Big Changes Coming to TREC One to Four Family Residential Contract

The Texas Real Estate Commission is making big changes to some of its most commonly-used forms.  In addition to adopting a new Consumer Protection Notice, and revamping other contract forms and addenda, the Commission has adopted significant revisions to the One to Four Family Residential Contract (Resale). (**NOTE: this link contains the legislative drafting – redline version of the contract reflecting all changes).

Formal notice of adoption of the changes was made on November 13, 2020, with mandatory use of the new form to begin on April 1, 2021.

The One to Four Family Residential Contract (Resale) is, perhaps, the most commonly used of all TREC Contract Forms. It is appropriately used for the purchase and sale of single family homes, duplexes, triplexes and four-plexes.

Some of the changes are hypertecnical, and made for purposes of clarifying ambiguities that may have existed in previous versions.  Other changes are much more profound, and one reflects our lives in a modern/digital age of “smart” everythings.

Here are some of the most important changes:

• The definition of “Accessories” in paragraph 3 is expanded to include the Seller’s transferable rights to software, apps  and hardware used  “to access and control accessories”;
• There is a whole new section(paragraph 4)  dedicated to the Seller’s disclosure of “Leases,” to include “fixture leases” (solar panels, water softeners, propane tanks, etc.) and “natural resource leases” (wind, minerals, water, etc);
• The Earnest Money and Option Fee provisions have been combined into a single paragraph.  Under the new form, both the earnest money and the option fee are to be delivered to the Title Company and may be paid separately or combined into a single payment.  The termination Option is also incorporated into this single paragraph 5;
• New paragraph 8 contains the broker or sales agent disclosure (disclosing an interest of the broker or their family in the property), and contains an express statement that the broker’s compensation agreement is contained in another written agreement;
• New paragraph 10(C) defines “smart devices” as “a device that connects to the internet to enable remote use, monitoring, and management of the property, certain non-realty items and/or items in a fixture lease  (I’m thinking Amazon and Google smart devices or maybe tablet/phone app-based controls for “smart home” systems). New paragraph 10(c) also obligates a seller to  deliver to the buyer (at the time possession is delivered) “written information containing all access codes, usernames, passwords, and applications Buyer will need to access, operate, manage, and control the Smart Devices” and to terminate the Seller’s access.  This paragraph promises to be fertile ground for disputes as it is abundant with privacy considerations!
• Paragraph 18 contains new protections for escrow agents in connection with disbursing earnest money when a contract terminates;
• The Option Fee Receipt is now specifically designed to be executed by the escrow agent (not a broker for either the buyer or seller).

As is always the case with changes to long-standing, frequently-used documents, there are more questions than answers. Changes to real estate forms (and laws) are sometimes reactionary to real-world issues that have arisen since the last revision. Other times, they seek to solve problems that don’t really exist.

Adapting to the new forms will be an interesting ride.  Stay tuned for developments, and answers to questions fielded by the agency and industry experts as the mandatory use date of April 2021 approached.