A Lawyer’s Guide to the TREC Form

If you’re a real estate investor in Texas, you’ve undoubtedly had to submit offers on the standard Texas Real Estate Commission form that real estate agents practically insist on using. Many realtors won’t take you seriously unless you submit your offers on the TREC form. The problem is that the TREC form isn’t necessarily investor-friendly (or even buyer-friendly). But never fear — if you make a few strategic changes to the contract, you can turn a seller-friendly TREC form into a contract you can feel good about signing.

The rest of this article won’t make sense unless you have a blank TREC form in front of you, so go ahead and download it now and print it out.

Section 1: When you are filling in your name or your company’s name as the Buyer, you can put “and/or assigns” if you want to, but it’s not necessary and it might raise your seller’s eyebrows. Contracts in Texas are freely assignable unless they specify otherwise, and there’s nothing in the TREC form to prohibit you from assigning it if you’re just flipping the contract.

Section 2: For the love of all that is holy, be sure the legal description is correct. The best source for an accurate legal descriptiong is the deed that conveyed the property to your seller.

Also, the convention among Texas agents is that appliances such as washer/dryers, refrigerators, dishwashers, etc. do NOT convey along with the house — even though section 2.B says “all equipment and appliances,” it is referring to fixtures that are permanently attached. If you want the appliances and everything else in the house to come along with the house, then you should add a clause to the special provisions (section 11) that says something like, “Notwithstanding anything to the contrary in this contract, the definition of “Property” includes all items of personal property that are located on the premises as of the effective date of this contract.” That way, if the Seller wants something not to convey, the Seller will have to bring it up and list it in the contract.

Section 3: This is important for the entire contract: whenever there is a blank, make sure it is filled in. For example, in section 3, if it is a no-money-down deal, then write “$0.00” in the first blank in section 3 (cash portion of the purchase price).

Section 4: Again, if there is no third-party financing, write “N/A” in the blank. If you are getting third-party financing, pick a number as high as possible for the amount of the loan, and make sure that the contract is subject to financing approval (check the box in Section 4.A.(2)(a)).

Section 5: Most realtors will tell you that one percent or more is “standard” as the amount of earnest money, but you do not have to put down that much as earnest money. Period. In fact, given the fact that there is a provision for the independent right to terminate the contract (section 23), earnest money is not even required at all to make this contract enforceable. Plus, it’s refundable anyway.

Also, you don’t have to get title insurance, and you can use an attorney as your escrow agent if you wish — like, say, Drew Shirley, P.C. (I can help you close escrow with a title company as well.)

Section 6: It is “standard” for the Seller to pay for the owner’s title policy, so you can throw that back at the seller’s agent. However, in subsection B, it allows the seller 20 days to furnish a title commitment, but I think 10 days is plenty of time for the commitment.

If the survey is more than a few years old, you probably want a new one, and you can negotiate who pays for it. You will want to make sure all of the exceptions listed on the title commitment are depicted or noted on the survey, and vice versa.

You will want to write a “title objection letter” to the title company after you receive the title commitment, objecting to some of the standard exceptions to title that appear in the first draft of the commitment. Plus, you will want to review the exception documents to make sure they affect the property you are buying, that they don’t restrict the use of the property in a way that you are intending to use it for, that they haven’t expired, etc.

Section 7.D.: There is no need for you have to identify the repairs you would like the Seller to make as you are signing the contract — you have an inspection period to determine what those are. I would just check box 2 and put “To Be Determined After Inspection” in the blank.

Section 8: If you are dealing with only one broker, you may want to include language to that effect in the special provisions.

Section 11: In addition to what I’ve mentioned already, here’s a good contingency clause to put in the special provisions: “Notwithstanding anything to the contrary in this contract, Buyer shall have the absolute right to terminate this contract, for any reason or no reason at all, by delivering written notice of Buyer’s intention to terminate the contract on or before the date which is thirty (30) days after the effective date of this contract. Upon Buyer’s delivery of such written notice to Seller, Seller shall cause the earnest money to be immediately refunded to Buyer in cash or other immediately available funds, and this contract shall be terminated and shall have no further force or effect, and the parties shall be released from all rights and obligations contained herein, except to the extent such rights or obligations, by the terms of this contract, survive any termination hereof.” That pretty much gives you a free 30 day look.

Section 12: the Seller can pay up to 3% of the purchase price as Buyer’s closing expenses, so go ahead and put 3% of the purchase price in the blank at section 12.A.(1)(b).

Section 15: If you are the Buyer in a TREC form contract, do not, repeat, do NOT sign the contract unless you have crossed out the specific performance remedy for Seller. Specificially, you should cross out a portion of the first sentence of section 15 and replace it with some other language, so that it reads: “If Buyer fails to comply with this contract, Buyer will be in default, and Seller may (a) enforce specific performance, seek such other relief as may be provided by law, or both, or (b), as Seller’s sole and exclusive remedy, terminate this contract and receive the earnest money as liquidated damages, thereby releasing both parties from this contract.” This is the most important change in the contract, and I would not sign this contract unless this change is made. A deal breaker. If you, the Buyer, defaults, then the Seller can keep the earnest money and find a new buyer. He doesn’t get to force us to buy a house we don’t want or can’t afford. Period.

Section 21: If you do not want to accept legal notices in a certain way, then cross out the method you don’t want and do not fill in the blank. (For example, if you do not want to receive valid legal notices by e-mail, then cross out the words “electronic transmission”).

Section 23: Obviously, you want the termination option to be as long as possible, but if you have your special provision about termination, then that provision will control. And like earnest money, $100 may be “standard” as an option fee, but it’s all negotiable.

The TREC form is not a great contract for investors, but if you know what’s in the contract and know where to make a few strategic changes, you can turn it in to a much more buyer-friendly contract without losing the deal. If you have any questions about this article or the TREC form, you should send me an email by clicking here.