Texas Register Preamble
The Texas Real Estate Commission (TREC) adopts amendments to 22 TAC §537.20, Standard Contract Form TREC No. 9-15; §537.28, Standard Contract Form TREC No. 20-16; §537.30, Standard Contract Form TREC No. 23-17; §537.31, Standard Contract Form TREC No. 24-17; §537.32, Standard Contract Form TREC No. 25-14; §537.33, Standard Contract Form TREC No. 26-7; §537.37, Standard Contract Form TREC No. 30-15; §537.43, Standard Contract Form TREC No. 36-9; §537.46, Standard Contract Form TREC No. 39-8; §537.47, Standard Contract Form TREC No. 40-9; §537.48, Standard Contract Form TREC No. 41-2; §537.51, Standard Contract Form TREC No. 44-2; §537.58, Standard Contract Form TREC No. 51-0; and §537.59, Standard Contract Form TREC No. 52-0 with non-substantive changes to the rule text as published in the August 26, 2022, issue of the Texas Register (47 TexReg 5067), and with non-substantive changes to forms adopted by reference in Chapter 537, Professional Agreements and Standard Contracts. The rule text will be republished, and the non-substantive changes to the forms adopted by reference are available through the Commission's website at www.trec.texas.gov.The non-substantive changes to the rule text include updating the year of the approved form to 2022.
The amendments to Chapter 537 are made as a result of the Commission's quadrennial rule review. The changes to the existing rules add the title of the form adopted by reference in each rule to the rule title and add clarifying language to specify which forms are for mandatory versus voluntary use by license holders.
Each of the rules also include corresponding contract forms adopted by reference. Texas real estate license holders are generally required to use forms promulgated by TREC when negotiating contacts for the sale of real property. These forms are drafted and recommended for proposal 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 Texas Real Estate Broker-Lawyer Committee recommended revisions to the contract forms adopted by reference under the amendments. The changes listed below apply to all contract forms unless specified otherwise. Paragraph numbers referenced are from the One to Four Family Residential Contract (Resale).
The term "Escrow Agent" is capitalized throughout the contract to reflect its status as a defined term.
Paragraph 3 is amended to add a definition of "cash portion of the sales price."
A new "required notices" section is added to Paragraph 6, which provides one location where MUD, PID, or other similar notices that have been given or are attached to the contract can be listed.
Paragraph 7.F is revised to require that the seller: (i) provide the buyer with copies of documentation from the repair person that shows both the scope of work and payment for the work completed; and (ii) transfer, at seller's expense, any transferable warranties at closing.
Paragraph 7.H is amended to replace the term "residential service company" with the terminology used by the Texas Department of Licensing and Regulation, which as of September 1, 2021, regulates residential service companies.
Paragraph 9.B(3) is amended to add the transfer of any warranties to correspond with the change in Paragraph 7F. New paragraph 9.B(5) provides that private transfer fees will be the obligation of the seller, unless otherwise provided in this contract and that transfer fees assessed by a property owner's association are governed by the Addendum for Property Subject to Mandatory Membership in a Property Owners Association. A similar sentence is added to the Residential Condominium Contract.
Paragraph 11 is amended to further clarify the intent of the paragraph by replacing the terms "factual statements" and "business details" with "informational items," which is now defined, and adding that real estate brokers cannot practice law and are prohibited from adding to, deleting, or modifying the contract unless drafted by a party to the contract or a party's attorney. Lines have also been inserted into the blank.
Paragraph 13 is amended to clarify what amounts will be prorated through the closing date.
Paragraph 18.B is amended to add that if no closing occurs, the escrow agent may require a written release of liability before releasing the earnest money.
Paragraph 21 is amended to add a line for a copy to the buyer's and seller's agent respectively.
In the Unimproved Property Contract, the Farm and Ranch Contract, the New Home Contract (Incomplete Construction), and the New Home Contract (Complete Construction), the Seller's Disclosures paragraph has been amended to: (i) add checkboxes to each disclosure item to indicate whether the seller is or is not aware; and (ii) add two additional disclosures relating to whether the property is located in a floodplain or if any tree located on the property has oak wilt.
The Farm and Ranch Contract contains the following additional changes:
-A notice is added that states the form is designed for use in sales of existing farms or ranches of any size, and that it's not for use in complex transactions.
-Paragraph 2.A adds the term "Counties" to reflect the fact that farm and ranch properties could be located across two or more counties. Additionally, the phrase "including but not limited to: water rights, claims, permits, strips and gores, easements, and cooperative or association memberships" is deleted from the paragraph.
-Paragraph 2.B is amended to make the terms "house" and "garage" plural.
-Paragraph 3.D is amended to alter the calculation of the sales price adjustment should the survey reveal a difference in acreage.
-New paragraph 4.D is added to address surface leases and includes options regarding whether the seller has delivered copies of written leases or provided notice of oral leases to the buyer, similar to the existing natural resource lease paragraph. The corresponding language in Paragraph 6.F is also amended.
-On page 10 of the Contract, the statement "Do not sign if there is a separate written agreement for payment of Brokers' fees" is being modified to make it more conspicuous.
The Residential Condominium Contract contains the following additional changes:
-Paragraph 2.B(2) and 2.C(2) are amended to clarify the timing related to termination and to add a reference to the applicable Property Code provision.
-Paragraph 12.A(3) is amended to except regular periodic maintenance fees, assessments, or dues (including prepaid items) that are prorated under Paragraph 13 from the parties' obligation to pay under this section, as well as costs and fees provided by Paragraph 2.
The Amendment to Contract is amended to add a notice to consult an attorney and to add a reference to Paragraph 7 of the contracts in Paragraph 2 of the Amendment dealing with repairs. The form is also amended to replace the parenthetical following Paragraph 9, Other Modifications, with a statement that real estate brokers and sales agents are prohibited from practicing law. Lines have also been inserted into the blank.
The Seller Financing Addendum contains the following amendments:
-A notice encouraging consultation with an attorney and a financial professional and informing parties of the complicated nature of these transactions is added to the top of the form.
-Paragraph B is amended to modify the time period within which the seller may terminate.
-A new instructional parenthetical is added in Paragraph C. Additionally, the interest in modified to reflect a per annum interest rate.
-Paragraph D.2(a) and (b) are amended to clarify the casualty insurance requirements and new paragraph D.2 is added to address casualty insurance.
-Paragraph D.2(b) is further amended to add a requirement that the seller provide the buyer with an annual accounting of the escrow account, use escrow deposits to pay taxes and insurance premiums in a timely manner in certain circumstances, and hold the escrow deposit in a separate account. Language is also added to specify whether the escrow account will or will not be services by a third-party servicer at either the buyer's or seller's expense.
The Addendum for Property Subject to Mandatory Membership in a Property Owners Association is amended to except regular periodic maintenance fees, assessments, or dues (including prepaid items) that are prorated under Paragraph 13 from the parties' obligation to pay under this section, as well as costs and fees provided by Paragraphs A and D.
The Third Party Financing Addendum is amended to add an "other financing" box in Paragraph 1. Paragraph 3 is amended to add that a note must be secured by vendor's and deed of trust liens only if required by the buyer's lender. Finally, the phrase "provided in relation to the closing of this sale" is struck from Paragraph 5.B to streamline the paragraph.
Both the Addendum Regarding Residential Leases and the Addendum Regarding Fixture Leases are amended to add a checkbox in Paragraph B.1 related to notice of oral leases. Additionally, the Addendum for Disclosure of Fixture Leases is amended to modify Paragraph A.1 to include checkboxes, in lieu of a blank line, so that the parties can specifically indicate what types of fixture leases will be assumed and assigned.
The Loan Assumption Addendum contains the following amendments:
-"Effective Date" and "Title Company" are capitalized throughout.
-Paragraph A is amended to add that the noteholder of the loan being assumed is authorized to receive a copy of the buyer's credit reports.
-Paragraph B is amended to modify the time period within which the seller may terminate.
-Paragraph C is amended to clarify that the buyer will assume in writing the following notes at closing, to remove the reference to $500 and instead insert a blank, and to add the following sentence: "Within 7 days after the Effective Date, Seller will deliver to Buyer copies of the note(s) to be assumed, the deed(s) of trust, and the most recent loan statement(s) from the lender."
-New paragraph H is added related to authorization to release information.
-A new due on sale notice is added.
The Addendum for Reservation of Oil, Gas, and Other Minerals is amended to replace the phrase "reserve and retain implied" with "waive" in Paragraph C. The term "current" is added to "contact information" in Paragraph D.
One hundred twenty-three comments were received. The Broker-Lawyer Committee (committee) met on October 14, 2022, and addressed each comment received.
Texas Realtors submitted comments in agreement with the majority of changes made to the contract forms; however, the Association expressed concern regarding proposed changes to language in the Addendum for Property Subject to Mandatory Membership in a Property Owners Association, which is addressed below. Additionally, the Association recommended adding a provision of the Farm and Ranch contract and the Unimproved Property contract regarding like-kind property exchange. The committee declined to make such a change at this time.
The committee changed two typographical errors cited in two comments received from members of the public.
The committee received multiple comments regarding Paragraphs 3, 5, 6D, 6E, 7F, 7H, 9B(2), 11, and 18 in all contract forms, Paragraph 7E of contract form nos. 9-15, 23-17, 24-17, and 25-14, and Paragraph 6F of 25-14.
In particular, the committee discussed at length multiple comments related to language in Paragraph 3 regarding disclosure of "Cash portion of the Sales Price" as it relates to an individual's privacy. The committee determined the language as proposed provided the best route to disclosure related to hard money in a real estate transaction and ultimately benefited the parties to the transaction. The committee also discussed the proposed changes to Paragraph 6E regarding required notices in response to comments, noting that the changes as proposed were an important step to better call attention to the required notices. The committee will continue to assess possible changes to the contract forms as it relates to the required notices under Paragraph 6E, but agreed the changes as proposed worked well.
The committee also discussed the proposed changes to Paragraph 11. 16 comments received were identical in language and were against the proposed changes to Paragraph 11 based on a concern that agents who were principals to a transaction could not draft language. The committee noted there was an exception to anyone who was a party to the transaction, which would include license holders who are also principals, to draft language. The committee noted this appeared to be an education issue for license holders and not a conflict with statute or rule. Ultimately, the committee declined to make any additional changes to Paragraphs 3, 5, 6D, 6E, 7F, 7H, 9B(2), 11, and 18 in all contract forms, Paragraph 7E of contract form Nos. 9-15, 23-17, 24-17, and 25-14, and Paragraph 6F of 25-14.
In response to multiple comments regarding proposed changes to Paragraph 9(B)5, the committee added language to all contract forms, except for the Farm and Ranch and Condominium contracts, clarifying that transfer fees assessed by a property owner's association are governed by the Addendum for Property Subject to Mandatory Membership in a Property Owners Association. A similar change was made to Paragraph 9(B)(5) of the Condominium contract to clarify that the paragraph does not apply to fees assessed by the Association.
In response to multiple comments received, the committee also clarified language regarding proration of prepaid items in Paragraph 13. The committee made corresponding edits in the Addendum for Property Subject to Mandatory Membership in a Property Owners Association to clarify that certain specified items are governed by Paragraph 13 and discussed the last sentence in that paragraph, which had been proposed by the committee at the request of the Texas Land Title Association (TLTA). Texas Realtors provided written comment regarding the language recommended by TLTA, stating that it had potential to create confusion. The committee decided to strike this language and determined the TLTA's concern regarding third party collections by an property owners' association was sufficiently addressed by the amendments to the addendum.
In response to multiple comments received, the committee added an extra line to Paragraph 21 for a second email/fax address for each of the parties, as well as lines specifically intended for copies to be sent to the buyer's and seller's agent. Also in response to multiple comments, the committee inserted the Public Improvement District Notice back into the list of addenda or notices that are attached to the contract in Paragraph 22. The committee capitalized "Escrow Agent" in the Third Party Financing Addendum and inserted the word "days" after "7" in Paragraph C of the Loan Assumption Addendum. The committee requested staff to modify the term "license holders" to "brokers and sales agents" throughout all the forms, but not in the instructional box at the bottom of the forms. Finally, the committee decided to delete "as described on exhibit" in Paragraph 2A(1) in the proposed Condominium contract form.
The committee received multiple comments both solely related to being generally in favor of the proposed changes and being generally against the same proposed changes. The committee declined to make additional changes in response to the opposing comments and noted the new changes have been overall favorably received by license holders, real estate associations, and the title industry.
The Broker-Lawyer Committee recommended the Commission adopt the forms as modified.
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 license holders to fulfill the purposes of Chapters 1101 and 1102 and ensure compliance with Chapters 1101 and 1102.
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