The One to Four Family Residential Contract (Resale) and Buying a Home
Yesterday, we started our breakdown of the One to Four Family Residential Contract (Resale) used in Texas to buy a home. We covered the first six paragraphs and ended on page four (of nine) and we recommend you read “Residential Contract: A Closer Look at Buying a Home Part I” first. Ready to learn some more about how to buy a home in Texas? Let’s get started, shall we?
Paragraph 7. Property Condition Another long paragraph, this one covers all aspects of a property’s condition, disclosures, and repairs.
- Section A covers access, inspections, and utilities. In it, the seller gives the buyer (and their agent) permission to enter the property for inspections and it requires the seller to have all utilities on during the period of the contract.
- Section B talks about the Seller’s Disclosure. In this section there are several options; the buyer has received the seller’s disclosure, the buyer has not received the notice, and the seller is not required to give a disclosure. If the buyer has not received the disclosure, the seller has a negotiable amount of time to provide the document. Failure to do so gives the buyer the right to cancel to the contract and receive their earnest money back. Once the buyer receives the seller’s disclosure notice, they have seven days in which they may terminate the contract and receive their earnest money back. There are instances where the seller is not required to give a seller’s disclosure notice, the most common sellers that are excluded from the requirement are; a builder of a new home, a trustee or executor of an estate, and a lender who has foreclosed on a property. There are 11 exemptions in the law, but these are the three you’ll see most often.
- Section C denotes that all properties built before 1978 require a disclosure of lead based paint and lead based paint hazards. This is a federal law.
- Section D talks about accepting the property “as is” – this however, does not remove the right of the buyer to have the property inspecting during the option period and negotiate repairs or termiante the contract during this time. A buyer can elect to add items into D.(2) that require specific repairs prior to the repair negotiations typically done during the option period. A buyer should use this section wisely however, because delineating items prior to a contract’s acceptance could lead to a seller refusing to accept the offer.
- Section E deals with lender required repairs. According to the contract, neither party (buyer or seller) is responsible for paying for lender required repairs. If the buyer and seller cannot come to agreement as to who will pay for these repairs, the contract can be terminated and the buyer will receive their earnest money back. The buyer may also terminate and receive their earnest money back if the total cost of lender required repairs exceeds 5% of the sales price.
- Section F states that all repairs must be performed prior to the closing date. This section also contains new language regarded who shall make the repairs – reapirs must be made by someone licensed to do such work or, in the case where a license is not required, someone who does those types of repairs commercially (ie, not your cousin who knows a few things about the repair, but does not work in that field). This section also states that all permits shall be obtained to do such work, that any transferable warranties will go the buyer at their expense, and if the seller fails to complete the repairs before closing, the buyer may elect to extend the closing date up to five days or seek remedies found in Paragraph 15 of the contract.
- Section G advises the buyer about environmental matters that may affect the buyer’s intended use of the property. Items such as wetlands, toxic materials, and endangered species can affect the way a property is handled in the future, so buyers are given notice here.
- Section H allows the buyer to ask the seller to pay for a residential service contract, also know as a home warranty. A buyer needs to put a specific value into this section, so it is advised that they research the various types of coverage available so that they know the price of the home warranty they wish to purchase.
Paragraph 8. Brokers’ Fees This short paragraph states that “All obligations of the parties for payment of brokers’ fees are contained in separate written agreements.
Paragraph 9. Closing The closing date of the contract is set forth in Section A of this paragraph. If the transaction doesn’t close on this date, it can be extended for seven days if objections were made under Paragraph 6.D. A closing date can also be amended if necessary and both parties agree to it. Failure to close on the date specified in this paragraph can put the seller or buyer in default of the contract. Section B covers all the items necessary to close: (1) seller shall give the buyer a general warranty deed to the property and show tax statements that there are no deliquent taxes, (2) buyer must pay the sales price in good funds that are accepted by the escrow agent (title company), (3) both parties agree to sign and deliver any documents necessary required for title policy and the closing of the sale, (4) that there will be liens or assessments against the property that are not paid off at or before closing, and (5) if there is a current lease associated with the property, all security deposits will be transferred to the buyer and the buyer will deliver to the tenant a signed statement acknowledging receipt of those funds and that they are responsible for the return of the security deposit (subject to standard rules regarding security depsoits).
Paragraph 10. Possession Two checkboxes here to pick from – either the buyer takes possession of the property upon closing and funding or the timing of possession goes according to a temporary residential lease. The paragraph also notes that the parties should consult with their insurance agent regarding any temporary leases as they can affect insurance coverage. In regards to other leases, the paragraph also states that a seller may not enter into any lease agreement after the effective date of the contract and that if there is a current lease, the seller must deliver to the buyer copies of the residential lease and the property condition and move-in form.