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March 2003
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Changes in the contracts

Revised forms must be used starting in April

 

by Loretta DeHay  The Texas Real Estate Commission adopted revisions to all six TREC-promulgated real estate contracts and two addenda in January 2003. These revisions were proposed by the Broker Lawyer Committee as part of its ongoing review of contract forms. TREC also repealed two addenda–Addendum for Abstract of Title and Mediation Addendum–in conjunction with the form revisions. The effective date for mandatory use of the forms by licensees is April 1, 2003; however, licensees may use the forms on a voluntary basis until then.

The One to Four Family Residential Contract (Resale) and Condominium Contract were modified based on input from licensees after major revisions to those forms were adopted in October 2001. The commission incorporated the 2001 revisions into the remaining four contract forms, and made other revisions specific to each form (Unimproved, New Home Complete Construction, New Home Incomplete Construction, and Farm and Ranch). The following is a summary of the most significant changes to the forms. A detailed summary can be downloaded from the TREC Web site (www.trec.state.tx.us).

One to Four Family Residential Contract (Resale) and Condominium Contract

Property - Adds door keys to accessories

Earnest Money - Measures the deposit date for additional earnest money from the effective date of the contract

Title Policy and Survey - Clarifies the time period to cure objections by replacing "extended closing date" to "within such 15 day period"

Property Condition

  • Paragraph 7A - deletes reference to purpose of access; permits access to property at reasonable times
  • Paragraphs 7B2 and 7E - spell out that earnest money will be refunded to the buyer if the contract terminates for failure to provide a seller’s disclosure or if lender-required repairs and treatments exceed 5% of the sales price

Closing - Adds a sentence clarifying that all covenants, representations, and warranties survive closing

Settlement and Other Expenses

  • Moves the seller contribution to buyer’s expenses [old paragraph 12A(3)] under Seller’s Expenses in paragraph 12A(1)(b)
  • Removes the blank lines to fill in amount and method of payment for PMI, VA loan funding fee, and MIP
  • Combines buyer’s expenses into one paragraph rather than two separate subparagraphs for conventional/FHA financing and VA financing

Revisions to the Unimproved Property, New Home (Complete Construction), New Home (Incomplete Construction), and Farm and Ranch Contracts include the above changes, substantive revisions to incorporate last year’s revisions (see the article by Ron Walker in the December 2001 issue), and the following:

Unimproved (Residential) Property Contract

Property - Adds "all rights, privileges and appurtenances pertaining thereto, including but not limited to: water rights, claims, permits, strips and gores, easements, and cooperative or association memberships" to the property description

Title Policy and Survey

  • Rewrites for clarity the list of title defects to which the buyer can object and includes an objection for any part of the property lying in a flood plain
  • Adds title notices for property located in a certificated service area of a utility service provider and Texas Agricultural Development District

Property Condition - Adds a paragraph for seller’s disclosures regarding flooding, litigation, environmental hazards, dumpsites, wetlands, and endangered species

Settlement and Other Expense - Adds "transfer fees for cooperative or association membership for utility services" to list of buyer’s expenses

New Home Contract (Incomplete Construction)

Property - Adds "all rights, privileges and appurtenances thereto, including but not limited to: permits, easements, and cooperative or association memberships" to property description

Title Policy and Survey - Deletes the residential-service-company notice in paragraph 6(7)

Property Condition

  • Paragraph 7B - Makes grammatical changes in the definition of Construction Documents
  • Paragraph 7C - change orders must be in writing; decrease in costs resulting from change orders and unused allowances will reduce the sales price and proportionately adjust the amounts in 3A and 3B as required by lender
  • Paragraph 7E - measures construction commencement date from effective date of contract rather than from date of loan approval
  • Adds a paragraph for seller’s disclosures regarding flooding, litigation, environmental hazards, dumpsites, wetlands, and endangered species

Casualty Loss - Changes the buyer’s option for extension of time for performance from 15 to 45 days if the seller fails to substantially complete improvements by the closing date

New Home Contract (Complete Construction)

Property Condition

  • Defines agreed repairs, treatments, and improvements as work
  • Adds a paragraph for seller’s disclosures regarding flooding, litigation, environmental hazards, dumpsites, wetlands, and endangered species

Farm and Ranch Contract

Property

  • Divides property description into four major parts: land, improvements, accessories, and crops
  • Further subdivides improvements and accessories into farm and ranch or residential improvements and accessories
  • Seller may reserve mineral, water, royalty, timber, or other interests in reservations subparagraph
  • Seller may exclude specific improvements, accessories, and crops

Sales Price

  • Paragraph 3 now appears similar to other contracts
  • Removes line item for deduction of face amount of any lender-required stock
  • The parties may opt to adjust the sales price based on the survey; if the sales price is to be adjusted, a blank is provided to set the cost per acre; if the sales price is adjusted by more than 10%, either party may terminate the contract within a number of days selected by the parties and earnest money will be refunded to the buyer; the parties can choose whether the adjustment will be made to the cash portion or the financed portion of the sales price.

Title Policy and Survey

  • Rewrites for clarity the list of title defects to which the buyer can object and includes an objection for any part of the property lying in a flood plain
  • Deletes reference to TREC Addendum for Abstract of Title
  • Provides space for the seller to list exception documents and surface leases; the exception documents and leases will be permitted exceptions in the title policy and will not be a basis for objection to title
  • Adds title notices for property located in certificated service area of a utility service provider and Texas Agricultural Development District

Property Condition - Provides blanks for the seller to identify governmental programs that the property is subject to; provides for allocation or proration of governmental programs by separate agreement

Prorations - Provides for proration of unknown rentals once rentals become known

Agreement for Payment of Brokers’ Fees

  • Ratification of fee in separate box from Broker Information and Agreement for Payment of Brokers’ Fees
  • The parties indicate whether the buyer or seller will pay the listing/principal broker and whether the buyer or seller will pay the other broker; the parties select the amount and type of payment to the listing/principal broker and other broker
  • Provides a notice that brokers’ fees are negotiable and not controlled by TREC
  • Provides for separate signature of buyer and seller on Agreement for Payment of Broker’s Fees

Loretta DeHay is general counsel for the Texas Real Estate Commission.

 

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