One day, somewhere during the sale process on nearly every Texas home sale transaction, a thick form contract arrives on the seller’s desk, the TREC 1-4.
Eleven pages long, completely stacked with legalese and full of paragraphs numbered (with sub-parts) that reference other paragraphs by number…it can seem daunting.
This standardized form contract is known as the One to Four Family Residential Contract published by the Texas Real Estate Commission, more commonly referred to by industry insiders as just the TREC 1-4.
The TREC 1-4 Residential Contract form is the document that governs virtually every home sale in Texas. And yes, most Texas sellers sign it without reading it.
Okay, fine. That’s not an indictment; no one expects the average homeowner to understand every provision in a legal document drafted by real estate professionals for real estate professionals, but you ARE bound by everything in that contract.
Knowing what those crucial paragraphs mean can save sellers from surprises at closing.
Below is a basic breakdown of the contract structure and what sellers need to know about the sections of the TREC 1-4 contract form.
WHAT THE TREC 1-4 ACTUALLY IS
Texas real estate agents don’t write their own contracts.
In Texas, there’s one contract form licensed agents must use for most residential sales transactions. It’s called the One to Four Family Residential Contract (The TREC 1-4).
Agents can’t just make up their own forms, think of it as a standardized program for real estate contracts. Every real estate agent writing contracts in Texas has access to the exact same form.
That doesn’t mean real estate agents have to use them. They do sometimes write their own outside of these standard forms for complex situations. They can also add additional provisions sellers should know about on top of the standard form.
But for the most part, if you’re selling a home in Texas, this is your contract.
The “1-4” portion of the name just refers to number of residential units included in the sale. It covers single family homes, duplexes, triplexes and fourplexes. It does NOT cover new construction (that’s a different TREC form) and does not apply to commercial real estate transactions.
And the version being used as of this posting is NO. 20-18, which was updated by TREC in November 2024 and has been required for use as of January 2025.
THE PARAGRAPH(S) THAT REALLY MATTER TO SELLERS
(TREC-required Paragraph Titles have been bolded for reference)
PARAGRAPH 1 — THE PARTIES
It’s basic introduction, but ensuring the names here match how they’re listed on the deed is critical. Typos at this stage can create title issues that prevent a sale from closing. All owners are required to sign if owned jointly.
PARAGRAPH 2 — THE PROPERTY
Pretty much says what it sounds like it does. But it’s important because this paragraph specifically defines what is included in the sale. Land, improvements (house, garage, anything built attached to land) and accessories are included in the sale.
Speaking of accessories, it’s more important than sellers think. There’s an entire list included here, consisting of built-in appliances, ceiling fans, window screens and screen doors, blinds, garage door openers…the list goes on. If there’s something attached to the home that the seller wants to exclude from the sale, it must be specifically listed here.
PARAGRAPH 3 — SALE PRICE
This section dictates how much is being paid and how it’s being paid. Cash sales keep it simple. Other sales allocate funds between down payment and loan amount.
The key item sellers should be aware of here is that contract price is not net to seller. Closing costs, commissions, taxes, fees — they all come out of seller proceeds at closing.
PARAGRAPH 5 — EARNEST MONEY AND OPTION FEE
Both of these funds get deposited within three days of the effective date. Both are typically paid by the buyer. But they’re different.
Earnest money is a deposit — usually at least one percent of the sales price — that’s paid to a title company after contract execution to demonstrate the buyer’s commitment to the transaction.
Buyers typically earn their money back when they close, it’s applied to the purchase price.
Option Fee, however, is a smaller amount paid directly to the seller. It’s non-refundable under any condition (save for seller default). In exchange for the option fee, the buyer receives the unconditional right to terminate the contract for any reason between the effective date and the end of the option period.
The option period is typically five to ten days. Some sellers won’t even mention it to buyers. The reality is that until the option period expires, the sale isn’t fully secure.
PARAGRAPH 6 — TITLE POLICY AND SURVEY
This paragraph covers two items that protect the buyer moving forward.
Title Policy: Think of this like insurance on the house. It protects the buyer from future claims against the title like liens, disputes and errors in prior deeds. Texas customarily requires sellers to pay for an owner’s title policy for the buyer. The cost depends on sales price and is set by the state.
Survey: This confirms the legal boundaries of the property being sold. Contract allows sellers to provide a previously obtained survey OR allow the buyer to obtain a new one. Newer form requires seller provide a T-47.1 Declaration instead of Affidavit. (Speaks to whether seller made changes to property boundaries since the last survey.)
PARAGRAPH 7 — PROPERTY CONDITION
Seller ahve questions about this paragraph? You’re not alone.
This section dictates how buyers take possession and what the seller must disclose. Most importantly, Paragraph 7 contains the infamous “as-is” clause. AS-IS DOES NOT EXEMPT THE SELLER FROM DISCLOSING KNOWN DEFECTS TO THE PROPERTY. It merely means the buyer isn’t requiring the seller to make repairs as a contingency of closing.
Buyers retain the right to inspect the property AND can negotiate repair requests based on inspection findings. They can also terminate during the option period if the results are bad enough.
Seller’s Disclosure Notice is mentioned in this paragraph. Another biggie.
PARAGRAPH 9 — CLOSING
Closing date is defined here along with who has possession of the property on closing day and when.
Possession does not always occur on closing. Contract accounts for sellers that need a few days to vacate after closing via lease-back agreement. Very common and not a big deal…but does need to be agreed to.
NOW WHAT? WHAT SHOULD SELLERS KNOW BEFORE SIGNING?
Every section of the TREC 1-4 contract form has implications for buyers and sellers. Some paragraphs favor buyers. Some sections aren’t always intuitive.
Seller beware: anything attached to the home when sold conveys with the home UNLESS seller specifically excludes it in writing in Paragraph 2. Buyers have a free window to terminate the contract. Earnest money doesn’t change hands until contract is signed. And just because you set a closing date doesn’t mean your closing will occur that day.
Again, most sales close without issue. But being aware of what you sign helps sellers spot issues quicker, ask better questions and avoid headaches that can be prevented.
Sellers should know the form contract itself isn’t often where real negotiation happens. The adds, deletes and alterations made to the form are where real negotiation happens.
Legal disclaimer:
This post is for informational purposes only and is not intended to be taken as legal advice. Consult a licensed Texas real estate attorney or broker for questions regarding your specific transaction.