Texas TREC Contracts: What the Exam Tests
TREC promulgated forms, the One to Four Family contract, option period, and addenda — what you must know for the Texas real estate exam.
Contract law is a dedicated 30-hour prelicense course in Texas (Promulgated Contract Forms), and it's heavily tested on the exam. Here's what you need to master.
TREC Promulgated Forms
TREC (Texas Real Estate Commission) promulgates (mandates) specific contract forms that license holders must use. Using non-TREC forms when a TREC form exists is a license violation.
Promulgated contracts: 1. One to Four Family Residential Contract (Resale) 2. Unimproved Property Contract 3. Farm and Ranch Contract 4. Residential Condominium Contract (Resale) 5. New Home Contract (Incomplete Construction) 6. New Home Contract (Completed Construction)
Promulgated addenda (also mandatory when applicable): - Third Party Financing Addendum - Seller Financing Addendum - Addendum for Property Subject to Mandatory Membership in an HOA - Addendum Concerning Right to Terminate Due to Lender's Appraisal
TAR (Texas Association of Realtors) also creates optional addenda that can supplement TREC forms.
One to Four Family Residential Contract: Key Provisions
Paragraph 5 — Earnest Money - Amount is negotiated; delivered to escrow holder (often a title company) within a set number of days after contract execution - If buyer defaults, seller's remedies include retaining earnest money as liquidated damages
Paragraph 6 — Title - Survey requirements - Title commitment and exception review period - Objection and cure process
Paragraph 7 — Property Condition - "As Is" provision (buyer takes property in current condition but retains right to inspect and terminate) - Seller's Disclosure Notice (required separately)
Paragraph 23 — Option Period (Termination Option) - Buyer pays an Option Fee directly to the seller (not held in escrow) - In exchange, buyer has unrestricted right to terminate within the option period - Option fee is non-refundable (earned by seller immediately upon delivery) - Option period and fee amount are negotiated (no statutory length or amount) - If buyer terminates: option fee stays with seller, earnest money returns to buyer - If buyer waives termination right: contract proceeds to closing; earnest money at risk
Paragraph 24 — FIRPTA If seller is a foreign person, federal FIRPTA withholding may apply.
Default Remedies
If buyer defaults: - Seller may terminate and receive earnest money as liquidated damages - OR seller may seek specific performance or other legal relief
If seller defaults: - Buyer may terminate and receive earnest money back - OR buyer may seek specific performance (compel the sale) - OR buyer may seek damages
Third-Party Financing Addendum
This addendum governs what happens if the buyer cannot obtain financing: - Buyer must make loan application promptly - Buyer has a right to terminate if financing is not approved by a specified date - "Unconditional loan approval" is the standard — lender must be willing to close
Common Exam Scenarios
Q: A buyer pays a $500 option fee for a 10-day option period. On day 8, the buyer's inspector finds foundation issues. The buyer terminates. What happens? A: Seller keeps the $500 option fee (non-refundable). Earnest money is returned to the buyer.
Q: A license holder uses a TAR contract instead of the applicable TREC promulgated form. This is: A: A violation of TREC rules — license holders must use promulgated forms when available.
[Practice Texas contract questions at CARealestate.com/states/texas](https://carealestate.com/states/texas)
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