The Texas Real Estate Commission (TREC) adopts amendments to §537.20, concerning Standard Contract Form TREC No. 9-11, Unimproved Property Contract; §537.28, concerning Standard Contract Form TREC No. 20-12, One to Four Family Residential Contract (Resale); §537.30, concerning Standard Contract Form TREC No. 23-13, New Home Contract (Incomplete Construction); §537.31, concerning Standard Contract Form TREC No. 24-13, New Home Contract (Completed Construction); §537.32, concerning Standard Contract Form TREC No. 25-10, Farm and Ranch Contract; and §537.37, concerning Standard Contract Form TREC No. 30-11, Residential Condominium Contract (Resale), without changes to the text of the rules but with non-substantive changes to the forms adopted by reference in the November 29, 2013, issue of the Texas Register (38 TexReg 8550). Proposed new §537.53, concerning Standard Contract Form TREC No. 46-0, Mutual Termination of Contract, was not adopted by the Commission.

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 version and do not materially alter the issues raised in the proposed forms.

The reasoned justification for the amendments is consistency with a statutory provision and greater clarity in the contract forms.

The non-substantive changes were made based on comments received and analyzed by the Texas Real Estate Broker-Lawyer Committee, an advisory body consisting of six attorneys appointed by the President of the State Bar of Texas, six brokers appointed by TREC, and one public member appointed by the governor.

The Broker Lawyer Committee initially received 46 comments on the proposed contract changes of which two were from trade associations and discussed these comments at their January 17, 2014, meeting. The comments were generally in support of the proposed changes with several exceptions. One association requested that in Form 9-11, Paragraph 9, the provision regarding transfer of any lease deposits be retained. The Broker Lawyer Committee agreed. Another association requested that Paragraph 6A(8), relating to a title policy "shortages in area" exception, across all applicable contract forms be revised to allow Buyers and Sellers to "opt-in" rather than "opt-out" as is currently proposed. The Broker Lawyer Committee agreed. Some commenters thought adding the "or cause to be restored" language to Paragraph 14 on Casualty Loss caused more confusion than clarification, especially in light of the proposed changes to the subparagraph dealing with Completion of Repairs and Treatments. The Broker Lawyer Committee agreed. Several commenters thought that the "must receive" language added to the Termination Option paragraph regarding option money could create more confusion and disputes between the parties than the language that currently exists. The Broker Lawyer Committee agreed.

The Mutual Termination of Contract form received several comments and commenters were split about whether it was useful or confusing. The Broker Lawyer Committee thought this form was useful and had meaningful distinctions between the choices on the form and made no change to the form based on the comments. The Broker Lawyer Committee respectfully disagreed with suggestions to make changes to: eliminate or further limit the Termination Option paragraph; add more space to the blanks for a party's name; replacing the 10% number for price adjusting on a survey to whatever number the parties negotiate; providing for waiver of a survey; doing away with an "Effective Date"; leaving the mediation clause optional; removing the proposed changes to the subparagraph dealing with Completion of Repairs and Treatments requiring repairs be completed by a person commercially engaged in the trade; applying a short strict compliance timeframe for delivery of earnest money; extending the time allowed for Seller repairs; and changes to the Seller's Disclosure form that are not required by statute. These issues have been previously analyzed and found not to be practical or effective for the majority of transactions where the promulgated forms are used.

Comments received regarding adding an "assignment of lease" clause to the contract forms, adding a reverse mortgage financing clause to the contracts or Third Party Financing addendum, revising the Casualty Losses clause in the contracts, revising the Amendment form, revising the Oil, Gas and other Minerals Addendum, and revising the Addendum for Mandatory Membership in Owners' Association will be considered by the Broker Lawyer Committee at their next meeting to allow more time to study the issues.

At the February 10, 2014, Commission meeting, the Commission asked that the Broker Lawyer Committee review the proposed contract forms again to consider moving the new language regarding giving copies of leases to buyers from Paragraph 7 - Property Condition to Paragraph 10 - Possession. Commission members felt that this is a more logical placement for that language. They also wanted more clarification regarding the new language in Paragraph 7G as to whether "commercially engaged in the trade" includes a general handyman for common maintenance repair matters (e.g. caulking windows or bathtub). Finally they wanted the Broker Lawyer Committee to further review the Mutual Termination of Contract Form as they felt option 2 could be confusing to the public and licensees.

The Broker Lawyer Committee then received an additional 9 comments on the contract forms of which one was sent jointly from inspector trade associations and discussed these comments at their April 4, 2014, meeting.

The Broker Lawyer Committee agreed with the observations made by the Commission and made changes to the contracts accordingly. The Committee specifically expressed its opinion that a handyman who regularly performs miscellaneous property repairs for payment is included in the definition of a person who is "commercially engaged in a trade."

Three inspector trade associations supported the proposed changes to Paragraph 7 requiring licensed professionals or persons commercially engaged in the trade complete required repairs to a property. One comment requested that references to satellite dishes and equipment be removed from the section detailing property improvements owned by a seller since the vendor of that equipment usually retains ownership. The Broker Lawyer Committee agreed to the change.

One commenter expressed concern that the current forms do not have adequate provisions to deal with reverse mortgage financing. The Broker Lawyer Committee agreed and added an instructional notation to the contract forms that Paragraph 4, Financing was not to be used for reverse mortgage financing. The Committee also will ask the Commission to adopt a Reverse Mortgage Financing Addendum form for voluntary use by licensees.

One commenter did not like that the proposed contract forms removed the election to opt out of mediation because banks that hold foreclosed properties do not allow mediation. The Broker Lawyer Committee did not make a change based on this comment since banks holding foreclosed property attach addendums to the contract forms that override that provision already.

Several commenters wanted the addition of language that made the contract contingent upon the property appraising for at least the sales price or greater. The Broker Lawyer Committee declined to make this change since market value is driven by what parties agree to pay for the property and not necessarily appraised values.

The Broker Lawyer Committee also declined to make changes to the contract forms from comments requesting that sellers be given authority by buyers to contact the buyer's lender for status reports and that an expiration date to a contract offer be part of the form. Neither of these provisions is practical and may just be used as pressure tactics in a transaction.

Finally, the Committee deferred action on a comment regarding changes to the Casualty Loss paragraph in the contracts forms to do a more in-depth review of that paragraph at a future meeting.

The differences between contract forms adopted by reference under the rules as proposed and as adopted are:

In Forms 20-12, One to Four Family Residential Contract (Resale), Paragraphs 2B and 2C; 25-10, Farm and Ranch Contract, Paragraphs 2B(2) and 2C(2); and 30-11, Residential Condominium Contract (Resale), Paragraphs 2A(2) and 2A(3), the reference to "satellite dish system and equipment" and "satellite dish systems" were removed to avoid confusion since sellers generally do not own this equipment.

In Forms 9-11, Unimproved Property Contract; 20-12, One to Four Family Residential Contract (Resale); 23-13, New Home Contract (Incomplete Construction); 24-13, New Home Contract (Completed Construction); 25-10, Farm and Ranch Contract; and 30-11, Residential Condominium Contract (Resale), in Paragraph 4, Financing, a parenthetical instruction "(Not for use with reverse mortgage financing)" was added after the title to alert users of the form that this paragraph does not address that type of financing.

In Forms 20-12, One to Four Family Residential Contract (Resale) and 23-13, New Home Contract (Incomplete Construction), a typo in Paragraph 5, Earnest Money, was corrected by inserting a "___" between "within" and "days".

In Forms 9-11, Unimproved Property Contract; 20-12, One to Four Family Residential Contract (Resale); 23-13, New Home Contract (Incomplete Construction); 24-13, New Home Contract (Completed Construction), Paragraph 6A(8); and 25-10, Farm and Ranch Contract, Paragraph 6A(6), relating to a title policy "shortages in area" exception, was revised to be "opt-in" and rewritten to read: "The standard printed exception as to discrepancies, conflicts, or shortages in area or boundary lines, encroachments or protrusions, or overlapping improvements: (i) will not be amended or deleted from the title policy; (ii) will be amended to read "shortages in area" at the expense of __ Buyer __ Seller."

In Forms 9-11, Unimproved Property Contract, 20-12, One to Four Family Residential Contract (Resale); 24-13, New Home Contract (Completed Construction); 25-10, Farm and Ranch Contract; and 30-11, Residential Condominium Contract (Resale), in Paragraph 7, Property Condition, the first two sentences of the subsection dealing with "Completion of Repairs" were rewritten to clarify that the phrase "Unless otherwise agreed in writing" at the beginning of the first sentence applied to both sentences. Also, the proposed amended subsection regarding "Leases" in Paragraph 7 was amended to insert the words "copies of" after the phrase "deliver to Buyer" and that subsection was moved to be a new subsection "B" under Paragraph 10, Possession, as it seemed to be a more logical location for that language for users of the form.

In Form 9-11, Unimproved Property Contract, Paragraph 9B(5), Closing, was removed since it refers to residential leases which unimproved property does not have and was previously put back in the contract in error.

In Forms 9-11, Unimproved Property Contract; 20-12, One to Four Family Residential Contract (Resale); 23-13, New Home Contract (Incomplete Construction); 24-13, New Home Contract (Completed Construction); 25-10, Farm and Ranch Contract; and 30-11, Residential Condominium Contract (Resale), in Paragraph 10, Possession, the current text under Paragraph 10 was retitled "A. Buyer's Possession" to accommodate the addition of a new subsection "B" moved from the "Leases" subsection in Paragraph 7.

In Forms 9-11, Unimproved Property Contract; 20-12, One to Four Family Residential Contract (Resale); 23-13, New Home Contract (Incomplete Construction); 24-13, New Home Contract (Completed Construction); 25-10, Farm and Ranch Contract; and 30-11, Residential Condominium Contract (Resale), the proposed change in Paragraph 14, Casualty Loss, was removed so that no changes were made to Paragraph 14.

In Form 25-10, Farm and Ranch Contract, the checkbox reference to the "Addendum for Reservation of Oil and Gas and Other Minerals" in Paragraph 22, Agreement of Parties, was removed to avoid mistakes since that addendum is not sufficient for use in with this type of property.

In Forms 9-11, Unimproved Property Contract; 20-12, One to Four Family Residential Contract (Resale); 23-13, New Home Contract (Incomplete Construction); 24-13, New Home Contract (Completed Construction); 25-10, Farm and Ranch Contract; and 30-11, Residential Condominium Contract (Resale), in Paragraph 23, Termination Option, the phrase "which Seller or Listing Broker must receive" was removed so that the only change to the Termination Option paragraph was changing the timeframe to pay the option fee from 2 to 3 days.

In Forms 9-11, Unimproved Property Contract; 20-12, One to Four Family Residential Contract (Resale); 23-13, New Home Contract (Incomplete Construction); 24-13, New Home Contract (Completed Construction); 25-10, Farm and Ranch Contract; and 30-11, Residential Condominium Contract (Resale), Paragraph 24, Consult an Attorney, was rewritten to add the phrase "before signing" to the title and deleting the last sentence that currently contained that provision to increase clarity.

The amendments are adopted under Texas Occupations Code, §1101.151, which authorizes the Texas Real Estate Commission to adopt and enforce rules necessary to administer Chapters 1101 and 1102; and to establish standards of conduct and ethics for its licensees to fulfill the purposes of Chapters 1101 and 1102 and ensure compliance with those chapters.

The statute affected by these adoptions is Texas Occupations Code, Chapter 1101. No other statute, code or article is affected by the amendments.