TREC One to Four Family Residential Contract: Key Terms and Closing

The TREC One to Four Family Residential Contract (Resale) is the standard form Texas real estate agents must use for most existing home sales involving single-family houses, duplexes, triplexes, and four-plexes.¹ The current version is form 20-18, effective January 3, 2025, and it runs through roughly 20 numbered paragraphs plus addenda that assign specific rights, deadlines, and financial obligations to the buyer, the seller, or both.² What follows is what each paragraph actually does, and where the expensive mistakes tend to happen.

Who the Parties Are and What Property Is Being Sold

Paragraph 1 identifies the buyer and seller by legal name. A wrong or incomplete name here can create title issues later, so both sides should confirm the names match their legal identification.³

Paragraph 2 describes the property in three layers. The land is identified by the recorded lot, block, addition, city, and county. Improvements cover the house and anything permanently attached, like fences, built-in shelving, or storage buildings. Accessories go further and include items sellers often assume they get to keep: window coverings, garage door remotes, the stove, pool equipment, mailbox keys, and security system controls all transfer to the buyer by default.³

This is where sellers get tripped up. If you want to keep a chandelier or the custom curtain rods, you have to list them as exclusions in Paragraph 2D before the contract is signed. Anything not specifically excluded stays with the property, and buyers have grounds to dispute items removed after signing. The exclusions blank is one of the most important lines in the whole contract for sellers, and it gets overlooked constantly.

Price and Financing

Paragraph 3 splits the purchase price into two parts. The cash portion is what the buyer brings to closing, not counting loan proceeds. The financing portion is the total of any loans, with the details spelled out in whichever financing addendum applies: the Third Party Financing Addendum for conventional or government-backed loans, the Loan Assumption Addendum, or the Seller Financing Addendum.³

For a mortgage buyer, the real financing terms live in the Third Party Financing Addendum. It specifies the loan type, the amount the buyer needs to qualify for, and the deadline for credit approval. If the buyer cannot secure financing within that period, the addendum generally lets them terminate and recover their earnest money. Waiving this protection to make an offer more competitive is a real gamble. Without the contingency, a buyer whose financing falls through can lose their earnest money and face a default claim.⁴

Earnest Money, Option Fee, and the Option Period

Paragraph 5 creates two separate buyer obligations, both due within three days of the effective date. The earnest money is a good-faith deposit. The option fee buys an unrestricted right to walk away for any reason during a negotiated window called the option period.³ Both go to the escrow agent, usually the title company, not directly to the seller.⁵

If the last day to deliver falls on a weekend or legal holiday, the deadline moves to the next business day. Otherwise the contract says “time is of the essence” and demands strict compliance. Miss the option fee deadline and the termination right disappears. Miss the earnest money deadline and the seller can terminate or pursue default remedies under Paragraph 15.³

The number of days in the option period is negotiated and written into the blank. During that window the buyer can order inspections, get repair estimates, and evaluate the property. Terminating within the option period requires notice before 5:00 p.m. local time on the last day. Do that and the earnest money comes back in full. The seller keeps the option fee as compensation for holding the property off the market. If the deal closes, the option fee is credited toward the purchase price.

Title Policy, Survey, and Title Objections

Paragraph 6 covers title insurance and the survey. The contract designates which party pays for the owner’s title policy and names the title company handling the transaction.³ Texas regulates title premiums through the Texas Department of Insurance, so the rate is the same at every company.⁶

If the seller has an existing survey, the parties can reuse it. The seller typically signs a T-47 Residential Real Property Affidavit confirming no changes have been made to the property’s boundaries, structures, or improvements since the survey was completed.⁷ If a new survey is needed, the contract specifies who pays.

The title commitment is the document that reveals problems. It lists exceptions the title company will not insure against, which commonly include utility easements, subdivision restrictive covenants, and any boundary encroachments a survey turns up. The buyer has a set number of days to object formally. If the commitment reveals restrictions that would prevent the buyer’s intended use, the buyer can negotiate a fix or exit the contract.

Seller’s Disclosure and Property Condition

Paragraph 7 governs the physical condition of the home. Under Texas Property Code Section 5.008, the seller must provide a written Seller’s Disclosure Notice describing the property’s known condition and history.⁸ If the notice is late or never delivered, the buyer can terminate for any reason within seven days of finally receiving it and get a full refund of earnest money.

The contract allows the buyer to accept the property “as is,” but that language is less protective for the seller than it sounds. Even with an as-is clause, the buyer keeps the right to have the property inspected during the option period and can still negotiate repairs, request a price reduction, or walk away using the option. Sellers who read “as is” as ending the conversation are usually surprised when inspection reports hit the table.

When the parties agree on specific repairs, the seller must complete them before closing using qualified workers and hand over receipts and any warranties. The seller must also deliver the property in its present or agreed condition, ordinary wear and tear excepted, which means the property cannot be allowed to deteriorate between the effective date and closing.

Existing Leases on the Property

Paragraph 4 covers leases in three categories.³ Residential leases apply to current tenants. Fixture leases cover equipment like solar panels, propane tanks, or leased security systems that are attached to the home but owned by a third party. Natural resource leases cover oil, gas, mineral, water, or wind interests affecting the land.

The seller must disclose all known leases before signing. After the effective date, the seller cannot create a new lease, modify an existing one, or convey any property interest without the buyer’s written consent. For natural resource leases, the seller has three days after the effective date to deliver copies if they were not already provided, and the buyer gets a negotiated review window to terminate if the terms are unacceptable. If solar panels or mineral rights are in play, this is the paragraph to read carefully. Inheriting a 20-year equipment lease you did not know existed is an expensive surprise.

Closing, Possession, and Tax Prorations

Paragraphs 9 and 10 set the closing date and control when the buyer takes possession. A specific closing date is written into the contract, but it can shift if title objections under Paragraph 6 are still being resolved, in which case closing extends up to seven days after those objections are cured or waived.³

Possession usually transfers at closing and funding. If the buyer needs to move in early, or the seller needs to stay past closing, the parties must use a temporary residential lease promulgated by TREC. Informal handshake arrangements create liability on both sides and should be avoided.

Paragraph 13 handles prorations, splitting ongoing expenses like property taxes, HOA dues, and prepaid maintenance fees as of the closing date. Because Texas property taxes are paid in arrears, the seller owes the buyer a credit at closing for the portion of the year the seller owned the property. If the final tax bill differs from the estimate used at closing, the contract requires the parties to adjust once the actual statement is available.³ Prorations can also account for changes in tax exemptions, such as a homestead exemption that will no longer apply after the sale.

Who Pays What at Closing

Paragraph 12 allocates settlement expenses. Each party is responsible for the fees they have agreed to pay, including their own brokerage fees. Sellers can also agree to pay a specific amount toward the buyer’s broker fees directly, which is noted in Paragraph 12. The contract lets the parties negotiate who covers the title policy premium, the survey, and other transfer fees. Local custom drives some of these allocations, but everything is negotiable.

Buyers should budget beyond the down payment. Expect the lender’s title policy (required by most mortgage lenders and paid separately from the owner’s policy), escrow fees, recording fees for the deed and mortgage documents, and prepaid items like homeowner’s insurance and property tax escrows. Sellers typically cover the owner’s title policy premium and deed preparation. Because the contract’s line items make these allocations explicit, no one should be blindsided at the table.

If the Property Is Damaged Before Closing

Paragraph 14 covers what happens if fire, storm, or another casualty damages the property between signing and closing. The seller must restore the property to its previous condition before the closing date. If the seller cannot do so for reasons beyond their control, the buyer has three choices:

Terminate the contract and get a full refund of earnest money.
Extend closing by up to 15 days to give the seller more time to complete repairs.
Accept the property in its damaged condition, take an assignment of the seller’s insurance proceeds if the carrier permits, and receive a closing credit equal to the insurance deductible.

Paragraph 14 operates independently of the seller’s other obligations. A hailstorm two days before closing does not give the seller grounds to delay or renegotiate other terms.

What Happens If Someone Defaults

Paragraph 15 sets out the consequences when a party fails to perform. If the buyer defaults by refusing to close without a contractual right to terminate, the seller can keep the earnest money as liquidated damages, pursue specific performance to force the sale, or seek other legal remedies. If the seller defaults, the buyer can pursue specific performance, seek money damages, or terminate and recover the earnest money. Specific performance matters in real estate because each property is treated as unique under the law, so forcing the original sale is sometimes the only adequate remedy.

In practice, earnest money disputes are the most common fallout when a deal collapses. When both sides claim the money, the escrow agent cannot release it without a written agreement from both parties or a court order. That can tie up thousands of dollars for months.

Paragraph 16 requires the parties to submit any unresolved dispute to mediation through a mutually acceptable mediator before filing suit, with mediation costs split equally.³ Mediation is not binding, and the contract preserves the right to seek equitable relief from a court in urgent situations, like a party threatening to damage the property or transfer it to someone else.

Special Provisions and the Required Addenda

Paragraph 11 provides a blank for special provisions, but its use is narrower than most people realize. TREC limits this paragraph to factual statements and informational items specific to the transaction. Licensed agents cannot use it to draft new legal terms, modify existing provisions, or add material obligations not covered by the standard form or TREC’s promulgated addenda. Custom legal language should come from an attorney in a separate addendum.

Depending on the deal, several addenda may attach:

Third Party Financing Addendum whenever a mortgage is involved, covering loan type, approval deadlines, and the buyer’s right to terminate if financing falls through.⁴
Lead-Based Paint Addendum for homes built before 1978. Federal law requires the seller to disclose known lead-based paint hazards, provide an EPA information pamphlet, and give the buyer a 10-day evaluation period, which the buyer may waive in writing. Skipping the disclosure carries civil penalties of up to $10,000 per violation and potential liability equal to three times the buyer’s damages.⁹¹⁰
Addendum Regarding Residential Leases when tenants occupy the property.
Addendum Regarding Fixture Leases when equipment like solar panels or propane tanks is leased rather than owned.

If the seller is a foreign person, federal FIRPTA rules require the buyer to withhold 15% of the sale price, or 10% if the buyer will use the property as a residence and the price is $1 million or less. No withholding is required when the buyer will use the home as a residence and the price is $300,000 or less.¹¹ The title company usually handles the withholding at closing, but the buyer is ultimately liable if it is not done correctly.

Agent Disclosure Duties

Paragraph 8 requires any broker or sales agent who is personally a party to the deal, or acting on behalf of a spouse, parent, child, or a business in which they own more than 10%, to disclose the relationship in writing before the contract is signed.³ An agent buying through their own brokerage, for example, has to say so. Failing to disclose violates Chapter 1101 of the Texas Occupations Code and can result in license discipline.¹² If the person on the other side of your transaction is a licensee or has a family or business relationship with one, expect that disclosure in writing before you sign.

1
Texas Real Estate Commission. Contracts – Section: Notice Regarding Use of Contract Forms
2
Texas Real Estate Commission. One to Four Family Residential Contract (Resale)
3
Texas Real Estate Commission. One to Four Family Residential Contract (Resale)
4
Texas Real Estate Commission. Third Party Financing Addendum
5
Texas Real Estate Commission. Changes to Delivery of Option Fee
6
Texas Department of Insurance. Texas Title Insurance Basic Premium Rates
7
Texas Department of Insurance. T-47 Residential Real Property Affidavit
8
State of Texas. Texas Property Code Chapter 5 – Conveyances – Section: 5.008 Sellers Disclosure of Property Condition
9
Texas Real Estate Commission. Addendum for Sellers Disclosure of Information on Lead-Based Paint and Lead-Based Paint Hazards as Required by Federal Law
10
eCFR. 24 CFR Part 35 Subpart A – Disclosure of Known Lead-Based Paint Hazards Upon Sale or Lease of Residential Property
11
Internal Revenue Service. Instructions for Form 8288 (Rev. January 2026)
12
State of Texas. Texas Occupations Code Chapter 1101 – Real Estate Brokers and Sales Agents