Texas 1-4 Contract - Part 1: Paragraphs 1 & 2

Over the coming weeks we are going to be exploring the Texas Real Estate Commission’s promulgated contract number 20-17 which is the One to Four Family Residential Contract (Resale). What a mouthful. This is the main contract that us real estate agents use for the purchase of homes here in Texas. Lets start by looking at the name.

What’s in a Name?

The first thing we see is the term one to four family. Basically this means the contract can be used on properties with 1-4 units. So not just single family homes, but this contract can be used for duplexes, triplexes, and quadplexes. This includes townhomes even if the townhome is connected to more than three other units because only a single unit is being sold. 

Contract Title

The next word is Residential, which relates back to one to four. Per the US governments definition, up to four units can be considered residential, but once you hit five or more, it is now a commercial property. The reasoning here is that an individual might buy a duplex or even a fourplex and live in one of the units while renting out the other units. But an individual is probably not going to buy a 100 unit apartment building and live in it while renting out the other 99 units. Bigger buildings are usually owned by investors who might own several buildings. So it has been determinate that 5 units is the dividing live between residential and commercial.

The last part of the name which is located in the parenthesis is the word Resale. Basically, this contract cannot be used for a new home, only for a home that has been previously owned. TREC has 2 other contracts to cover new homes. One for homes that have not been built or only partially completed, and the other for new homes that are completed. Mainly the differences between those two contracts center around dates and deadlines, along with material selections and change orders. All of TREC’s purchase contracts are similar though with the bulk of them using the same language and then having specific sections for different needs. 

Home Purchase Contract

On to the Contract

Moving into the contract itself, the first paragraph is the parties to the contract. So basically the buyer and the seller. And it states that the buyer agrees to buy the property from the seller.

The second paragraph is a bit more in depth. This paragraph defines the Property. The first line is an important one, “the land, improvements, and accessories are collectively referred to as the property”. Then it breaks down in to additional sections defining what each of those is. 

The land is obviously the physical land that encompasses the property. The legal description along with the physical address are added to this. 

Improvements and Fixtures

Then we move into the improvements. In real estate, improvements refer to the actual house and any additional structures such as a shed, fence, or even a pool. Paragraph 2B then goes onto define certain things that are included. It begins by stating "the house, garage and all other fixtures and improvements attached to the land including permanently installed and built in items". It lists a number of different fixtures that are included. For more information about what a fixture is, be sure to check out our article What is a Fixture?

Paragraph 2B

The short of it though, is that a fixture is anything that is permanently installed in the home. Things like, kitchen cabinets, flooring, light fixtures. Those might seem obvious, but others are less so. Is a refrigerator a fixtures? Maybe. Depends on the fridge. A normal fridge is not a fixture and is instead personal property and it is expected that the seller will take it when they move. But a fridge that is built in is considered a fixture. If it matches the cabinets it is a fixture. Microwaves are another that varies. If it is built into the cabinets or mounted above the stove, then it is a fixture and stays with the home. If it sits on the countertop then it is a personal item. 

A couple fixtures might surprise you, such as mirrors. Mounted on the wall they are considered part of the property. Television mounts are another. A TV is personal property, but if that TV was mounted to the wall, then the mount itself is supposed to stay. 

Paragraph 2C then talks about accessories. Again, accessories stay with the house. It lists things like curtains and rods, blinds, draperies. These sometimes cause disagreements between buyers and sellers, but less so than it did in the past. Years ago it was common for drapes to match bedding. So sellers wanted to keep those drapes but per the contract, the drapes stay with the home. Fortunately that is mostly a thing of the past. 

Paragraph 2C

In the end, if there is anything you want to keep, it is best to remove it before you list your home. If you have a crystal chandelier that has been in your family for a century then you might want to replace it with a cheap light fixture so that the buyer doesn’t ever see it and doesn’t get to keep it. 

Exclusions and Minerals

The last couple points of paragraph 2 deal with exclusions and mineral rights. Exclusions are any fixtures that the seller wants to retain. You can place them in this box. However, I highly recommend not doing that. As stated previously, just remove it before placing your home on the market. What happens if you are negotiating a contract and focused on price and closing cost and forget to exclude that chandelier? Well, to bad. It is now the buyers. In the heat of the moment, it is easy to overlook these things so it is best if it isn’t even in the conversation. 

Paragraph 2D

Minerals on the other hand are specifically included in the sale of the home. That is, if the home still has the mineral rights which is getting rarer and rarer. While they can be retained by the seller with an addendum, again this is an issue that I think is best to deal with before listing. Buyers might not like you retaining mineral rights. Instead, if you want to retain them, it is best to sever them from the property ahead of time. You can transfer them into a trust or to another family member and now they are no longer part of the property and won’t transfer. No negotiations about it. 

Paragraph 2E

Stay Tuned For More

Well we did it! We made it half way through the first page. Only 10 and half pages left! Next week we will, continue where we left off. Not all parts will be quite so lengthy, but by the end you will have a good understanding of the contract and what to expect during negotiations. You might even be confident enough to write your own contracts!

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