What Is a Texas Residential Purchase Contract?
The Texas Residential Purchase contract can be defined as a standard agreement concerning the sale of real property in the state of Texas. Examples of such agreements include the purchase and sale of a house, duplex, triplex, or multifamily unit.
As the property sales contract is a legal document , it can be made into a legally binding agreement even though it might not necessarily be conceived or produced by a licensed professional such as a real estate agent or real estate attorney.
In fact, the Texas Residential Purchase contract is not even a contract in the technical sense, but the provisions within the contract form the basis for a legally binding document once a seller accepts your terms and signs in acceptance.
Major Components of the Contract
The Texas Residential Purchase Contract is typically customized to meet a buyer’s and seller’s unique needs. However, some elements are standard to every contract. Generally, you first name the parties involved in the transaction (e.g., Mrs. Buyer and Mr. Seller). You will also include contact information for your agent and their principal office address. The completed purchase contract with all necessary addenda gives your agent the authority to act in a sale on your behalf. So it is essential to be thorough with your information.
As you might expect, buyers need to identify the property they are buying by address, area, county, and description. It is common to identify the property by including the deed record book, page number, and volume number. You also need to include the property’s price, either in word or numeric form. You’ll need to enter the down payment amount and full purchase price amount as well.
The closing date indicates when you will receive the keys to the property. In some cases, the closing date may fall under the option period, so the seller and the buyer need to agree to where funds, such as the earnest money deposit, are held until the closing date. The contingencies clause allows the contract to be validly terminated when conditions are met, such as the buyer losing his or her job. The buyer can request repairs and alterations to the property in exchange for a higher offer. The buyer normally agrees to accept the house "as is" and not make unnecessary repairs to the property.
Texas Legal Requirements
As with many contracts in business and the law, Texas has its own unique legal requirements when it comes to drafting or executing a residential purchase and sale contract. While Texas courts generally enforce contracts based on their plain language, there are certain legal requirements that need to exist for a residential purchase and sale contract to be enforceable under Texas law.
Foremost among the requirements is that, unless a real estate professional is involved, the parties to the sale of the home must be competent to understand the agreement. This requirement does not mean that the buyer and seller need to be attorneys. In fact, most people who do not practice in Texas real estate law have no idea what is involved with residential purchase contracts. However, they will be deemed to be competent to understand the agreement if they can generally read and are sober and sane.
Additionally, the professional drafting the agreement will need to comply with all state law disclosure requirements. For example, under Texas law, sellers of certain residential properties (built before 1978 or which have a history of termite infestation) must provide the buyer with a disclosure relating to the prior flooding of the building. Further, if the seller demonstrates that the property is not serviced by a public utility system, they can agree with the buyer to forgo the provision of the Seller’s Disclosure Notice (which provides all of the applicable disclosures required by Texas law).
Another disclosure required by Texas is the Lead-Based Paint Addendum – a disclosure needed if the property was constructed before 1978. The federal Environmental Protection Agency requires a similar form if the property was built before 1978. Also, various local governments and municipalities have their own disclosure requirements, often depending on the zoning classification of the property.
Lastly, while we discussed at length above the requirements of the Deceptive Trade Practices and Consumer Protection Act ("DTPA") when drafting or submitting an offer on behalf of your client, you also need to keep in mind those same provisions when you are negotiating your own home purchase. Generally, most issues that arise when parties are negotiating a home sale can be resolved by commercial compromise (i.e., "I will agree to pay you $5,000 more," "I will provide you with the repair certification,"). However, if you believe you have been deceived (i.e., someone lied about the age of the air conditioner or provided a video of an empty pool, not a pool of your newly purchased home), seek legal advice before signing the contract and completing your purchase.
Most Common Contingencies in Texas Contracts
The Texas Residential Purchase Contract is a complex document that includes a variety of contingencies for both the buyer and the seller. Most of these contingencies are fairly common and most buyers and sellers will encounter them throughout a real estate transaction. While not an exclusive list, here are some of the typical contingencies found in a Texas residential purchase contract:
Financing
This contingency clause states that the agreement is contingent upon the purchasers ability to secure financing for the sale of the property. If the purchaser requests to make changes to the sale or purchase price as a result of financing issues, generally the seller will not want to make price changes.
Home and Property Inspection
This contingency clause provides the purchaser with the right to have the house and property inspected for any issues. A common timeframe to request a home inspection is between two and seven days following execution of the contract. Use of the phrase "Inspector" does not imply that the inspector needs to be a licensed or professional inspector – that is to say that the buyer can essentially request an inspection by anybody. However, if the purchaser wants a licensed inspector to perform an inspection, this must be noted on the contract. If the Inspector determines that there are certain repairs that need to be made on the property, the seller is obligated to repair these issues unless they specifically state that they will not be making those repairs. In order to avoid having to make repairs to the property after the sale, most sellers will remove the option for inspection contingencies, or will require the buyer to waive the right to inspection.
How Real Estate Agents and Attorneys Fit In
The role of real estate agents and attorneys
As a general rule, a registered real estate agent cannot give you legal advice or prepare legal documents. The Texas Real Estate Licensing Act prohibits a licensed person from practicing law unless the person is an attorney at law. A broker’s license authorizes the license holder to act as an agent for a buyer or seller for a fee, but does not authorize the broker or his or her employees to offer legal advice or provide legal services to the public. A licensed real estate agent or broker may give you factual information about the real estate in the area, showing pros and cons of locations and the types of properties available. The agent or broker cannot give you information regarding the legality, or potential illegality, of something that is being done or is proposed to be done. To circumvent the practice of law without a license, brokers and real estate agents, who prepare a contract for use , must use a contract form as prepared by an attorney. Therefore they cannot change any of the terms in the printed or initialed blanks of the contract form. An attorney is one who is legally qualified to give advice about legal rights or obligations or to prepare written documents which may affect any legal rights. An attorney who is representing a party in a transaction has a fiduciary duty to the client to deal, in good faith, to promote the client’s interest, and to disclose all material facts of which he has knowledge that would materially affect the client’s decision. An attorney has an ethical duty to render competent services for the benefit of his or her clients and to zealously advance their interests. In contrast to an agent that only acts as an intermediary between the parties, a lawyer is someone who stands up for your rights and who may ask you to consider particular actions based on your objectives. The lawyer knows the ins and outs of Texas law and will therefore be best suited to advise you on exactly what provisions are best for your specific situation. The attorney you select will be your advocate in negotiations, and will work with opposing counsel toward the goal of finalizing a transaction that is in your best interest.
Texas Purchase Contract Negotiating Tips
Negotiating a Texas residential purchase contract can be a complex process, but with some strategic tips and a solid understanding of the underlying terms, you can work to get favorable terms out of the purchase contract.
Contingencies are common in Texas real estate contracts. The most common contingencies concern financing, the sale of the buyer’s home, the quality of property title, the passing of a professional physical inspection, or a professional pest inspection. An example of a contingency is with a buyer whose purchase contract is subject to them selling their current home. This provision would usually list specific deadlines for how long they have to sell their home, closing on the new home, and the right to back out of the contract if they are not able to sell the home within the designated timeframe. In so doing, both the buyer and seller have protections in place for certain situations – and the buyer gets the right to be out of their old home while they wait for a new one to be ready. However, it means they must be diligent in selling their home and getting the process completed in time, or else be ready to potentially lose their new home (though the seller would likely extend flexibility and the buyer should know how to make an offer if they are facing this kind of situation). To avoid being put in a tough spot, make sure you understand all the contingencies so that you know your obligations as a buyer and don’t miss important deadlines. While a seller would ideally want a purchase contract without contingencies, they might be in a position where they need to sell quickly and would allow for some contingencies in order to get the deal closed. In such a situation, be ready to negotiate how long various deadlines are to make sure you’re comfortable with the terms of the deal. Both buyers and sellers are going to want to negotiate the price as much as they can. However, you also want to be aware of how competition in the market will affect your ability to negotiate. For example, if a property sees numerous offers and goes under contract just days after it lists, you may not have much room to negotiate any price- or time-related concessions. Conversely, if a property has been sitting on the market for a while, you can expect that the seller might be more flexible with the purchase price. When buying a home, you might find yourself in a position where you want a closing cost credit. That means the seller would give you money to cover either your share of the closing costs or some expenses they would be responsible for in a deal. Because this takes money out of their pocket, however, you should be prepared to explain why you need the credit and how it would help you as a buyer. Typical reasons for requesting a closing cost credit include fees associated with a home or pest inspection, having to make repairs to the home before you move in, or even that you’re purchasing a home on a limited budget. Be ready to show how excellent of a buyer you will be, including setting up timely payments, and provide a reasonable offer that the seller would feel confident in investing in.
While you cannot eliminate closing costs from a real estate transaction, it is possible to at least get a good idea of what to expect in terms of the approximate amount you’ll pay so that you’re financially ready for the closing day. Have your lender prepare a loan estimate to give you an estimated closing cost figure based on the home you are looking at, after which you can add in items like taxes, insurance premiums, transfer fees, etc.
Typical Blunders to Avoid
When it comes to Texas residential purchase contracts, some common mistakes could delay a sale or even hold it in limbo indefinitely. One such faux pas is when the seller simply refuses to sign the seller’s disclosure report. This is required by law but like most legal obligations, has its own caveats and exceptions, so you’d be wise to seek legal advice before deciding to forgo this step. Another oversights agents need to watch out for is failing to specify the sellers’ disclosures. The provisions are only enforceable if they’re clear, so don’t let generic language like "all required disclosures" do the job for you. If you’re an agent, try to avoid grinding the buyer’s negotiation with unreasonable amendment requests. Asterisks and vague references only make the process more daunting, which can ruin the sale completely.
Closing Out: Taking the Final Step
Once both parties have signed the Texas residential purchase contract, there are still a series of steps that must be completed before the deal is officially closed. Due diligence is important during this phase to ensure that both buyer and seller fulfill their obligations according to the contract terms. Of course, there are all those logistics, as well, ranging from obtaining financing and performing repairs to the transfer of ownership and the exchange of keys, all of which require that everyone stay on schedule.
For the buyers, a general inspection is usually the last chance to identify any potential problems with the property. Buyers have the right to hire independent inspectors of their own choice, which may include roofing, electrical, plumbing or HVAC inspectors, and the completion of the inspections within the specified time frame is a top priority. Once any issues are resolved , the buyer can obtain final approval from the mortgage company and sign the final documents. The closing agent then distributes all the funds according to the Contract and the sale is complete.
The seller, who is responsible for making all required repairs according to the due diligence period deadline, should prepare to move out on schedule to allow time for a final walk-through of the home by the buyer to ensure that everything is in order before closing. Then, if funds are being placed in escrow ahead of closing, they will be transferred to the appropriate parties according to the instructions provided in the Texas residential purchase contract.
Buyers and sellers alike should also budget for a number of additional costs that must be accounted for along the way, such as home warranties, home insurance policies, title insurance fees, and closing costs. Although many buyers will want to add movers into the mix, a truck rental option may better suit the new owners’ budget.