Texas Real Estate Contracts 101: Disclosures & Earnest Money

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You came back! Thank you for sticking with this important topic. Contracts aren’t fun to read or talk about all the time, but as one of the largest transactions you’ll enter in to during your lifetime, there’s never enough knowledge you can acquire about the legal side of buying and selling real estate.


Last week, we began with the first three fields you’ll see in a typical residential real estate contract. Today, we’re moving on to lines 4-5 – and just like that, we’re pretty much through the first page of the contract already! Now, refer to line 4 in the sample contract and…


  1. This section of a Texas real estate contract allows for disclosure of any ownership 10% or above that a real estate agent involved in the transaction might have directly or via immediate family or business entity. This section is required by law in the state of Texas.
  2. Next up, section 5, one of the most referenced phrases when it comes to real estate transactions, the Earnest Money. Earnest Money is a deposit of “good faith;” an honorable commitment on behalf of the purchasing party to show their intent to purchase the property. Earnest money is not required to purchase a property, but is quite common in Texas. The amount is negotiable, but will become part of the contract conditions once a contract is executed by all parties.


It’s important to have earnest money turned in with the contract in order to avoid a breach of contract. The buyer will have the amount of earnest money credited to them at closing, which will reduce the amount of funds the buyer needs to have in order to close on the property.


Great job everyone! Now, a word of warning. Next class is a doozy. We’ll spend the entire conversation on Line item 6, which on the actual contract, spans several pages with all of its sub-sections. I give you my dream connecting promise that I’ll break it down in quick and easy segments that will make complete sense. For now, take the rest of the afternoon off, and reward yourself with some house hunting right here, or dive into our wealth of resources about Lake Ray Hubbard, as well as area communitiesschools, and neighborhoods.


Texas Real Estate Contracts 101: Titles & Surveys.

Welcome back class! As we talked about last week after we finished up disclosures and Earnest Money, we’re tackling a huge portion of the contract today, Line Item 6, Titles & Surveys. There are several sub-sections to this portion of the contract, and we’ll touch on each briefly. And we’re off!


  1. In addition to identifying which party, buyer or seller, will pay for the title policy (it’s common for the seller to pay for the title policy), this area allows for specification of what is included in the title policy, and more recently, an option for buyers to amend the title policy following any survey issues.
  2. The Title Commitment is the document that spells out the owners’ rights to the property and other people’s rights to the property – for example, utility easements on a property, giving the city access to certain parts of your lot, or deed restrictions. This is also where any liens are identified, which protects both the buyer and seller. If the seller fails to resolve these issues, it is an out for the buyer, and the buyer will get their earnest money back if they terminate within the contract’s allowed time from receipt of the title commitment. It protects the seller in that it gives the seller time to resolve issues that are identified before the buyer can back out for that reason.
  3. Both the title company and the buyer’s lender will likely want a survey. The first box is most often checked unless both agents already know that the seller does not have a survey. Surveys are expensive – maybe $450 – $600 for a simple residential lot – and neither party wants to order the survey until some of the other hurdles are out of the way, like the inspection.  Be sure to hold onto your survey if you are the buyer so that you can use it when you sell the home one day, and save yourself several hundred dollars.
  4. This section ensures that you can use the Property you are purchasing the way you intend to use it, single family residence, multi-family residence, etc. Also, if the buyer intends to build a pool, that would be specified here. If for any reason the property couldn’t be used for the way stated in this section, for example, deed restrictions dictate no pools, the buyer can terminate the contract and receive their earnest money back. It’s in this section that a time frame is set for the buyer to identify any issues from the Title Commitment that would make the home unsuitable.
  5. We’ll call this Notice Central. Not all applicable in every case:


Abstract or Title Policy – A buyer does not have to get a title policy, although it is a very good idea. This advises that if they choose not to, it is advised that they have an attorney review the chain of title for any issues that may affect their ownership.


Membership in a Property Owners Association – a notification that the title commitment will address whether or not the home is in an HOA and ensure the buyer knows that failure to pay HOA fees can result in liens and foreclosure.


Statutory Tax Districts – a notice that the buyer should ensure they’ve been informed by the seller of any special tax districts the property is a part of.


Tide Waters – This is for coastal properties.



Annexation – This just notifies the buyer that the home may eventually be annexed into a city’s limits if it is not within them already.


Property Located in a Certificated Service Area of a Utility Service Provider – this applies to areas that are serviced not exclusively by a municipality’s utilities, but a private utility, usually away from the city. There may be additional costs to a property and utilities if this is the case, hence the notice if applicable.


Public Improvement District – like historic districts for example, there may be other costs, regulations or restrictions related to living in certain neighborhoods.


Transfer Fees – as of 2012, there cannot be transfer fees related to the property transaction, however agreements predating the change may still be in effect. The seller is obligated to notify the buyer of any such requirements.


Propane Gas System Service Area – The seller must notify the buyer if the property is located in a propane gas system service area. If so, there is an addendum that will be completed as well by the seller.


Notice of Water Level Fluctuations.  If you’re next to a lake, the water level can change.


YOU DID IT! You’ve mastered titles and surveys. Next up, inspections, repairs and home condition disclosures. It’s a nice change of pace that Gale and I think you’ll really enjoy!