The Texas Real Estate Commission (TREC or Commission) adopts amendments to §537.20 concerning Standard Contract Form TREC No. 9-7; §537.28 concerning Standard Contract Form TREC No. 20-8; §537.30 concerning Standard Contract Form TREC No. 23-8; §537.31 concerning Standard Contract Form TREC No. 24-8; §537.32 concerning Standard Contract Form TREC No. 25-6; §537.37 concerning Standard Contract Form TREC No. 30-7; §537.39 concerning Standard Contract Form TREC No. 32-2; §537.43 concerning Standard Contract Form TREC No. 36-5; §537.44 concerning Standard Contract Form TREC No. 37-3; and §537.45 concerning Standard Contract Form TREC No. 38-2 with changes to the published text and with changes to the forms as proposed in the May 16, 2008, issue of the Texas Register (33 TexReg 3883). The amendments adopt by reference six revised contract forms and four addenda for use by Texas real estate licensees.

The change to the text of the rules as adopted from the rules as proposed corrects a typographical error by adding "trec" to the reference to TREC's website address to read www.trec.state.tx.us and to include "property" in reference to a property owner's association in §537.43 and §537.44. The changes to the forms as adopted from those that were originally proposed are detailed below and include the following: The Commission made typographical corrections to the forms adopted by reference and made other changes to the text of the forms in response to comments and further review and recommendation by staff and the Texas Real Estate Broker-Lawyer Committee (BLC). A number of comments did not result in changes to the text of the forms. All comments regarding this adoption, including any not specifically referenced herein, were fully considered by the Commission and the BLC.

The revisions to the forms as adopted do not change the nature or scope so much that they could be deemed different forms. The forms as adopted do not affect individuals other than those contemplated by the forms as proposed. The forms as adopted do not impose more onerous requirements than the proposed versions and do not materially alter the issues raised in the proposed forms. Changes in the forms adopted by reference reflect non-substantive variations from the proposed rules and forms to clarify their intent and improve style and readability.

The reasoned justification for the amendments to the rules and contract forms adopted by reference is to maintain consistency, reduce controversy and misunderstanding, reduce redundancy, and address significant new issues relative to real estate contract forms.

The contract forms are published by TREC and available at the TREC web site (www.trec.state.tx.us) or at the Texas Real Estate Commission, P.O. Box 12188, 1101 Camino La Costa, Austin, TX 78711-2188. Texas real estate licensees are generally required to use forms promulgated by TREC when negotiating contacts for the sale of real property. The revised forms may be used on a voluntary basis upon adoption; licensees will be required to use the forms on a mandatory basis as of September 1, 2008. These forms are drafted by the BLC, an advisory body consisting of six attorneys appointed by the President of the State Bar of Texas, six brokers appointed by TREC, and a public member appointed by the governor.

Drafts of the contract forms were released for comment and displayed on the TREC web site during the notice and comment period after posting in the Texas Register. Approximately 12 comments were received during the notice and comment period. Of those comments, 3 were lost due to technical difficulties with agency e-mail services. The San Antonio Board of Realtors, the Houston Association of Realtors, and the MetroTex Association of Realtors commented on the proposed forms.

The comments and Commission responses to those comments are summarized as follows.

Comment: One commenter suggested inserting a "lapse" clause in all the contracts for submitting an offer so that there will be a time limit on the response from the seller to make a decision about the offer. Response: The Commission respectfully disagrees as a clause such as the commenter suggests would be non-binding on the seller if a contract has not been executed between the parties.

Comment: One commenter suggested modifying Paragraph 6 concerning elevation certificates. He suggested adding elevation certificates to the paragraph so that the parties may negotiate whether the seller will provide an elevation certificate or whether the buyer will obtain the certificate at the buyer's or seller's cost. Another commenter suggested modifying the paragraph to include a reference to plats. Response: The Commission decided not to adopt the suggestions, but deferred the discussion for future consideration.

Comment: The commenter suggested adding the form number to the list of forms under Paragraph 22. Response: The Commission decided not to adopt the suggestion because if an addendum is changed, then every contract that lists the addendum would also have to be changed.

Comment: A commenter suggested extending the Lot and Block lines in all the contract forms. Response: The Commission agrees with the suggestion and has revised the forms accordingly.

Comment: Several commenters suggested putting the term "mandatory" back into the forms either where it was removed relevant to the phrase "property owners associations" (POA) or in conjunction with the POA phrase so that it is clear that the reference applies to mandatory membership in a property owners association. Response: The Commission agrees with the suggestions and has revised the relevant forms to insert "mandatory" before "membership" in Paragraph 6 of the contract forms and in TREC Form No. 36-5 and 37-3. In TREC Form No. 38-2, Paragraph 4 was changed by inserting "Property" before "Owners' Association."

Comment: One commenter suggested bolding the last sentence in Paragraph 6C(1), and moving it to be the second sentence of the paragraph. Response: The Commission did not move the sentence but agreed to bold the last sentence and has revised the relevant contract forms accordingly.

Comment: One commenter suggested changing Paragraphs 2B(2) and 2C(2) of the Residential Condominium Contract, TREC Form No. 32-2, so that buyer may cancel the contract "within five days of receipt" of the documents rather than "before the sixth day after the date Buyer receives" the documents. Response: The Commission respectfully disagrees as the text of the clauses in the referenced paragraphs tracks verbatim the statutory disclosure requirements for the documents referenced in the paragraphs.

Comment: One commenter suggested removing the "Initial" section for the seller at the bottom of page one of TREC Form No. 32-2, the Condominium Resale Certificate and TREC Form No. 37-3, Subdivision Information, Including Resale Certificate for Property Subject to Mandatory Membership in a Property Owners' Association. The BLC agrees with the suggestion and further suggested that seller's and buyer's initials should be removed from both forms. Two commenters also suggested adding a buyer signature line to Form No. 37-3 to be consistent with Form No. 32-2. Alternatively, the BLC suggested removing the buyer signature line from Form No. 32-2. Finally, the BLC suggested moving "Date ______" above the line before "Mailing Address______" in both forms. Response: The Commission agrees with the BLC suggestions on both forms and has revised the forms accordingly.

Comment: One commenter suggested that the term "wrongfully" should be deleted from the phrase "wrongfully fails" in Paragraph 18D of the contract forms. Response: The Commission respectfully disagrees as the term "wrongfully" establishes intent in failing to release the earnest money as provided in Paragraph 18.

Comment: A commenter suggested revising TREC Form No. 37-3, Subdivision Information, Including Resale Certificate for Property Subject to Mandatory Membership in a Property Owners' Association, to address issues related to extraordinary fees charged by Property Owners' Associations. Response: The Commission agrees with the concern. However, the BLC and the Commission believe that the issue is more of a legislative issue and not a form issue.

Comment: Several commenters suggested adding a provision to allow the buyer to terminate the contract if the property appraises for less than the sales price. The BLC suggested that the Commission defer the discussion until the Third Party Financing Addendum is reviewed. Response: The Commission agrees with the BLC suggestion to defer the discussion until the Third Party Financing Addendum is reviewed.

Comment: In TREC Form No. 9-7, one commenter suggested making formatting changes in Paragraph 1 concerning the lines for the buyer and seller. Response: The Commission agrees with the suggestion and has revised the form accordingly.

Comment: One commenter suggested that in Paragraph 6C of all relevant forms, "any lender" should be struck and substituted with "Buyer's lender." The BLC agreed with the commenter's concerns and alternatively suggested that "any lender" and "Buyer's lender" should be substituted with "Buyer's lender(s)." Response: The Commission agrees with the BLC suggestions and has revised the forms accordingly.

Comment: One commenter suggests adding lines for cell phone numbers for buyers and sellers in Paragraph 21. Response: The Commission respectfully disagrees and believes that it is not necessary to include the parties' cell phone numbers in the contract forms.

Comment: One commenter suggested bolding "specific" in Paragraph 7 under "specific repairs" in all of the contract forms that mention repairs. Response: The Commission respectfully disagrees and believes that it is not necessary to bold the term.

Comment: One commenter suggested adding the Seller's Temporary Lease to the list of addenda under Paragraph 22 in the relevant contract forms. Response: The Commission agrees with the suggestion and has revised the forms accordingly.

Comment: One commenter suggested using an "x" instead of a checkmark in the pre-checked box in Paragraph 22 of TREC Form Nos. 23-8 and 24-8. Response: The Commission respectfully disagrees and believes that it is not necessary to change the forms in that manner.

Comment: In TREC Form No. 32-2, Condominium Resale Certificate, Paragraph N, one commenter suggested adding "E-mail __________________." Response: The Commission agrees with the suggestions and has revised the form accordingly.

Comment: In TREC Form No. 36-5, Addendum for Property Subject to Mandatory Membership in a Property Owners' Association, one commenter suggested placing quotation marks around the phrase "Subdivision Information" to further clarify the meaning. Response: The Commission respectfully disagrees and believes that it is not necessary to change the form in that manner.

Comment: One commenter suggested adding the term "Print" before "Name" on page 2 of TREC Form No. 37-3, Subdivision Information, Including Resale Certificate for Property Subject to Mandatory Membership in a Property Owners' Association. Response: The Commission agrees with the suggestion and has revised the form accordingly.

Comment: Several commenters suggested that the contract forms include a provision for the transfer of mineral rights. The BLC suggested that the Commission defer the discussion until an appropriate addendum addressing this issue may be developed. Response: The Commission agrees with the BLC suggestion to defer the discussion until an appropriate addendum is developed.

Comment: One commenter suggested revising Paragraph 6C(1) of the contract forms to make it clearer who pays for the survey when the seller fails to provide a survey. Response: The Commission respectfully disagrees with the commenter as it believes that the paragraph is sufficiently clear that the buyer is responsible for obtaining a new survey at the seller's expense if the seller fails to furnish an existing survey or affidavit within the time prescribed. Also, as suggested by another commenter, the Commission has agreed to bold the last sentence in Paragraph 6C(1) which addresses this issue.

Comment: One commenter suggested revising Paragraph 12A(1) to include Property Owner's Association transfer fees as a seller's expense. Response: The Commission respectfully disagrees with the commenter because the issue is addressed in Paragraph B of Standard Contract Form TREC No. 36-5, Addendum for Property Subject to Mandatory Membership in a Property Owners' Association. Under Paragraph B, the buyer pays association fees resulting from the transfer not to exceed an agreed amount and the seller pays any excess. Therefore, the parties may negotiate how much each party will pay for such transfer fees.

In addition to the changes described above, the forms adopted by reference contain the following revisions.

The amendment to §537.20 adopts by reference Standard Contract Form TREC No. 9-7, Unimproved Property Contract. The revisions are the same as those adopted in Standard Contract Form TREC No. 20-8 and further described below except for the following: Paragraph 2 is not amended, the changes referenced in Paragraph 7D in TREC No. 20-8 are made to Paragraph 7B, and a new checkbox is not added to Paragraph 22 regarding the Addendum Containing Required Notices Under §5.01, §420.001, and §420.002, Texas Property Code.

The amendment to §537.28 adopts by reference Standard Contract Form TREC No. 20-8, One to Four Family Residential Contract (Resale). Paragraph 1 is rewritten to define the parties to the contract. Paragraph 2A is reformatted and new language is added to Paragraph 2D to clarify that improvements and accessories retained by seller must be removed prior to delivery of possession. In Paragraph 5, "both" is replaced by "all" as there may be more than two parties to a contract. In Paragraph 6D, the sentence that addresses the time for buyer to object is rewritten for clarity. Paragraph 6E(2) is amended to address issues relating to "mandatory membership" in a "property owners' association" rather than a "mandatory owners' association" to track statutory language in §5.012, Texas Property Code. Also, Paragraph 6E(2) is amended to indicate that the residential community the Property is located in is identified in Paragraph 2A to conform to §5.012, Texas Property Code, and the last sentence is bolded for extra emphasis. Paragraph 7D is amended to provide checkboxes to choose whether buyer accepts property in its present condition or in its present condition with specific repairs enumerated. Under Paragraph 9, subparagraphs C and D are moved to Paragraph 19, and a new clause, (4), is added to subparagraph B regarding seller's representations. The text for the new clause is moved from Paragraph 19. Under Paragraph 12A(1)(b), the reference to the Veterans Housing Assistance Program is changed to a reference to the Texas Veterans Land Board because there are more than one loan programs available from the Veterans Land Board. Paragraph 17 is amended to substitute "Buyer, Seller, Listing Broker, Other Broker or escrow agent who prevails" for "The prevailing party" to clarify that the attorney fee provision applies to all of the named persons and not just the parties to the contract. Paragraph 18D is amended to clarify that damages for wrongfully failing or refusing to sign a release of earnest money include the sum of the earnest money, three times the earnest money, reasonable attorney's fees and all costs of suit. Paragraph 19 is revised to add text that was deleted from subparagraphs 9(C) and (D). Paragraph 22 is revised to add a checkbox for the Addendum Containing Required Notices Under §5.01, §420.001, and §420.002, Texas Property Code, and to revise the title of the Addendum for Property Subject to Mandatory Membership in a Property Owners' Association. Paragraph 23 is amended to clarify that if the buyer fails to pay the Option Fee to seller within the time prescribed, the option paragraph will not be a part of the contract. Currently, it is not clear that the buyer must pay the Option Fee to seller.

The amendment to §537.30 adopts by reference Standard Contract Form TREC No. 23-8, New Home Contract (Incomplete Construction). The revisions are the same as those adopted in Standard Contract Form TREC No. 20-8 described above except for the following: Paragraph 2 is not amended; Paragraph 6D is not amended; Paragraph 7D is not amended; the checkbox added to Paragraph 22 regarding the Addendum Containing Required Notices Under §5.01, §420.001, and §420.002, Texas Property Code is pre-checked and a parenthetical is included to explain that the addendum must be attached and Paragraphs B and C must be completed.

The amendment to §537.31 adopts by reference Standard Contract Form TREC No. 24-8, New Home Contract (Completed Construction). The revisions are the same as those adopted in Standard Contract Form TREC No. 20-8 described above except for the following: Paragraph 2 is not amended; Paragraph 6D is not amended; Paragraph 7D is not amended; the checkbox added to Paragraph 22 regarding the Addendum Containing Required Notices Under §5.01, §420.001, and §420.002, Texas Property Code is pre-checked and a parenthetical is included to explain that the addendum must be attached and Paragraphs B and C must be completed.

The amendment to §537.32 adopts by reference Standard Contract Form TREC No. 25-6, Farm and Ranch Contract. The revisions are the same as those adopted in Standard Contract Form TREC No. 20-8 except for the following: Paragraph 2E is amended rather than Paragraph 2D; Paragraph 6D is not amended; and Paragraph 6E2 is not amended.

The amendment to §537.37 adopts by reference Standard Contract Form TREC No. 30-7, Residential Condominium Contract (Resale). The revisions are the same as those adopted in Standard Contract Form TREC No. 20-8 described above except as follows: Paragraph 6C is amended rather than 6D regarding the time for buyer to object; Paragraph 6E2 is not amended; Paragraph 22 is not amended.

The amendment to §537.39 adopts by reference Standard Contract Form TREC No. 32-2, Condominium Resale Certificate. The revisions are nonsubstantive in nature and conform Paragraph N and the signature block of the form with TREC No. 37-3, Subdivision Information, Including Resale Certificate for Property Subject to Mandatory Membership in a Property Owners' Association.

The amendment to §537.43 adopts by reference Standard Contract Form TREC No. 36-5, Addendum for Property Subject to Mandatory Membership in a Property Owners' Association. The title of the form is changed to conform to §5.012, Texas Property Code; the term "property" is substituted for "mandatory" to more accurately reflect the terminology in §5.012, Texas Property Code; and the term "owners'" is deleted from Paragraph B and the last paragraph.

The amendment to §537.44 adopts by reference Standard Contract Form TREC No. 37-3, Subdivision Information, Including Resale Certificate for Property Subject to Membership in a Property Owners' Association. The title of the form is changed to conform to §5.012, Texas Property Code; the parenthetical below the title is amended to read "Chapter 207, Texas Property Code"; the term "owners'" is deleted from various provisions in the form; another line is added near the end of the form for the name of the person signing the form.

The amendment to §537.45 adopts by reference Standard Contract Form TREC No. 38-2, Notice of Buyer's Termination of Contract. The termination notice is modified to serve as an all purpose buyer's notice of termination to be used under various circumstances detailed in the form including but not limited to notifying the seller that: The contract is terminated under Paragraph 23; Buyer cannot obtain Financing Approval; Property does not satisfy the lenders' underwriting requirements for the loan; Buyer elects to termination under Paragraph A of the Addendum for Property Subject to Mandatory Membership in a Property Owners' Association; Buyer elects to terminate under Paragraph 7B(2) of the contract; or that Buyer is terminating pursuant to a specific paragraph in the contract or addendum to be identified in the form.

The amendments and forms are adopted under Texas Occupations Code, §1101.151, which authorizes the Texas Real Estate Commission to adopt and enforce rules necessary to administer Chapter 1101; and to establish standards of conduct and ethics for its licensees to fulfill the purposes of Chapter 1101 and ensure compliance with Chapter 1101.

The statute affected by this proposal is Texas Occupations Code, Chapter 1101. No other statute, code or article is affected by the adopted amendments.