Frequently Asked Questions: Contracts

This month we wanted to focus on answering the questions that we get asked often.  

What is the effective date and what date should I put for the effective date on my contract? 
The effective date should always be filled in on page 8 of the contract and the responsibility for completion falls to the Realtors involved in the transaction.  It is amazing to say – but at least HALF of the contracts that we see are missing an effective date!  This date is the most important date in the contract since all of the dates in other paragraphs count from this date.  This is the date that officially binds everyone to the contract and all subsequent performance dates are tied to this day.  

The effective date of the contract is the date on which acceptance occurred.  This date should be the date of the last party to sign the contract and the communication of the acceptance to the other party or party’s agent.  Remember that a crucial step in locking up a contract is communicating to the other side that your client has accepted and signed the contract.  

How do I count time periods and deadlines in my contract? 
The TREC contracts generally count deadlines to be from the effective date – meaning you can count the effective date as “day zero” and the timelines start counting the following day.  For example, if the last party signs and accepts the contract on Monday then Monday counts as “day zero” and Tuesday starts as “day one.”  

Is my contract still valid without an effective date? 
Yes, the contract is still valid but the parties can have a very difficult time in documenting performance if there is no date written in the contract.  Note that a Realtor representing a principal has an obligation to make sure the effective date is properly completed. 

My seller has married since she bought the house.  Should I include her spouse as a seller on the contract? 
The safest bet is to include the spouse on the contract, particularly if the property is their homestead.  If the property is homestead the seller cannot sell the property without the joinder of their spouse so the spouse is a required party to sign at closing.  Remember that to be valid a contract must be signed by all parties required to convey a property. 

What if I’m writing a contract for property with a long legal or multiple properties?
Remember that it is important to always avoid any ambiguity when writing an offer.  Under the law, ambiguity is construed against the drafter of the document so a Realtor has an obligation to make it quite clear which properties are to convey.  When dealing with a long legal description or multiple tracts of land the safest bet is to put “see Special Provisions for continuation” or similar in the legal and then spell out the entire legal description in Special Provisions.  If an Exhibit A is available with field notes then the words “and being further described in Exhibit A” can also be included as long as the field notes are also attached to the contract.    

The earnest money and option money paragraphs both say the funds have to be delivered within 3 days. Are those business or calendar days? 
The provisions in the TREC contracts are all based off of calendar days, not business days.  There is an exception in the contract for earnest money to have the day for performance pushed to the following day if the date of performance falls on a Saturday, Sunday or legal holiday though.  Note however that this extension is not included in the option money paragraph.  If the due date for option falls on the weekend or a holiday the funds are still due on the original date and an extension is not provided for under the contract.  

If the earnest money is not delivered timely can my seller cancel the contract? 
If earnest money is not timely delivered, the seller has the right to cancel the contract after the third day from the effective date by providing written notice to the buyer before they deliver the earnest money.  

I have a contract wherein the seller has agreed to pay $5000 towards closing costs. My buyer only has $3000 in closing costs. Do they get a check from the seller for the remaining $2000?
Paragraph 12(A)(1)(a) is where the seller concessions are contained in the contract.  This contract language states that the seller is going to pay “an amount not to exceed $_______” toward certain closing costs enumerated in the contract.  In the event the buyer does not have costs that equal more than included in this paragraph the remaining funds are not remitted to the buyer via a check from the seller.  

If I am giving a credit to my client where should that be shown? 
A Realtor giving a credit to their client should put this information in Special Provisions.  This should be disclosed up front so that a lender, if any, is aware of the credit to the clients at the very beginning.  This is also very helpful to have in Special Provisions for the title company preparing the list of fees for the lender.  

Am I required to fill in Paragraph 21 of the contract? 
The One to Four Family Residential Contract (Resale), like many contracts, contains a “Notices” provision and this paragraph can become very important AFTER the contract has been executed.  For the TREC contract, it is Paragraph 21 where buyer and seller information should be completed. This paragraph controls where notices should be sent to be effective.  It is the position of TREC that real estate agents should strongly remind their clients complete this paragraph as fully and accurately as possible.  

Stay tuned for more contract FAQs next month. Your trusted Texas National Title escrow team can help guide you through any questions that you may have and our in-house attorney is always available to help answer your questions! 

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