Reviewing a TREC Residential Contract

(Texas Real Estate Commission)
Assignments
Earnest Money
Title Policy & Survey
Lender & 3rd Party Approvals
Objections
Property Condition & Seller’s Disclosure
Special Provisions
Settlement and Other Expenses
Agreement of Parties
Termination Option
Assignments

Assignability is the right of a party in a contract to sell their rights and obligations within that contract, to another person.

This is not inherently good or bad, but you should be aware that if a buyer’s contract includes language that makes the contract assignable, it could be because the buyer is not planning to purchase the property themselves.
If a buyer presents you with an assignable contract, you should always ask them about it.

In paragraph 1 the words “and / or Assigns” permits a buyer to assign their purchase rights to a 3rd party.

Paragraph 11 can also contain language that permits a buyer to Assign their rights.

Earnest Money

This sum of money represents the buyer’s commitment to close the deal. This money is held by the title company as a neutral 3rd party to the transaction. If the buyer fails to complete the purchase, these funds are the only compensation you will receive.

Since Earnest Money represents a buyer’s level of commitment, a minimum of $500 should be expected. Lesser amounts are an immediate red flag.

The contract should always specify, by name, the escrow agent responsible for holding the Earnest Money and the physical address of the title company.

Title Policy & Survey

In a retail transaction, you can expect to pay these expenses. In a cash transaction, it is customary for the buyer to pay them.

Lender & 3rd Party Approvals

Approval from a lender is usually required in a retail sale. In a cash transaction, there should not be any addendums for financing and the offer should not be subject to the approval of a lender or any other party.

Objections

Objections (6D) – Anything written in this section can be used to back out of a purchase.

Property Condition & Seller’s Disclosure

This is the most common way for a buyer to back out of a contract. If you commit to providing a Seller’s Disclosure, and fail to do so, the Buyer is no longer obligated to complete the purchase.

Special Provisions

Read this section twice, we’ve seen all kinds of things written here. Please read it carefully.

Settlement and Other Expenses

Also called Seller Concessions. Unless otherwise negotiated, this should be 0 or blank.

Agreement of Parties

If any of these are checked, make sure that you have reviewed and signed these addendums as well. Note that for houses built prior to 1978, the addendum for lead based paint is required by federal law.

Termination Option

Option periods should be 10 days or less, anything longer is a red flag. It is customary to pay $10 per day in option fee, anything less is a red flag.

As a general courtesy, and to help enforce good behavior on the part of the investor community. Metroplex Homebuyers offers a complimentary contract review to anyone who has questions about a contract.