The Texas Real Estate Commission (TREC) adopts amendments to §§537.11, 537.20, 537.28, 537.30, 537.31, 537.32, 537.37, 537.43, and 537.46, concerning standard contract forms, without changes to the proposed text as published in the November 22, 2002, issue of the Texas Register (27 TexReg 10878) and will not be republished. These amendments adopt by reference six revised contract forms and two addenda to be used by Texas real estate licensees. The 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. The effective date for mandatory use of the adopted contract forms is April 1, 2003; however, the forms may be used by licensees on a voluntary basis prior to the effective date.

Texas real estate licensees are generally required to use forms promulgated by TREC when negotiating contacts for the sale of real property. These forms are drafted 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 and six brokers appointed by TREC pursuant to Texas Civil Statutes, Article 6573a, §16.

The amendment to §537.11 renumbers the revised forms promulgated by TREC.

The amendment to §537.20 adopts by reference Standard Contract Form TREC No. 9-5, Unimproved Contract Form. The form is revised as follows. The form permits a prequalified buyer to make the contract subject only to the property satisfying the lender's loan underwriting requirements. The paragraph regarding Earnest Money is modified to measure the deposit date for additional earnest money from the effective date of the contract. Other changes permit the buyer to have the survey exception to title policy deleted at the buyer's expense. The form provides that the parties may agree on the period of time for the buyer to make title objections and clarifies the time period to cure objections. Title defects to which buyer can object are rewritten for clarity and include an objection for any part of the property lying in a flood plain. The form is revised to add title notices for property located in a certificated service area of a utility service provider and a Texas Agricultural Development District. Financing conditions, seller financing details and loan assumption provisions are deleted; existing separate addenda contain the financing details. The form adds sellers disclosures regarding, among other things, flooding, litigation, environmental hazards, dumpsites, wetlands, and endangered species. An automatic extension of closing for up to 15 days for satisfaction of lender's closing requirements is eliminated. The revised form clarifies when the buyer takes possession. Closing cost provisions are combined for conventional and FHA/VA transactions. A blank is added for the seller to pay a portion of the buyer's expenses. "Transfer fees for cooperative or association membership for utility services" is added to the list of Buyer's expenses. The revised form permits the parties to agree to mediate their disputes without using an addendum. A list of contract addenda is added along with boxes to indicate which addenda will be made part of the contract. An option clause is moved to a new paragraph and made applicable only if all blanks have been filled in and the option fee has been paid. A receipt is added for the option fee. Office addresses and facsimile numbers are added to the contract for listing and selling associates.

The amendment to §537.28 adopts by reference Standard Contract Form TREC No. 20-6, One to Four Family Residential Contract (Resale). The form is revised as follows. The form clarifies the time period to cure objections. The paragraph regarding Earnest Money is modified to measure the deposit date for additional earnest money from the effective date of the contract. Closing cost provisions are clarified by combining buyers expenses into one paragraph rather than two separate subparagraphs for conventional/FHA financing and VA financing. The form deletes the "not to exceed" blank for PMI, VA loan funding fee and MIP, which fixed a maximum on the amount of such fees to be paid by buyer, and replaces the blank with a clause that states that buyer shall pay such fees as required by lender.

The amendment to §537.30 adopts by reference Standard Contract Form TREC No. 23-5, New Home Contract (Incomplete Construction). The form is revised as follows. The form permit a prequalified buyer to make the contract subject only to the property satisfying the lender's loan underwriting requirements. The paragraph regarding Earnest Money is modified to measure the deposit date for additional earnest money from the effective date of the contract. Other changes permit the buyer to have the survey exception to title policy deleted at the buyer's expense. The parties can agree on the period of time for the buyer to make title objections. Financing conditions, seller financing details and loan assumption provisions are deleted; existing separate addenda contain the financing details. The revised form provides that change orders to the construction documents must be in writing and a decrease in costs resulting from change orders and unused allowances reduces the sales price and proportionately adjusts the cash portion of the sales price and the amount financed as required by lender. The construction commencement date is measured from the effective date of the contract rather than from the date of loan approval. The form adds sellers disclosures regarding, among other things, flooding, litigation, environmental hazards, dumpsites, wetlands, and endangered species. An automatic extension of closing for up to 15 days for satisfaction of lender's closing requirements is eliminated. The revised form clarifies when the buyer takes possession. Closing cost provisions are combined for conventional and FHA/VA transactions. A blank is added for the seller to pay a portion of the buyer's expenses. In the default paragraph, Buyer may extend closing for up to 45 days, changed from 15 days, under certain circumstances. The revised form permits the parties to agree to mediate their disputes without using an addendum. A list of contract addenda are added along with boxes to indicate which addenda have been made part of the contract. An option clause is moved to a new paragraph and made applicable only if all blanks have been filled in and the option fee has been paid. A receipt is added for the option fee. Office addresses and facsimile numbers are added to the contract for listing and selling associates.

The amendment to §537.31 adopts by reference Standard Contract Form TREC No. 24-5, New Home Contract (Complete Construction). The form is revised as follows. The form now permits a prequalified buyer to make the contract subject only to the property satisfying the lender's loan underwriting requirements. The paragraph regarding Earnest Money is modified to measure the deposit date for additional earnest money from the effective date of the contract. Other changes permit the buyer to have the survey exception to title policy deleted at the buyer's expense and rely upon the seller's existing survey in lieu of having a new survey. The parties may agree when the buyer must be furnished or obtain a new survey and the period of time for the buyer to make title objections. Financing conditions, seller financing details and loan assumption provisions are deleted; existing separate addenda contain the financing details.

The form adds sellers disclosures regarding, among other things, flooding, litigation, environmental hazards, dumpsites, wetlands, and endangered species. An automatic extension of closing for up to 15 days for satisfaction of lender's closing requirements is eliminated. The revised form clarifies when the buyer takes possession. Closing cost provisions are combined for conventional and FHA/VA transactions. A blank is added for the seller to pay a portion of the buyer's expenses. The revised form permits the parties to agree to mediate their disputes without using an addendum. A list of contract addenda is added along with boxes to indicate which addenda have been made part of the contract. An option clause is moved to a new paragraph and made applicable only if all blanks have been filled in and the option fee has been paid. A receipt is added for the option fee. Office addresses and facsimile numbers are added to the contract for listing and selling associates.

The amendment to §537.32 adopts by reference Standard Contract Form TREC No. 25-4, Farm and Ranch Contract. The form is reformatted and revised as follows. The property description is divided into four major parts: land, improvements, accessories and crops. The form permits a prequalified buyer to make the contract subject only to the property satisfying the lender's loan underwriting requirements. Financing conditions, seller financing details and loan assumption provisions are deleted; existing separate addenda contain the financing details. The paragraph regarding Earnest Money is modified to measure the deposit date for additional earnest money from the effective date of the contract. Other changes permit the buyer to have the survey exception to title policy deleted at the buyer's expense. The parties may agree on the period of time for the buyer to make title objections measured from receipt of the commitment, exception documents and survey. Title defects to which buyer can object are rewritten for clarity and include an objection for any part of the property lying in a flood plain. The reference to the TREC Addendum for Abstract of Title is deleted. Blank lines are provided for the seller to list exception documents and surface leases; the form clarifies that exception documents and leases will be permitted exceptions in the title policy and will not be a basis for objection to title. The form adds sellers disclosures regarding, among other things, flooding, litigation, environmental hazards, dumpsites, wetlands, and endangered species. The form is revised to add title notices for property located in a certificated service area of a utility service provider and a Texas Agricultural Development District. The form includes blanks for seller to identify governmental programs that the property is subject to and provides for allocation or proration of governmental program by separate agreement. An automatic extension of closing for up to 15 days for satisfaction of lender's closing requirements is eliminated. The form clarifies when the buyer takes possession. Closing cost provisions are combined for conventional and FHA/VA transactions. A blank is added for the seller to pay a portion of the buyer's expenses. The form provides for proration of unknown rentals such as those related to crop production once such rentals become known. The form permits the parties to agree to mediate their disputes without using an addendum. A list of contract addenda is added along with boxes to indicate which addenda have been made part of the contract. An option clause is moved to a new paragraph and made applicable only if all blanks have been filled in and the option fee has been paid. A receipt is added for the option fee. Office addresses and facsimile numbers are added to the contract for listing and selling associates.

The revised Farm and Ranch Contract form contains an agreement for payment of broker's fee; the parties indicate whether the buyer or seller will pay the listing/ principal broker and whether the buyer or seller will pay the Other Broker; the parties select the amount and type of payment (cash fee or percentage of total sales price) to listing/principal broker and other broker. The form includes a notice in bold font that broker's fees are negotiable and not controlled by TREC and provides for separate signatures by buyer and seller to indicate their agreement for payment of broker's fees.

The amendment to §537.37 adopts by reference Standard Contract Form TREC No. 30-3, Residential Condominium Contract (Resale). The form is revised as follows. The form clarifies the time period to cure objections. The paragraph regarding Earnest Money is modified to measure the deposit date for additional earnest money from the effective date of the contract. Closing cost provisions are clarified by combining buyers expenses into one paragraph rather than two separate subparagraphs for conventional/FHA financing and VA financing. The "not to exceed" blank for PMI, VA loan funding fee and MIP, which fixed a maximum on the amount of such fees to be paid by buyer is deleted in the new form and replaced with a clause that states that buyer shall pay such fees as required by lender.

The amendment to §537.43 adopts by reference Standard Contract Form TREC No. 36-2, Addendum for Property Subject to Mandatory Membership in an Owners' Association, a form that a seller may use to provide certain statutory notices regarding membership in an owners' association. The form is modified to add a provision to clarify that if the buyer terminates the contract pursuant to the provisions of the addendum, the earnest money will be refunded to buyer.

The amendment to §537.46 adopts by reference Standard Contract Form TREC No. 39-4, Amendment, a form used by the parties to amend a contract. The form is revised to change a reference to a specific paragraph in item number 5 since the paragraph number has changed in the TREC contract forms.

Drafts of the proposed forms were released for comment and displayed on the TREC web site for several months prior to the filing of the formal rulemaking proposal to adopt them. Approximately 30 comments were received and considered by the Broker-Lawyer Committee during this period, and a number of changes were made in the drafts as a result of the comments. After the proposals appeared in the Texas Register, approximately 30 comments were received regarding the content of the proposed contract forms. The Texas Association of Realtors (TAR), the San Antonio Board of Realtors (SABOR) and the Greater Dallas Association of Realtors (GDAR) commented on the proposed forms.

The Commission has made typographical corrections to the forms adopted by reference, and other changes were made to the text of the proposed forms in response to comments. TAR suggested that paragraph 12 of both proposed new home contracts, TREC Nos. 23-5 and 24-5, be amended to add "tax deletion fee" and "EPA endorsement" to Buyer's expenses in paragraph 12.A.(2)(b) of both new home contracts; one commenter suggested adding Paragraph 12.A.(4) from the current condominium contract regarding payment of transfer expenses to be numbered 12.A.(3) in the proposed condominium contract; TAR suggested adding "transfer fees for cooperative or association membership for utility services" to Buyer's expenses in paragraph 12.A.(2)(b) of the proposed unimproved contract. All the above changes were originally proposed and discussed by the Broker Lawyer Committee but were inadvertently deleted from the proposed forms as a result of a typographical error in succeeding drafts. SABOR recommended that "Address of Property" be added underneath the address line on each page of the Farm and Ranch Contract form, TREC No. 25-4. The Commission agrees to these changes to the forms.

A number of comments did not result in changes to the text of the proposed forms. The comments and Commission responses to those comments are summarized as follows.

Comment: One commenter asked that the paragraph listing expenses payable by seller include "lender required repairs."

Response: The Commission determined that lender required repairs are dealt with sufficiently in paragraph 7.E. where neither party is obligated to pay for lender required repairs unless otherwise agreed in writing, and if the parties cannot agree as to who pays, the contract will terminate and the earnest money refunded to buyer.

Comment: One commenter believes that paragraph 21 should include check boxes for buyer and seller contact information to indicate to whom notices must be delivered.

Response: The Commission determined that the public interest was best served by the proposed text of paragraph 21 without additional checkboxes as the checkboxes are unnecessary.

Comment: Two commenters suggested reinserting in paragraph 7 the buyer's right to reinspect the property.

Response: The Commission declined to make the suggested change as the paragraph states that the seller shall permit access to the buyer and buyer's agents at reasonable times, which would include reinspection as necessary.

Comment: It was suggested that the Commission delineate how mortgage interest premiums (MIP) or private mortgage interest (PMI) will be paid in the main body of the contract.

Response: The Commission declined to make the suggested change as the payment of MIP and PMI is addressed in the Third Party Financing Addendum.

Comment: One commenter advised that the Commission should add buyer and seller initials to the last page of the contract forms.

Response: The Commission declined to make the suggested change as it is not necessary for buyer and seller to initial that page.

Comment: One commenter suggested that the Commission add more space for buyers and sellers, property description, and signature lines in all the contracts.

Response: The Commission concluded that there is sufficient space for this information in all forms. A broker can attach additional exhibits to the contract if necessary.

Comment: A commenter asked that the Commission add a blank line before the sales price and financed price to make room for changes to those prices.

Response: The Commission declined to make the suggested change as licensees may use the amendment form if those figures change.

Comment: Several commenters requested that the forms include text to indicate that the offer to buy or sell terminates at a certain time or that include an "acceptance time" for seller response.

Response: Adding an acceptance time or offer termination date raises complexities that cannot be anticipated in a standard form. Additional issues raised by the suggestions include whether the acceptance time applies only to acceptance of offers, or also to acceptance of counter-offers; would the time to accept or counter offer apply only to the seller or also to the buyer in response to a counter from the seller. Because of the complexity of the matter, the commission believes that the public interest is best served by the proposed text of the form without the suggested change.

Comment: One commenter asked that the Commission add a space to the forms for buyer, seller, and agent email addresses.

Response: The Commission declined to make the suggested change as the contracts already provide for telephone and facsimile numbers and addresses to contact the parties. Parties are free to add their e-mail addresses to the contract as necessary.

Comment: One commenter suggested putting the effective date on page one of the contract forms.

Response: The effective date is adjacent to the signatures on the signature page. The Commission determined that adding the effective date to the first page takes up additional space and is unnecessary.

Comment: A commenter asked for the Commission to add disclosures regarding flood plains, sewer systems and water wells to all the contract forms.