documentation, and all payments are processed on the closing date.

4. LICENSE HOLDER DISCLOSURE

📌 "Texas law requires a real estate license holder who is a party to a transaction or acting on behalf of a spouse, parent, or child to disclose this relationship..."

This section is a requirement under Texas law. If a licensed real estate agent is a party to the transaction — meaning they are buying or selling on their own behalf — or if they are representing a spouse, parent, or child in the transaction, they are legally required to disclose this relationship in writing.

🎯 Why Does This Matter?

This disclosure promotes transparency and fairness between the parties. A licensed professional has a deeper knowledge of the industry and may hold an advantage over the other party. For this reason, Texas law requires that any such relationship be clearly stated.

👨‍💼 Example Scenarios:

1. Scenario 1:
   Ali Bey is a licensed real estate agent and wants to purchase a home for himself using this contract.
   ✅ He must disclose: "I am a license holder who is a party to this transaction."
2. Scenario 2:
   Elif Hanim is a real estate agent who is helping her sister purchase a home.
   ❌ Her sister does not fall under the "spouse, parent, or child" categories specified in the law, so disclosure is not required.
3. Scenario 3:
   Agent Mehmet Bey is helping his son purchase a home and is actively involved in the negotiation process.
   ✅ He must disclose: "The person covered by this contract is my son. I am a licensed agent acting on his behalf."

🏡 Note to Sellers:

"This section states whether the buyer or the buyer's representative holds a real estate license. For example, if the person making an offer is actually a real estate agent — or is closely related to one — you have the right to know, as it may affect the negotiation dynamic."

🧑‍💼 Note to Buyers:

"If you or the person guiding you in this transaction holds a real estate license — or if the agent representing you is your spouse, parent, or child — we are required to disclose that here. Failing to do so could create legal complications down the road."

📌 Things to Watch For:

• This disclosure applies only to immediate family members: spouse, parent, or child.
• Extended family — cousins, siblings, nieces, nephews — do not require this disclosure.
• Failing to make this disclosure when required can result in serious ethical and legal consequences for the license holder.

5. EARNEST MONEY – Good Faith Deposit

📌 "Within 3 days after the Effective Date, Buyer must deliver the Earnest Money..."

This section governs the deposit the buyer is required to submit shortly after signing the contract. Known as "Earnest Money," this payment demonstrates that the buyer is serious about purchasing the property.

💵 What Is Earnest Money?

• It typically ranges from $1,000 to $5,000 (depending on the home price).
• It must be delivered to the title company (an independent closing agency) within 3 days of the Effective Date — the date both parties have signed.
• If the transaction closes successfully, this amount is typically applied toward the purchase price.
• If the contract is cancelled under valid contractual terms, the earnest money may be refunded to the buyer.
• However, in some cases, a buyer who walks away may forfeit this deposit.

📦 Example Scenario:

Ahmet Bey makes an offer on a $400,000 home. The seller accepts and the contract is signed. Ahmet Bey deposits $3,000 in earnest money with ABC Title Company within 3 days of the contract date. If all goes well, this $3,000 is credited toward the purchase price at closing.

However, if Ahmet Bey has a valid reason to exit (for example, the loan falls through and a financing contingency is in place), the money is refunded. If he backs out without a valid contractual reason, the seller may keep the deposit.

🏡 Note to Sellers:

"This payment shows that the buyer is genuinely committed to the purchase. As long as the contract terms are met and everything proceeds as planned, the deposit goes toward the sale. If the buyer backs out without a valid reason, this money may remain with you."

🧑‍💼 Note to Buyers:

"This payment is a serious commitment. Keep in mind, though, that if certain protections are in place — like a financing contingency or a satisfactory inspection clause — you may be able to recover this money if things don't work out. You'll typically deliver it to the title company by wire transfer or certified check."

📌 Things to Watch For:

• Timing is critical: If the earnest money is not delivered within 3 business days, the contract may be at risk.
• Where it goes: Earnest money is typically held by the title company or an escrow agent.
• Refund conditions: Whether the money is returned depends on the specific cancellation terms in the contract.
• Documentation required: This payment must be receipted and documented.

5A. OPTION FEE – The Right to Terminate

📌 "Buyer has paid Seller an option fee of $___ for the unrestricted right to terminate this contract..."

This section covers a small fee that gives the buyer the unrestricted right to walk away from the contract within a set period of time (typically 5–10 days), for any reason or no reason at all. This period is called the "option period."

During this window, the buyer can have the home inspected, review the findings, and if they are not comfortable proceeding, they may terminate the contract without penalty — other than forfeiting the option fee.

💳 What Is the Option Fee?

• It typically ranges from $100 to $500.
• This money is paid directly to the seller, not to the title company.
• The right to terminate is only valid if this fee is paid.
• If the buyer proceeds with the purchase, the option fee is generally not credited toward the purchase price (though it can sometimes be negotiated).

📅 The Option Period

• The option period is generally 5–10 days.
• It is specified in the contract as "X days" and begins on Day 1 (following the Effective Date).
• During this period, the buyer can arrange a home inspection, foundation check, HVAC evaluation, roof assessment, and more.

🎯 Example Scenario:

Ayse Hanim submits an offer on a $300,000 home. The seller accepts. Ayse Hanim:

• Deposits $3,000 in earnest money with the title company.
• Pays $200 in option fee directly to the seller.
• Requests a 7-day option period.

During those 7 days, she has the home inspected and discovers a significant plumbing issue. Not wanting to take on those costs, she exercises her right to terminate — without needing to give a reason.

The option fee of $200 stays with the seller, but the earnest money of $3,000 is returned to Ayse Hanim.

🧑‍💼 Note to Buyers:

"The option period is your safety net. You can have the home thoroughly inspected, negotiate any repairs you want, or simply walk away if you're not comfortable — all without losing your earnest money. The option fee is a small price to pay for that peace of mind."

🏡 Note to Sellers:

"The option fee is paid directly to you and is yours to keep regardless of what happens. If the buyer cancels, you keep the fee. If they proceed, the fee is typically not credited toward the purchase price — but this can be negotiated."

📌 Things to Watch For:

• If the buyer does not provide written notice of termination before the option period expires, the contract becomes binding.
• If the option fee is not paid, the buyer has no right to terminate under this provision.
• This section is especially critical during the inspection process.

6. TITLE POLICY AND SURVEY

📌 "A. Title Policy. Issued by a title company. B. Survey. C. Objections. D. Title Notices."

This section contains important protections for the buyer regarding the legal status of the property's title and land boundaries. It establishes both how a clear title will be delivered and who is responsible for obtaining the survey.

🔍 A. Title Policy

• Issued by a title company.
• Guarantees that the buyer will receive a clear title, free from prior liens, mortgages, or other legal encumbrances from previous owners.
• If a claim is made against the title after closing (such as a lawsuit from a previous heir), this insurance protects the buyer.

🧾 Who pays?
The contract specifies whether the buyer or seller will pay for it. It is typically paid by the seller, but this is negotiable.

💡 Example:

Seller agrees to pay for the owner's title insurance policy issued by ABC Title Company for the benefit of the buyer.

🧑‍💼 Note to Buyers:

"Title insurance guarantees that you will receive the property free and clear of any legal issues tied to previous ownership. Without it, you're taking on significant risk."

🏡 Note to Sellers:

"If you've agreed to cover the title insurance, that cost will be deducted from your proceeds at closing. It is an important step in giving the buyer confidence in the transaction."

📏 B. Survey

• A technical drawing that shows the current boundaries of the land and what is on it.
• This can be a new survey or an existing one, if acceptable.
• The contract specifies who will provide the survey and who will pay for it.

💡 Example:

"Seller will provide the existing survey. If it is not accepted, a new survey will be the buyer's responsibility."

🎯 Scenario:

Ayse Hanim wants to buy a home. The seller provides a survey from two years ago. If the title company and the lender both accept it, no new survey is needed. But if there are gaps or deficiencies, the buyer may need to commission a new one — and whoever is responsible per the contract bears the cost.

🙋‍♂️ C. Objections

• The buyer may object to issues found in the title.
  Examples: utility easements, liens, deed restrictions.
• If the buyer does not raise objections within the specified period, the contract moves forward as-is.

📌 A typical clause might read: "If buyer does not notify seller in writing within 10 days..."

📢 D. Title Notices

This section includes notices and details about:

• Whether the property is subject to a Homeowner Association (HOA).
• Whether mineral rights are included or retained by the seller.
• Whether the property is located in a flood zone.
• Confirmation that the buyer has received all required federal disclosures.

📌 Things to Watch For:

• A missing or inadequate survey can delay loan approval or closing.
• Purchasing a home without a title policy is extremely risky.
• Any title objections must be raised in writing by the buyer within the specified timeframe.

7. PROPERTY CONDITION

📌 "A. Access, Inspections and Utilities. B. Seller's Disclosure Notice. C. Completion of Repairs and Treatments. D. Environmental Matters. E. Property Condition. F. Completion of Repairs by Others."

This section covers the rights and obligations of both parties regarding the physical condition of the home being purchased.

🧰 A. Access, Inspections and Utilities

The buyer has the right to inspect the property during the contract period. The buyer may request the following be in place:

• Utilities — electricity, water, and gas — must be active at the home.
• The HVAC system, plumbing, electrical, roof, foundation, and other systems may be professionally inspected.
• The home is made available to inspectors on agreed-upon dates and times.

💡 Scenario:
Ayse Hanim doesn't want to deal with surprises after buying, so she hires a licensed home inspector. The seller leaves the home accessible, with utilities on, for the inspection.

🧾 B. Seller's Disclosure Notice

When a seller lists a property for sale, they are required to provide a written disclosure about the home's current condition. This is called the "Seller's Disclosure Notice" and typically covers:

• Are there any known issues with the roof, plumbing, or electrical systems?
• Has the home previously experienced fire, flooding, or mold damage?
• Are there any prior insurance claims or major repairs?

🧑‍💼 Note to Buyers:

"This form gives you the chance to learn about the home's history before you commit to buying it. If information was withheld and problems surface later, you may have legal recourse."

🧑‍💼 Note to Sellers:

"Completing this form accurately and honestly is a legal requirement. Concealing known defects can result in serious legal liability."

🛠️ C. Completion of Repairs and Treatments

If the parties have agreed — either prior to contract or after an inspection — that certain repairs will be made, those repairs must be completed before the closing date.

💡 Scenario:
An inspection reveals a ceiling leak. The buyer agrees to continue only if the repair is made. The seller agrees, and the ceiling is repaired before closing.

🧪 D. Environmental Matters

If any of the following environmental risks exist at the property, the buyer must be notified:

• Radon gas
• Asbestos
• Lead-based paint — pay close attention in homes built before 1978!
• Mold and toxic materials

These conditions can be tested by qualified inspectors during the inspection period.

🧱 E. Property Condition

Is the home being sold "as-is" in its current condition, or will specific repairs be made? This is clarified here.

• If no repairs will be made: the language "Property is sold as is" is used.
• If repairs will be made, they must be stated in writing and signed by both parties.

🧑‍💼 Note to Buyers:

"There may be issues with the home, but if the seller agrees to address them, we can proceed conditionally. Or you may choose to accept the home as-is. Either way, you should exercise your right to an inspection."

🧰 F. Completion of Repairs by Others

Any agreed-upon repairs must be performed by licensed professionals and must be documented with receipts.

💡 Scenario:
The seller agreed to repair the plumbing. A licensed plumber completed the work and provided an invoice at closing. The buyer was able to move forward with confidence.

📌 In Summary:

• The buyer has the right to a professional inspection.
• The seller is required to provide a written disclosure of the home's condition.
• Any agreed repairs must be confirmed in advance and documented.
• Environmental and health hazards are important and must not be concealed.

8. BROKERS' FEES

📌 "All obligations of the parties for payment of brokers' fees are contained in separate written agreements."

This section states that the commission payments owed to real estate brokers are governed by separate agreements — not by this sales contract.

🧾 Explanation:

The specific commission amounts and who pays what are not detailed in this form. Instead, those terms are found in the Listing Agreement (between the seller and their agent) or the Buyer Representation Agreement (between the buyer and their agent).

• The agreement between the seller and the listing agent typically states a total commission (e.g., 6%).
• That commission is shared with the buyer's agent (e.g., 3% + 3%).
• This payment is typically processed automatically by the title company at closing.

🎯 Scenario:

Seller Mehmet Bey agreed to a 6% commission with his listing agent. When the home sells for $400,000:

• Total commission: $24,000
• $12,000 goes to the listing agent, $12,000 goes to the buyer's agent.
• This is handled automatically by the title company at closing.

📌 This fee is not deducted from the buyer's payment — it comes out of the seller's net proceeds.

🏡 Note to Sellers:

"The commission amount is not stated in this contract because it's governed by your separate Listing Agreement. The agreed percentage will be deducted automatically at closing."

🧑‍💼 Note to Buyers:

"The services provided to you under the Buyer Representation Agreement are typically compensated through the commission the seller's agent shares. In most cases, you won't owe an additional commission fee out of pocket."

📌 Things to Watch For:

• If no written agreement exists with a broker, they have no right to claim a commission.
• Commission rates may be negotiable at the time of signing.
• In some situations, the buyer may be required to pay a separate fee — this must be clearly stated in the buyer's representation agreement.

9. CLOSING

📌 "The closing of the sale will be on or before..."

This section covers the details of the closing date and the responsibilities each party must fulfill by that date.

📅 What Is the Closing Date?

Closing is the day the home officially changes hands — when the money is transferred, the deed passes to the new owner, and the title is recorded. This date is written here, and it is typically 30–45 days after the contract date.

💡 Scenario:
Buyer Ahmet Bey and seller Elif Hanim sign the contract on June 1. The closing date written in the contract is July 1. All required steps must be completed by July 1.

🧾 What Happens at Closing?

• The buyer pays the remaining balance (cash or via loan disbursement).
• The seller transfers the deed.
• The title company finalizes all paperwork.
• The title is officially recorded in the buyer's name.
• All parties sign the required documents.

🧑‍💼 Note to Buyers:

"By closing day, all your documents must be in order, your mortgage must be approved, and any remaining inspections must be complete. The title company will notify you in advance of the exact amount you'll need to bring to closing."

🏡 Note to Sellers:

"By closing day, you should have vacated the property, completed any promised repairs, and provided all necessary documents — keys, HOA information, survey, etc. The title will transfer to the buyer on that day."

📝 Important Notes:

• If either party fails to meet the closing date, it may constitute a breach of contract.
• However, in some cases (such as a loan approval delay), a short extension may be granted — but it must be agreed to in writing.
• Closing typically takes place at a title company office.

🧩 Additional Note:

Before closing, the buyer has the right to conduct a final walkthrough — a last look at the property to confirm it is in the agreed-upon condition.

10. POSSESSION

📌 "Buyer shall be given possession of the Property upon closing and funding..."

This section clarifies when the buyer takes physical possession of the home and when the seller must vacate. Even after the title transfers, the buyer's ability to physically occupy the home depends on the terms stated here.

🏡 A. Possession Date

The most common scenario:

"Upon closing and funding" — possession is given once closing is complete and funds have been transferred.

This means all documents must be signed and the lender (or buyer) must have wired the funds to the title company before possession is granted.

💡 Scenario:
Buyer Ahmet Bey closes on July 1. However, the bank doesn't approve the wire until 4:00 PM. Seller Elif Hanim does not hand over the keys until the title company confirms that funding is complete. At 4:30 PM, the title company clears the funds, and the keys are handed to the buyer.

🔁 B. Delayed Possession (Temporary Lease)

If the seller cannot vacate immediately after closing and needs to remain in the home for a period of time, a separate form is used:

📄 Temporary Residential Lease (TREC No. 15-5)
This form is attached to the contract.

🧑‍💼 Note to Sellers:

"If you need to stay in the home for a few days after closing, we need to put that in writing. You would essentially be a temporary tenant, with specific obligations — including a security deposit and daily rent."

🧑‍💼 Note to Buyers:

"If you want to move in immediately after closing, the seller must have already vacated. If you're willing to let the seller stay temporarily, we must document that arrangement with a written lease."

📌 Additional Notes:

• Key handover typically happens through the real estate agent or the title company.
• "Closing" refers to the signing of documents; "funding" refers to the actual transfer of money. Both must occur before the buyer can take possession.
• If either party fails to comply with the possession terms, legal liability may arise.

11. SPECIAL PROVISIONS

📌 "Insert only factual statements and business details applicable to the sale..."

This section is reserved for specific business details or terms that the parties have previously agreed to and that need to be made part of the contract. However, anything written here must be a factual business statement — not legal advice or legal interpretation.

🧾 Explanation:

Only the following may be written in this section:

• Matters previously discussed and agreed upon in writing by the parties
• And specific details that need to be incorporated into the contract.

❗ This section cannot be used to fill in legal gaps, draft contractual language, or provide legal direction. TREC and Texas law intend for this section to contain only simple business details.

💡 Appropriate Uses (What Can Be Written Here):

• "Seller will leave the refrigerator in the home."
• "Buyer accepts the hot tub and filter system in its current condition."
• "HOA application fee will be paid by the seller."
• "Seller will repair the back door before closing."

🧑‍💼 Note to Buyers:

"If you have a specific request — for example, you want to keep the storage shed in the backyard and it's not covered elsewhere in the contract — we need to document it here."

🧑‍💼 Note to Sellers:

"Small commitments you've made that aren't addressed elsewhere in the contract can be added here. But we cannot use this section to create legal obligations."

🚫 Inappropriate Uses (What Should Not Be Written Here):

• "This contract is contingent on the buyer obtaining loan approval." ❌ → This belongs in a Third Party Financing Addendum.
• "Seller will clear all title defects." ❌ → This should be addressed in the Title Policy section.
• "If buyer backs out, earnest money will be returned." ❌ → This is governed by the Termination Option and other contract provisions.

⚠️ Recommendation:

If you're unsure what to put in this section, consult a real estate attorney. Real estate agents are not permitted to provide legal opinions, so this section requires care.

12. SETTLEMENT AND OTHER EXPENSES

📌 "The following expenses must be paid at or prior to closing..."

This section identifies all costs associated with the transaction — including title policy, survey, transfer fees, taxes, loan costs, and utility setup fees — and specifies which party is responsible for each. These costs are typically negotiated in advance and confirmed here.

🔍 Main Categories:

✅ A. Seller's Responsibilities

• Owner's Title Policy (typically paid by the seller)
• Release of Existing Liens (payoff of seller's outstanding mortgage)
• HOA Transfer Fees (or covered elsewhere in the contract)
• Survey (if the seller agreed to provide one)
• Tax Certificates

💡 Scenario:
Elif Hanim is selling her home. At closing, her outstanding mortgage balance will be paid off, the title insurance premium will be collected, and any unpaid property taxes for 2025 will be deducted from her proceeds.

✅ B. Buyer's Responsibilities

• Loan Origination Fee
• Appraisal Fee
• Recording Fees
• Credit Report Fee
• Survey (if the seller is not providing one)
• Homeowner's Insurance (first year premium is typically collected at closing)

💡 Scenario:
Ahmet Bey is buying with a mortgage loan. The lender estimates approximately $6,500 in closing costs, which includes the appraisal, loan origination fee, insurance, and processing charges.

⚠️ Important Points:

• Costs can be negotiated. The TREC form only identifies who is responsible for each expense — the actual amounts are subject to negotiation.
• If a cost is overlooked, it can become a surprise on closing day. Address everything upfront.
• While TREC forms provide a framework for a fair allocation, in practice, the buyer or seller may agree to take on all closing costs.

🧑‍💼 Note to Buyers:

"If you're financing your home, expect to pay between $3,000 and $7,000 in closing costs. This typically includes the appraisal, loan fee, title recording charges, and the first year's homeowner's insurance premium. Your lender will provide a Loan Estimate upfront."

🏡 Note to Sellers:

"Your closing costs are generally around 1.5% to 2% of the sale price. This typically covers title insurance, any unpaid taxes, your mortgage payoff, and processing fees."

🔄 Additional Notes:

• Either party may agree to cover some of the other's costs. For example, "seller will pay $5,000 of buyer's closing costs" is a common concession written into Section 11.
• Costs are typically outlined in a Closing Disclosure provided to all parties before closing day.

13. PRORATIONS

📌 "Taxes for the current year, interest, maintenance fees, assessments, dues and rents, if any, will be prorated..."

This section governs how property taxes and other recurring expenses are fairly divided between the buyer and seller based on their respective time of ownership during the year.

🧾 Explanation:

Proration is the process of dividing expenses based on how long each party owned the property. It typically applies to:

• Property taxes
• HOA dues (maintenance fees)
• Rental income (if the property is tenant-occupied)
• Prepaid costs such as insurance and interest

💡 Scenario:

Seller Elif Hanim sells the home to Ahmet Bey on July 1, 2025. Annual property taxes are $6,000.
Elif Hanim owned the property for the first half of the year (January–June). Therefore:

• Elif Hanim is responsible for $3,000.
• Ahmet Bey is responsible for the remaining $3,000.

The title company calculates this at closing and adjusts the credits and charges accordingly.

🏡 Note to Sellers:

"Property taxes are assessed for the full year, but since you only owned the home for the first six months, you're responsible for that portion. The rest falls to the buyer. This is calculated automatically at closing."

🧑‍💼 Note to Buyers:

"At closing, you'll see a credit from the seller reflecting their share of the taxes. However, if the actual tax bill at year-end differs from the estimate, a true-up may be needed — though in practice this is rarely revisited."

⚠️ Things to Watch For:

• If the exact tax amount hasn't been set yet (for example, selling in July when the tax bill comes in November), proration is based on an estimated tax value.
• If the actual tax differs from the estimate, the parties may need to reconcile the difference — though this isn't always done in practice.
• If the home is tenant-occupied, rental income is also prorated based on the number of days remaining in the month.

📌 Additional Notes:

• All prorations are calculated automatically by the title company.
• Parties can review the detailed breakdown on the Closing Disclosure.

14. CASUALTY LOSS

📌 "If any part of the Property is damaged or destroyed by fire or other casualty after the effective date..."

This section addresses what happens if the home is damaged by fire, flood, hail, storm, lightning, or any other unexpected event after the contract is signed but before closing.

🔥 What Happens?

If the home is damaged during this period, the seller bears responsibility — because even though the contract has been signed, the title has not yet transferred to the buyer.

💡 Scenario:

Ahmet Bey signs a contract on May 1. Closing is scheduled for June 1.
On May 25, a large branch falls on the roof and causes damage.

In this case:

• Seller Elif Hanim is responsible for repairing the damage before closing.
• If repairs are not feasible or are cost-prohibitive, the buyer may cancel the contract — or accept the insurance proceeds and take the property as damaged.

🔄 Options:

1. If the seller repairs the damage: The sale continues.
2. If repairs cannot be made: The buyer may exit the contract.
3. If the buyer chooses to proceed: They may accept the insurance payout and take the property in its damaged state.

🧑‍💼 Note to Buyers:

"If significant damage occurs before closing and the seller cannot repair it, you have the right to exit the contract. If you still want the home, you may be able to take the seller's insurance settlement and proceed."

🏡 Note to Sellers:

"If the property is damaged before closing and you don't complete the repairs, the buyer can walk away — and that means losing the sale. Make sure your home remains insured throughout the contract period."

⚠️ Note:

• This section applies only to damage that occurs after the contract is signed and before closing.
• Maintaining homeowner's insurance during this period is critical for the seller.

15. DEFAULT

📌 "If Buyer fails to comply with this contract, Buyer will be in default, and Seller may..."

This section explains what happens if either party fails to fulfill their obligations under the contract, and what legal rights the other party has. It provides legal protection for both the buyer and the seller in a real estate transaction.

💥 What Does "Default" Mean?

"Default" means a breach of contract. If the buyer:

• Fails to purchase the home by the agreed date,
• Cannot obtain financing and fails to notify the seller,
• Does not show up to closing,
• Fails to make required payments,

...then the buyer is in default.

Similarly, the seller defaults if they:

• Fail to deliver the property in the agreed condition,
• Do not close by the agreed date,
• Fail to fulfill stated commitments (such as agreed-upon repairs),

💡 Example Scenarios:

🎯 Buyer Default:

Ahmet Bey is supposed to close on June 20 but goes silent and fails to make payment.

➡️ Seller Elif Hanim has the right to keep the earnest money. She may also sue for damages.

🧱 Seller Default:

Elif Hanim promised to repair the roof, but on closing day the roof is still leaking.

➡️ Ahmet Bey can exit the contract and sue for damages. He also gets his earnest money back.

🧑‍💼 Note to Buyers:

"If you breach the contract, your earnest money may go to the seller. The seller may also pursue legal action against you for damages caused by your default."

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🏡 Note to Sellers:

"If you breach the contract, the buyer will get their earnest money back and may choose to cancel. They may also sue you for any damages they suffered as a result."

⚖️ What Rights Arise?

If the buyer defaults:

• The seller may cancel the contract and retain the earnest money, or
• Sue to force the sale (specific performance).

If the seller defaults:

• The buyer may cancel and receive the earnest money back, or
• Sue to compel the seller to complete the sale.

⚠️ Things to Watch For:

• In Texas, real estate contracts are binding. Even casual offers can carry legal weight.
• A "default" is a serious matter and often results in legal proceedings.
• This section is designed to encourage both parties to honor their commitments.

16. MEDIATION

📌 "It is the policy of the State of Texas to encourage resolution of disputes through alternative dispute resolution procedures such as mediation."

This section encourages the parties to resolve any contract-related disputes through mediation before turning to the courts.

🤝 What Is Mediation?

Mediation is a process in which the parties meet with a neutral, independent mediator to try to resolve their dispute. It is typically faster, less expensive, and more amicable than litigation.

By signing this contract, both parties agree to attempt mediation before filing a lawsuit.

💡 Example Scenario:

After purchasing the home, Ahmet Bey discovers a significant water leak. Seller Elif Hanim denies any prior knowledge. Ahmet Bey believes the seller knew and failed to disclose it.

➡️ Rather than going straight to court, both parties appear before a mediator. The mediator helps facilitate a resolution — for example, a 50/50 split of the repair costs.

🧑‍💼 Note to Buyers:

"If a dispute arises, we try to resolve it through mediation before going to court. This typically saves both parties time and money."

🏡 Note to Sellers:

"If a disagreement comes up with the buyer, we're agreeing here to try mediation first. It usually gets resolved faster that way."

⚠️ Important:

• Mediation is not mandatory, but by signing this contract, both parties agree to attempt it.
• Mediation proceedings are confidential and do not become part of any court record.
• If mediation fails, either party may still pursue litigation.

17. ATTORNEY'S FEES

📌 "The prevailing party in any legal proceeding related to this contract is entitled to recover reasonable attorney's fees..."

This section states that if a lawsuit is filed in connection with this contract, the prevailing party is entitled to recover reasonable attorney's fees and court costs from the losing party.

⚖️ What Does This Mean?

If the buyer and seller end up in court over the contract and one party wins, they can recover the legal fees they paid their attorney from the losing party.

💡 Example Scenario:

Ahmet Bey purchases the home, but seller Elif Hanim failed to make the repairs she promised in the contract. Ahmet Bey sues and wins.

➡️ Ahmet Bey can recover not only the cost of the repairs but also the $5,000 in attorney's fees he paid to his lawyer — from Elif Hanim.

🧑‍💼 Note to Buyers:

"If the contract is breached and you take legal action, winning the case means you can recover both your damages and your legal costs from the other party."

🏡 Note to Sellers:

"If you're found to be at fault in a lawsuit, you may owe not just the buyer's damages but also their attorney's fees. This is another strong reason to honor the contract's terms."

⚠️ Things to Watch For:

• This provision applies only to the winning party.
• Fees must be reasonable — inflated or excessive bills cannot be claimed.
• Consulting an attorney before entering any legal proceeding is strongly recommended.

18. ESCROW

📌 "The escrow agent is not a party to this contract and does not have liability for the performance or non-performance of any party..."

This section explains that earnest money and other deposits are held by an escrow agent — a neutral third party (typically a title company) who is not a party to the contract and is only responsible for safeguarding the funds.

🏦 What Is Escrow?

Escrow is an independent custodial arrangement used to build trust between the parties. A title company or law firm typically serves in this role.

💰 Earnest money is held in escrow until the transaction is either completed or cancelled — at which point the funds are disbursed according to the contract terms.

💡 Example Scenario:

Ahmet Bey signs a contract to purchase Elif Hanim's home and pays $3,000 in earnest money, which is held in escrow by Texas Title Co.

• If the transaction closes successfully → The money is applied toward the buyer's closing costs.
• If the buyer exits for a valid contractual reason → The money is returned to the buyer.
• If the buyer backs out without a valid reason → The money may be released to the seller.

⚠️ Important Notes:

• The escrow agent is simply a neutral money manager — not a party to the transaction.
• Instructions must be clear. Otherwise, disputes over who receives the funds can arise.
• The escrow agent remains neutral in the event of any disagreement.

🧑‍💼 Note to Buyers:

"Once your earnest money is in escrow, it's safely held. If the deal closes, it goes toward your home. If you cancel, whether you get it back depends on the contract terms. That's why it's important to understand every clause."

🏡 Note to Sellers:

"The buyer's earnest money in escrow is a form of security for you. But to receive it, specific contractual conditions must be met. The escrow company will only release funds with clear written authorization."

✉️ Additional Notes:

• If the buyer and seller can't agree on who gets the earnest money, the escrow agent stays neutral and may require a court order before releasing the funds.
• This section clearly states that the escrow agent has no liability to either party for the outcome of the transaction.

19. REPRESENTATIONS

📌 "Seller represents that Seller has not received any written notice of..."

This section focuses on the accuracy of the seller's representations about the property. The seller makes certain statements about the home's condition, and those statements must be truthful and complete. This section also gives the buyer an opportunity to learn about certain conditions that have been previously disclosed about the property.

🏡 What Does the Seller Represent?

In this section, the seller represents that they:

1. Have not received any written notice of planned road construction, condemnation proceedings, or other nearby projects that could affect the property,
2. Intend to deliver the property in its current condition,
3. Disclose any existing exemptions (such as a homestead exemption) or restrictions affecting the property.

💡 Example Scenario:

The city has notified nearby residents that a new highway will be built behind Elif Hanim's property.

If Elif Hanim is aware of this written notice but does not disclose it, and Ahmet Bey discovers the highway project after buying the home, the seller has made a misrepresentation — which can result in legal action.

🧑‍💼 Note to Buyers:

"This section is the seller's commitment to honest disclosure. Written notices — not just verbal statements — are what matter legally. The seller is obligated to share any written communications they have received about the property or its surroundings."

🏡 Note to Sellers:

"In this section, you are expected to truthfully share any written notices you have received about the property — such as municipal projects, zoning changes, or title restrictions. Withholding known information can expose you to serious legal liability."

📝 Things to Watch For:

• "Representation" means truthfully and accurately stating facts.
• Every statement in this section is material to the buyer's decision.
• Concealing information can constitute breach of contract or fraud in a future lawsuit.

20. FEDERAL TAX REQUIREMENTS

📌 "If Seller is a "foreign person," as defined by the Internal Revenue Code and its regulations, Buyer may be required to withhold a portion of the sales proceeds..."

This section applies when the seller is not a U.S. citizen or resident alien for tax purposes. If the seller qualifies as a "foreign person" under IRS rules, the buyer may be required to withhold a portion of the sales proceeds as federal tax.

📘 What Is This Called?

This requirement is governed by FIRPTA — the Foreign Investment in Real Property Tax Act.

💡 Example Scenario:

Seller Elif Hanim is a Turkish citizen and is not a U.S. tax resident. Buyer Ahmet Bey is a Houston resident purchasing the property.

➡️ In this case, Ahmet Bey may be required to withhold approximately 15% of the purchase price from Elif Hanim's proceeds and remit it to the IRS.

If this withholding is not done, the IRS can seek the tax payment directly from the buyer.

🧑‍💼 Note to Buyers:

"If the seller's tax status is outside the U.S., you may be required to withhold a portion of the sale proceeds and send it to the IRS. Failing to do so could make you personally liable for that tax."

🏡 Note to Sellers:

"If you are not a U.S. tax resident, a federal withholding will likely be applied to your sale proceeds. In some cases, you may qualify for an exemption by filing the appropriate IRS forms. Consulting a tax professional is strongly recommended."

⚠️ Important:

• This section only applies when the seller qualifies as a "foreign person" under IRS rules.
• If the withholding is not made, the tax liability falls on the buyer.
• Both the buyer's agent and the closing attorney should be aware of this and work with a CPA if necessary.

21. NOTICES

📌 "All notices from one party to the other must be in writing and are effective when mailed, hand-delivered, or transmitted by facsimile or electronic transmission."

According to this section, all formal communications between the buyer and seller must be in writing and are considered effective when delivered through one of the approved methods.

📬 Accepted Methods of Notice:

1. Hand delivery
2. U.S. Mail
3. Facsimile (fax)
4. Electronic transmission (email)

💡 Email is generally the fastest and most common method. It's important that each party's email address is correct and listed in the contract.

💡 Example Scenario:

Ahmet Bey wants to request repairs after the inspection. He communicates this request verbally over the phone.

This verbal communication is not legally valid under this section. Ahmet Bey must submit his repair request in writing — for example, via email.

📧 Correct approach: "Following the inspection, I am formally requesting that the leak under the kitchen sink be repaired." (Sent via email.)

🧑‍💼 Note to Buyers:

"All formal communications during this transaction must be in writing. This is especially important when submitting a notice of termination, a repair request, or an extension request during the option period. We need to send those in writing and on time."

🏡 Note to Sellers:

"Any requests or contract-related communications from the buyer are only valid if submitted in writing through an approved channel. Track all important updates via email rather than phone calls."

📌 Things to Watch For:

• Verbal statements or phone calls are not legally binding.
• Notices may be effective from the time they are received rather than sent — for example, when an email lands in the recipient's inbox.
• Each party's contact information must be clearly listed in the contract.

22. AGREEMENT OF PARTIES

📌 "This contract contains the entire agreement of the parties and cannot be changed except in writing..."

This section states that this contract represents the complete agreement between the parties and can only be modified in writing. All prior verbal discussions are superseded by this written document.

✍️ What Does This Mean?

• Any verbal conversations that took place before this contract was signed are no longer binding once this contract is executed.
• Statements like "but you said so" cannot be used to enforce something that isn't written in this contract.
• Any changes must be made in writing and signed by both parties.

💡 Example Scenario:

Seller Elif Hanim verbally said "the appliances are included." However, this is not reflected in the contract.

If Ahmet Bey demands the appliances after closing, Elif Hanim has no legal obligation to provide them.

➡️ Because it was never put in writing in the contract.

🧑‍💼 Note to Buyers:

"Nothing that isn't in this written contract is legally enforceable. Even if we discussed something earlier and agreed to it verbally, if it's not in writing, it doesn't exist as far as the contract is concerned."

🏡 Note to Sellers:

"If you made a verbal promise that's not in the contract, the buyer cannot hold you to it legally. By the same token, you cannot impose terms on the buyer that aren't spelled out in this document."

📌 Things to Watch For:

• Nothing outside the written contract is legally binding.
• All additional agreements must be documented as an addendum, signed by both parties.
• This section exists to prevent misunderstandings and future disputes.

23. TERMINATION OPTION

📌 "For nominal consideration, the receipt of which is hereby acknowledged by Seller, and the Option Fee..."

This section gives the buyer the right to terminate the contract within a specified number of days, for any reason or no reason at all, in exchange for a small fee. This is the "Option Period."

🛡️ What Is the Option Period?

• This is the buyer's right to walk away from the purchase.
• The option period is typically 3 to 10 days.
• During this time, the buyer may terminate the contract for any reason, without explanation.

💵 The Option Fee

• To obtain this right, the buyer pays the seller a small fee.
• The fee is typically $100–$300.
• This fee is generally non-refundable, whether or not the sale proceeds.
• However, if the transaction closes, this fee may be credited toward closing costs.

💡 Example Scenario:

Ahmet Bey signs a contract for a $400,000 home and agrees to pay Elif Hanim a $200 option fee for a 7-day option period.

During those 7 days, he has the home inspected and discovers significant roof damage.

➡️ Not wanting to take on those costs, he exercises his right to terminate — without giving any reason.

Elif Hanim keeps the option fee, but the earnest money is returned to Ahmet Bey.

🧑‍💼 Note to Buyers:

"The option period is your insurance policy. During this time, you can get the home inspected, negotiate repairs, or walk away entirely — all without losing your earnest money. The option fee is a small cost for that protection."

🏡 Note to Sellers:

"The option fee is paid directly to you and is yours to keep no matter what. If the buyer cancels, you keep the fee. If they proceed, it's generally not credited toward the sale price — though that can be negotiated."

⚠️ Things to Watch For:

• The option period must be clearly stated in the contract.
• If the option period expires without written notice of termination, the contract becomes binding.
• The date and time of payment of the option fee are critical. If not paid on time, the buyer loses this right.

24. CONSULT AN ATTORNEY BEFORE SIGNING

📌 "TREC rules prohibit real estate license holders from giving legal advice. READ THIS CONTRACT CAREFULLY. If you do not understand the effect of this contract, consult an attorney BEFORE signing."

This section explicitly states that real estate agents are not permitted to give legal advice and that the parties should consult an attorney before signing if there is anything they don't fully understand.

⚖️ What Does This Mean?

• Under TREC (Texas Real Estate Commission) rules, licensed agents cannot provide legal interpretations or legal advice.
• A real estate agent can explain the content and process of the form, but cannot tell you "you should do this" or "you have this legal right" as a matter of legal guidance.
• If either party does not fully understand the contract, they should consult a real estate attorney before signing.

💡 Example Scenario:

Ahmet Bey is concerned about the legal implications of an old easement that appears on the title. He asks his agent to explain what it means.

The agent responds, "Only a real estate attorney can explain the legal impact of this easement," and refers Ahmet Bey to a specialist in real estate law.

➡️ This is the correct and professional approach — it protects the agent's liability while empowering the buyer to make an informed decision.

🧑‍💼 Note to Buyers:

"This contract may have significant legal consequences for you. If there's anything you don't understand, please consult an attorney before signing. I can walk you through how the contract works, but I cannot provide legal advice."

🏡 Note to Sellers:

"If any section seems complicated or poses a risk you're not comfortable with, don't sign until you've spoken with your attorney. Protecting your rights protects the integrity of the entire transaction."

📌 Things to Watch For:

• Real estate agents are not attorneys and do not carry legal liability for contract interpretation.
• In special circumstances — such as post-divorce property division, inherited property sales, boundary disputes, or easement issues — always work with a real estate attorney.
• If there's a clause you don't understand, never assume "I'll figure it out later." That attitude carries real risk.

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