QUICK ANSWER

The TREC One to Four Family Residential Contract is the main Texas resale contract for single-family homes, duplexes, triplexes, and fourplexes. It is not the form for condominium transactions, new homes sold by a builder, or farm and ranch property. For the Texas real estate exam, know what each paragraph controls: parties, property, price, leases, earnest money, option fee, title, survey, condition, brokers, closing, possession, special provisions, expenses, prorations, casualty, default, mediation, attorney's fees, escrow, representations, federal requirements, notices, addenda, and attorney consultation.

20-18
Current form version checked
20-19
Mandatory July 1, 2026
23
Main numbered paragraphs
8
State contract items for sales agents

The One to Four Family Residential Contract is the contract you should be able to recognize in your sleep for the Texas real estate exam.

Not because the exam expects you to draft contracts. It does not.

Not because a sales agent should give legal advice about each paragraph. They should not.

It matters because contract questions often test whether you can read a fact pattern, spot the relevant paragraph, choose the right form or addendum, and avoid unauthorized practice of law.

This guide follows the paragraph structure of TREC No. 20-18, the One to Four Family Residential Contract (Resale), checked on June 16, 2026. On that date, TREC also listed TREC No. 20-19 as available for voluntary use until July 1, 2026, when it becomes mandatory. Always verify the active version on TREC before relying on a form version for real-world use.

For exam study, focus less on memorizing every printed sentence and more on knowing what problem each paragraph solves.

Table of Contents

One to Four Family Residential Contract: Quick Facts

Exam issue Short answer
What is it? TREC's main resale contract for one-to-four family residential property.
Current checked version TREC No. 20-18, effective January 3, 2025, checked June 16, 2026.
Upcoming version note TREC lists No. 20-19 as mandatory beginning July 1, 2026.
Used for Resale single-family homes, duplexes, triplexes, and fourplexes.
Not used for Condos, new homes sold by a builder, farm and ranch property, or commercial property.
Most tested skill Matching facts to the right paragraph, addendum, notice, deadline, or remedy.
Biggest UPL trap Using Special Provisions to draft legal rights, remedies, contingencies, or custom clauses.
Biggest deadline trap Earnest money, option fee, title commitment, survey, objections, seller disclosure, and option-period notice.
Biggest form trap Picking this contract when the fact pattern says condo, builder new construction, farm and ranch, or commercial property.

Paragraph-by-Paragraph Cheat Sheet

Use this quick table when a question gives you a fact and asks what paragraph, form issue, deadline, or risk matters most.

If the question mentions Go to Exam move
Buyer and seller names, entity buyer, trust, estate, wrong party Paragraph 1 Identify the correct parties and avoid guessing legal capacity.
Lot, block, address, fixtures, accessories, exclusions, mineral reservation Paragraph 2 Decide what is included, excluded, or reserved.
Cash portion, loan amount, seller financing, assumption, total price Paragraph 3 Separate sales price from financing, earnest money, and option fee.
Tenant lease, leased solar panels, leased fixtures, natural resource lease Paragraph 4 Attach or recognize the correct lease-related addendum.
Earnest money, option fee, option period, 5:00 p.m. deadline Paragraph 5 Track delivery deadlines and buyer termination rights.
Title policy, title commitment, survey, objections, POA notice, PID notice Paragraph 6 Spot title, survey, objection, and statutory notice issues.
Inspection, hydrostatic test, seller disclosure, lead paint, as-is, repairs Paragraph 7 Connect condition facts to disclosure, inspection, and repair rules.
License holder is buyer, seller, or related to a party Paragraph 8 Recognize written license-holder disclosure and separate broker-fee agreements.
Closing date, deed, good funds, payoff of liens Paragraph 9 Link closing duties to default if a party fails to close.
Buyer moves in early, seller stays after closing, smart-device access Paragraph 10 Use the proper temporary lease or possession rule.
Agent is asked to write a custom clause Paragraph 11 Treat it as a Special Provisions and unauthorized-practice-of-law trap.
Closing costs, title fees, appraisal fees, VA or FHA charge limits Paragraph 12 Allocate expenses and watch government-loan restrictions.
Taxes, rents, dues, maintenance fees, assessment split Paragraph 13 Calculate or identify prorations through closing.
Fire, flood, or casualty damage after the effective date Paragraph 14 Apply casualty-loss options, not ordinary inspection rules.
Buyer or seller refuses to perform Paragraph 15 Identify default remedies without giving legal advice.
Dispute before lawsuit Paragraph 16 Recognize mediation.
Winning party seeks legal fees Paragraph 17 Recognize attorney's fees, not broker fees.
Earnest money release dispute Paragraph 18 Follow escrow and release-demand procedure.
Seller continues to show property or accepts backup offer Paragraph 19 Recognize representations and possible backup addendum.
Foreign seller or currency reporting Paragraph 20 Recognize federal requirements and avoid tax advice.
Oral notice, email notice, wrong address, late termination notice Paragraph 21 Notices must be in writing and sent as the contract allows.
Attached addenda or entire agreement Paragraph 22 Match the fact pattern to the right addendum.
Party asks what the contract legally means Paragraph 23 Advise attorney consultation and avoid legal advice.

When This Contract Is Used

TREC describes the One to Four Family Residential Contract as the most frequently used contract form. It is for resale residential property that is a single-family home, duplex, triplex, or fourplex.

That gives you the exam recognition rule:

Property clue Form recognition
Existing single-family resale One to Four Family Residential Contract.
Existing duplex resale One to Four Family Residential Contract.
Existing triplex resale One to Four Family Residential Contract.
Existing fourplex resale One to Four Family Residential Contract.
Resale condo unit Residential Condominium Contract, not this form.
New home sold by builder New Home Contract, not this form.
Farm or ranch Farm and Ranch Contract, not this form.
Commercial property TREC does not promulgate commercial property forms.

Candidate memory hook:

One to four means the number of residential units, not the number of buyers, not the number of lots, and not the number of years in a lease.

Fast Contract Map

Here is the map before the line-by-line discussion.

Paragraph What it handles Exam clue
1 Parties Correct buyer and seller names.
2 Property Land, improvements, accessories, exclusions, reservations.
3 Sales price Cash portion, financing, total price.
4 Leases Residential leases, fixture leases, natural resource leases.
5 Earnest money and option Delivery deadline, option fee, option period.
6 Title and survey Title policy, commitment, survey, objections, title notices.
7 Property condition Inspections, seller disclosure, lead paint, as-is, repairs.
8 Brokers and sales agents License holder disclosure and broker fee note.
9 Closing Closing date, deed, payment, documents, liens.
10 Possession Possession timing, temporary lease, smart devices.
11 Special provisions Informational items only, not legal drafting.
12 Expenses Seller expenses, buyer expenses, caps, governmental loan limits.
13 Prorations Taxes, interest, rents, dues, assessments.
14 Casualty loss Damage after effective date.
15 Default Remedies if buyer or seller fails to comply.
16 Mediation Dispute resolution before litigation path.
17 Attorney's fees Prevailing party fee recovery.
18 Escrow Escrow agent role and earnest money release demand.
19 Representations Covenants, representations, warranties, backup offers.
20 Federal requirements FIRPTA and currency reporting concepts.
21 Notices How written notices are delivered.
22 Agreement of parties Addenda and entire agreement.
23 Consult attorney TREC rules prohibit legal advice by license holders.

Paragraph 1: Parties

Paragraph 1 identifies the seller and buyer.

That sounds simple, but exam questions can test whether the license holder understands that the parties must be correctly named. A contract involving an estate, trust, business entity, married owner, or entity buyer may require more care than a casual nickname.

What Paragraph 1 Does

Function Exam importance
Names the seller The seller is the party agreeing to sell and convey.
Names the buyer The buyer is the party agreeing to buy.
Establishes who is bound Rights and obligations run to the named parties.

Exam Clues

Fact pattern says Think
Buyer wants to use an LLC Party identity issue.
Seller inherited the home Seller authority issue.
Seller is a trust Correct legal party issue.
Agent is unsure how to name a party Attorney or broker guidance may be needed.

Common Trap

Do not treat Paragraph 1 as a place for an agent to solve legal-capacity problems by guessing. If the party name or signing authority is uncertain, that is not a creative-writing exercise for the sales agent.

Paragraph 2: Property

Paragraph 2 defines the property being sold.

This is one of the most important exam paragraphs because it separates real property, improvements, accessories, exclusions, and reservations.

Paragraph 2A: Land

The land section identifies the legal or descriptive property being sold. It usually includes lot, block, addition, city, county, address, ZIP code, or an attached exhibit.

Exam point:

The address helps identify the property, but legal descriptions matter in real transactions. If a fact pattern raises uncertainty about boundaries or legal description, the license holder should not casually invent a description.

Paragraph 2B: Improvements

Improvements include the house, garage, fixtures, and built-in or permanently installed items attached to the real property.

Recognition examples:

Item Likely treatment
Built-in oven Improvement or fixture.
Ceiling fan Improvement or fixture.
Attached mailbox Improvement or fixture.
Built-in security equipment Improvement or fixture, unless a fixture lease issue appears.
Landscaping Part of the property unless excluded or otherwise addressed.

Paragraph 2C: Accessories

Accessories are related items that may not be fixtures in the same way but are included by the form.

Exam examples:

Item Why it matters
Door keys Accessory clue.
Mailbox keys Accessory clue.
Controls for garage doors Accessory clue.
Above-ground pool equipment Accessory clue if the form includes it.
Curtains and rods Accessory clue, but read exclusions carefully.

The current form also addresses transferable smart-control rights for certain improvements and accessories. For exam purposes, this connects Paragraph 2 to Paragraph 10 on smart devices.

Paragraph 2D: Exclusions

Exclusions are items the seller keeps and removes before possession is delivered.

Exam clue:

If the seller wants to keep an item that would otherwise be included, it belongs in the exclusions area or another proper written agreement. Do not rely on a casual conversation.

Paragraph 2E: Reservations

Reservations deal with interests the seller keeps, such as oil, gas, other minerals, water, timber, or other interests, according to an attached addendum.

Exam clue:

If the seller reserves minerals, the Addendum for Reservation of Oil, Gas, and Other Minerals is the recognition answer. The sales agent should not draft custom mineral-reservation language.

Paragraph 2 Exam Table

Question clue Likely answer pattern
Seller wants to keep dining room chandelier Exclusion issue.
Buyer wants refrigerator included Non-Realty Items Addendum issue, not Paragraph 2B by itself.
Solar panels are leased Fixture lease issue.
Seller keeps minerals Mineral reservation addendum.
Property description is uncertain Do not guess legal description. Seek broker or attorney help.

Paragraph 3: Sales Price

Paragraph 3 breaks the sales price into the cash portion, financing, and total sales price.

For exam study, understand the math and the addendum triggers.

Paragraph 3A: Cash Portion

The cash portion is the amount payable by the buyer at closing, separate from financing described in attached financing addenda.

Exam trap:

Cash portion does not mean the buyer is bringing a suitcase of cash. It means the part of the sales price not described as financing in Paragraph 3B.

Paragraph 3B: Financing

Paragraph 3B points you to the attached financing addendum.

Financing clue Addendum
Buyer gets a lender loan Third Party Financing Addendum.
Buyer assumes existing seller loan Loan Assumption Addendum.
Seller finances buyer's purchase Seller Financing Addendum.

Paragraph 3C: Total Sales Price

Paragraph 3C is the sum of the cash portion and financing.

Scenario math can be simple:

Cash portion Financing Sales price
$80,000 $320,000 $400,000
$50,000 $250,000 $300,000
$20,000 $180,000 $200,000

Paragraph 3 Exam Trap

Do not confuse sales price with loan amount, down payment, earnest money, or option fee.

Each amount has a different contract function:

Amount Function
Sales price Purchase price for the property.
Financing Amount financed through lender, seller, or assumption.
Cash portion Buyer-paid portion outside listed financing.
Earnest money Deposit handled by escrow agent.
Option fee Consideration for unrestricted termination right during option period.

Paragraph 4: Leases

Paragraph 4 addresses leases affecting the property.

This paragraph matters because many candidates miss lease issues when the property is being sold.

Residential Leases

If the property is subject to one or more residential leases, the Addendum Regarding Residential Leases is attached.

Exam clues:

Fact pattern says Think
Tenant occupies the property Residential lease issue.
Buyer will take property subject to tenant lease Addendum Regarding Residential Leases.
Security deposits or lease copies are discussed Residential lease addendum topic.

Fixture Leases

Fixture leases involve attached items that are leased, such as solar panels, propane tanks, water softeners, or security systems.

Exam clues:

Fact pattern says Think
Solar panels are leased Fixture lease addendum.
Attached propane tank is leased Fixture lease addendum.
Security system is attached but leased Fixture lease addendum.

Natural Resource Leases

Natural resource leases may include oil and gas, mineral, geothermal, water, wind, or other natural resource leases affecting the property.

Exam point:

This is not the same as a seller reserving minerals. Natural resource lease facts can affect title, use, disclosure, and buyer review rights.

Paragraph 4 Exam Trap

Do not confuse:

Issue Better recognition
Tenant lives in property Residential lease addendum.
Seller stays after closing Seller's Temporary Residential Lease under possession timing.
Buyer moves in before closing Buyer's Temporary Residential Lease under possession timing.
Solar panels are leased Fixture lease addendum.
Seller reserves minerals Mineral reservation addendum.

Paragraph 5: Earnest Money and Termination Option

Paragraph 5 is heavily testable because it combines money, deadlines, and termination rights.

The exam loves deadlines. Paragraph 5 gives it plenty.

Earnest Money

Earnest money is delivered to the escrow agent. Under the checked form version, the delivery deadline is within three days after the effective date.

Exam points:

Concept Exam meaning
Escrow agent Holds earnest money according to the contract.
Three-day delivery Deadline clue.
Additional earnest money Separate deadline if the contract provides one.
Weekend or legal holiday Deadline may extend to next day that is not a Saturday, Sunday, or legal holiday.

Option Fee

The option fee is the amount paid for the buyer's unrestricted right to terminate during the option period.

Exam points:

Concept Exam meaning
Option fee Consideration for the termination option.
Option period Time when buyer has unrestricted right to terminate.
5:00 p.m. local time Deadline for option-period termination notice.
Failure to pay option fee Buyer does not get the unrestricted termination right under Paragraph 5.

Earnest Money vs Option Fee

Feature Earnest money Option fee
Main role Deposit toward buyer performance. Payment for unrestricted termination right.
Held by Escrow agent. Paid through escrow agent under the form structure.
Refund if buyer terminates during option period Typically refunded if termination notice is timely under Paragraph 5. Not refunded under the option paragraph.
Exam clue Deposit, escrow, default, release. Option period, unrestricted right, 5:00 p.m. notice.

Paragraph 5 Exam Trap

A buyer's option period does not exist just because a buyer wants one. The contract must state the option fee and option period, and the fee must be delivered as required.

Paragraph 6: Title Policy and Survey

Paragraph 6 is long because title and survey problems are common in real estate transactions.

For exam purposes, break it into five buckets:

  1. Title policy.
  2. Commitment and exception documents.
  3. Survey.
  4. Objections.
  5. Title notices.

Paragraph 6A: Title Policy

The title policy insures the buyer against certain title losses, subject to exclusions and exceptions.

Exam clues:

Fact pattern says Think
Owner policy of title insurance Paragraph 6A.
Seller or buyer pays title policy Paragraph 6A checkbox issue.
Title exception Paragraph 6A or 6D issue.
Minerals exception Title policy exception issue.

Paragraph 6B: Commitment

The title commitment and exception documents are furnished after the title company receives the contract.

Exam point:

This creates a deadline and a buyer review issue. If commitment and exception documents are not delivered on time, the form gives consequences and possible termination rights.

Paragraph 6C: Survey

Paragraph 6C gives survey options.

The three basic recognition patterns are:

Survey option Exam clue
Seller provides existing survey and T-47 affidavit or T-47.1 declaration Existing survey path.
Buyer may obtain new survey Buyer-paid new survey path unless otherwise stated.
Seller provides new survey Seller-paid new survey path.

Exam trap:

If the existing survey is not accepted by the title company or lender, the contract may require a new survey and says who pays depending on the selected option.

Paragraph 6D: Objections

Buyer may object in writing to certain title, survey, or use issues within the required deadline.

Exam clues:

Fact pattern says Think
Buyer objects to restrictive matter on title Paragraph 6D.
Survey shows encroachment Paragraph 6D.
Title commitment reveals new exception Paragraph 6D.
Objection deadline passed Waiver issue.
Seller cannot cure Buyer may terminate or waive if timely.

Paragraph 6E: Title Notices

Paragraph 6E contains several statutory and practical notices. For exam purposes, know the recognition clues, not every statute number.

Notice topic Exam recognition
Abstract or title policy Buyer should have title reviewed by attorney or obtain title policy.
Mandatory POA membership POA addendum may be used.
Statutory tax districts District notice may be required.
Tide waters or coastal property Coastal addendum clue.
Annexation Property outside municipality may be annexed.
Certificated water or sewer service area Utility service area notice.
Public improvement district PID notice addendum.
Private transfer fees Transfer fee obligation.
Propane gas service area Propane gas addendum.
Water level fluctuations Lake or reservoir notice.
Mold remediation certificate Seller certificate issue.
Required notices Attach or identify applicable notices.

Paragraph 6 Exam Trap

Do not treat title and survey paragraphs as legal advice territory for the agent. The contract itself even advises attorney review for title matters. On the exam, the safe license-holder answer often involves using the right form, explaining informational items, and recommending attorney review where legal effect is involved.

Paragraph 7: Property Condition

Paragraph 7 is a favorite for scenarios because it touches inspections, seller disclosure, lead-based paint, as-is language, repairs, environmental matters, and residential service contracts.

Paragraph 7A: Access, Inspections, and Utilities

Seller permits buyer and buyer's agents access at reasonable times. Buyer may have inspections by TREC-licensed inspectors or others permitted by law. Hydrostatic testing must be separately authorized in writing.

Exam clues:

Fact pattern says Think
Buyer wants inspection Paragraph 7A.
Buyer wants hydrostatic plumbing test Separate written authorization, likely hydrostatic testing addendum.
Seller turns off utilities Utility obligation issue under Paragraph 7A.

Paragraph 7B: Seller's Disclosure Notice

Paragraph 7B deals with the seller's disclosure notice under Texas Property Code Section 5.008.

Recognition patterns:

Fact pattern says Think
Buyer received seller's disclosure before contract Check the received option.
Buyer has not received seller's disclosure Delivery deadline and termination right issue.
Seller is not required to furnish notice Exemption issue.

Exam trap:

Seller disclosure is not the same as an inspection report. Seller disclosure is the seller's disclosure of known property condition information. An inspection report is prepared by an inspector.

Paragraph 7C: Lead-Based Paint

Lead-based paint disclosure is required by federal law for residential dwellings constructed before 1978.

Exam clue:

Pre-1978 residential dwelling means lead-based paint addendum and disclosure issue.

Paragraph 7D: Acceptance of Property Condition

Paragraph 7D addresses "as is" and any specific repairs or treatments the seller agrees to complete.

Exam points:

Concept Exam meaning
As is Buyer accepts present condition, subject to contract rights.
Inspections still allowed As-is selection does not eliminate Paragraph 7A inspection access.
Specific repairs Repairs should be specific, not vague.
Option period Buyer may still terminate during option period if applicable.

Candidate trap:

Do not write "subject to inspection" as a repair item. That is exactly the kind of vague phrase the form warns against.

Paragraph 7E and 7F: Lender Required Repairs and Completion

Lender-required repairs can matter when the lender requires repairs or treatments before loan approval or closing.

Exam clues:

Fact pattern says Think
FHA lender requires repair Lender-required repair issue.
Parties cannot agree who pays Contract may terminate.
Costs exceed 5 percent of sales price Buyer termination right may appear.
Seller agreed to repairs but did not finish Buyer remedies or short extension issue.

Paragraph 7G: Environmental Matters

Environmental concerns include wetlands, toxic substances, asbestos, waste, or threatened or endangered species habitat.

Exam clue:

If the buyer is concerned about environmental matters, think Environmental Assessment, Threatened or Endangered Species, and Wetlands Addendum.

Paragraph 7H: Residential Service Contracts

This paragraph addresses optional residential service contracts and seller reimbursement if agreed.

Exam trap:

A residential service contract is optional. Do not treat it as the same thing as insurance, inspection, or a repair warranty from the seller.

Paragraph 8: Brokers and Sales Agents

Paragraph 8 has two big exam hooks:

  1. License holder party disclosure.
  2. Broker fee obligations are in separate written agreements.

Paragraph 8A: License Holder Disclosure

Texas law requires written disclosure when a real estate broker or sales agent is a party to the transaction or acts on behalf of certain related persons or entities.

Exam clues:

Fact pattern says Think
Sales agent buys property for self Written license-holder disclosure.
Broker sells property owned by spouse Written disclosure.
Sales agent acts for parent or child Written disclosure.
Broker owns more than 10 percent of entity involved Disclosure issue.

Paragraph 8B: Broker Fees

The contract says party obligations for broker fees are in separate written agreements.

Exam point:

Do not try to solve compensation agreements inside Special Provisions. Broker compensation belongs in separate written agreements.

Paragraph 9: Closing

Paragraph 9 sets the closing date and explains closing obligations.

Paragraph 9A: Closing Date

Closing occurs on or before the stated date, or within the time stated after title objections are cured or waived, whichever date applies under the paragraph.

Exam clues:

Fact pattern says Think
Closing date passes and party fails to close Default and remedies issue.
Title objections are cured late Closing date may move under Paragraph 9.
Non-defaulting party wants remedy Paragraph 15 connects to Paragraph 9.

Paragraph 9B: At Closing

At closing, seller conveys title by general warranty deed, buyer pays the sales price in good funds, and the parties sign closing documents needed for sale and title policy issuance.

Exam points:

Closing item Why it matters
General warranty deed Seller conveyance document.
Good funds Buyer payment requirement.
Tax statements or certificates No delinquent taxes shown.
Releases and affidavits Closing document issue.
Liens paid from proceeds Title and closing issue.
Private transfer fees Seller obligation unless otherwise provided, while POA transfer fees are handled by POA addendum.

Paragraph 10: Possession

Paragraph 10 is about when the buyer gets possession and what happens with smart devices.

Paragraph 10A: Buyer's Possession

The common possession choice is upon closing and funding. If buyer occupies before closing or seller remains after closing, use a proper temporary residential lease or other required written lease.

Recognition table:

Possession fact Form recognition
Buyer gets keys after closing and funding Normal possession under Paragraph 10.
Buyer moves in before closing Buyer's Temporary Residential Lease.
Seller stays after closing Seller's Temporary Residential Lease.
No written lease for off-timeline possession Tenancy-at-sufferance risk.

Paragraph 10B: Smart Devices

The seller must provide access information needed for smart devices and remove seller access from personal devices when possession is delivered.

Exam clues:

Fact pattern says Think
Seller keeps app control of thermostat Smart device issue.
Buyer cannot access smart locks Paragraph 10B issue.
Doorbell camera account remains with seller Smart device access and removal issue.

Paragraph 11: Special Provisions

Paragraph 11 is one of the most important exam paragraphs because it is the classic unauthorized practice of law trap.

It is intended only for additional informational items. TREC Rule 537.11 and the contract form prohibit brokers and sales agents from practicing law or changing legal provisions unless the language is drafted by a party or a party's attorney.

What Can Go in Special Provisions?

Informational items.

Examples that may be informational:

Possible informational item Why it may fit
A factual delivery instruction It gives a factual instruction.
A reference to an attached exhibit It identifies an attachment.
A factual detail that completes a blank It supplies information rather than legal rights.

What Should Not Go in Special Provisions?

Legal drafting.

Examples of dangerous items:

Requested language Problem
Escalation clause TREC Rule 537.11 identifies escalation clauses as prohibited drafting examples.
Custom appraisal contingency Legal rights and remedies issue.
Custom repair remedy Legal obligation or remedy issue.
Custom financing escape clause Contingency and remedy issue.
Language changing default remedies Legal effect issue.

Paragraph 11 Exam Trap

If a question says the buyer asks the agent to "write a clause," the best answer is usually not "put it in Special Provisions." The safer answer is to use the correct TREC addendum if one exists or advise the party to consult an attorney.

TREC CONTRACT PRACTICE

Turn the contract paragraphs into exam decisions.

The Texas real estate exam prep app is built for Texas sales agent candidates: original Texas-focused practice questions, national and state review, math drills, flashcards, and weak-area feedback. Use it to practice the One to Four Family Residential Contract, addenda recognition, option-fee deadlines, title and survey clauses, seller disclosure, possession, default, escrow, and unauthorized practice of law traps. Native Texas exam prep. Original questions. No copied exam questions. Not affiliated with TREC or Pearson VUE. Not a 180-hour pre-license course or a pass guarantee.

Practice Texas contract questions

Paragraph 12: Settlement and Other Expenses

Paragraph 12 allocates expenses between seller and buyer.

For the exam, know the categories and the cap concept.

Seller Expenses

Seller expenses include items such as releases of existing liens, preparation of deed, agreed brokerage fees, half of escrow fee, and other expenses payable by seller under the contract.

The paragraph also includes blanks where the seller may agree to pay certain buyer brokerage fees or other buyer expenses, subject to the contract language.

Exam clue:

If the fact pattern asks who pays a settlement cost, look for Paragraph 12 and any blank the parties completed.

Buyer Expenses

Buyer expenses include many loan-related and closing-related costs, such as appraisal, loan application, origination, credit reports, loan documents, recording fees, loan title policy, prepaid items, underwriting, wire transfer, PMI, VA funding fee, FHA MIP when required by lender, buyer-agreed broker fees, and other buyer expenses.

Exam clue:

When the buyer is using financing, buyer expenses can be substantial. Watch for lender charges, appraisal fees, and government-loan limits.

Expense Caps and Government Loan Limits

Paragraph 12 says that if an expense exceeds an amount expressly stated for that party to pay, that party may terminate unless the other party agrees to pay the excess. It also states that buyer may not pay charges and fees expressly prohibited by FHA, VA, Texas Veterans Land Board, or other governmental loan-program rules.

Exam trap:

Do not assume the parties can shift every cost however they want when a government loan program prohibits a buyer charge.

Paragraph 13: Prorations

Paragraph 13 covers prorations through closing.

Prorations are a math and concept favorite.

What Gets Prorated?

Item Exam meaning
Current-year taxes Split through closing date.
Interest Split as applicable.
Rents Buyer and seller allocate based on closing.
Regular maintenance fees Common in POA or association settings.
Assessments and dues Split through closing date unless contract states otherwise.

Tax Proration Trap

Taxes for the current year may be estimated at closing. If actual taxes later differ, the parties adjust after statements become available.

Exam clue:

If a question asks why a closing number later changes, look for tax-proration adjustment.

Paragraph 14: Casualty Loss

Paragraph 14 handles damage or destruction after the effective date.

This is not the same as an inspection issue discovered before the contract. It is about casualty loss after the contract is already effective.

Buyer Options If Seller Cannot Restore

If seller cannot restore due to factors beyond seller's control, buyer may have choices.

Choice Exam meaning
Terminate Earnest money refund.
Extend Time for performance can extend up to the period allowed by the form.
Accept damaged condition Buyer may accept with insurance-proceeds assignment if permitted and deductible credit.

Paragraph 14 Exam Trap

Do not confuse casualty loss with repair negotiations under Paragraph 7. Paragraph 14 is about fire or other casualty after the effective date.

Paragraph 15: Default

Paragraph 15 gives remedies when a party fails to comply.

Buyer Default

If buyer fails to comply, seller may generally pursue specific performance or other legal relief, or terminate and receive earnest money as liquidated damages, depending on the contract and facts.

Seller Default

If seller fails to comply, buyer may generally pursue specific performance or other legal relief, or terminate and receive the earnest money.

Default Exam Table

Fact pattern Think
Buyer refuses to close without valid termination right Buyer default issue.
Seller refuses to convey after contract is binding Seller default issue.
Seller terminates after buyer misses earnest money deadline Paragraph 5 and Paragraph 15 connection.
Non-defaulting party seeks specific performance Paragraph 15 remedy concept.

Paragraph 15 Exam Trap

Do not decide who wins a lawsuit. The exam usually asks which paragraph applies, what remedy is described, or whether a license holder should give legal advice. The license holder should not predict legal outcome.

Paragraphs 16 and 17: Mediation and Attorney's Fees

These paragraphs are short but useful.

Paragraph 16: Mediation

Texas policy encourages dispute resolution through mediation. Contract disputes not resolved informally are submitted to a mutually acceptable mediation service or provider, while the paragraph does not prevent certain court relief.

Exam clue:

If a buyer and seller are fighting but have not resolved the dispute informally, mediation may be the next contract concept.

Paragraph 17: Attorney's Fees

The prevailing party in a legal proceeding related to the contract may recover reasonable attorney's fees and costs.

Exam clue:

Attorney's fees are not the same as broker fees. Broker fees are handled by separate agreements and Paragraph 8B disclosure.

Paragraph 18: Escrow

Paragraph 18 describes the escrow agent's role and earnest-money release mechanics.

Escrow Agent Role

The escrow agent is not a party to the contract and does not decide the merits of buyer and seller disputes.

Exam clue:

If buyer and seller disagree over earnest money, the escrow agent generally needs proper releases, demand procedure, or other lawful authority before disbursement.

Demand Procedure

If the contract terminates, either party or the escrow agent may send a release. If a party refuses to sign, a party may make a written demand for the earnest money. The other party has a limited time to object under the contract.

Wrongful Refusal

Paragraph 18 includes consequences if a party wrongfully fails or refuses to sign a release acceptable to the escrow agent within the stated time.

Paragraph 18 Exam Trap

Do not assume the broker personally decides who gets the earnest money. Earnest money disputes follow contract, escrow, and legal procedures.

Paragraphs 19 and 20: Representations and Federal Requirements

Paragraph 19: Representations

Paragraph 19 says contract covenants, representations, and warranties survive closing. It also says that if a seller representation is untrue on the closing date, seller is in default.

It also permits the seller to continue showing and receiving, negotiating, and accepting backup offers unless a written agreement expressly prohibits it.

Exam clue:

Backup offers are not automatically forbidden just because there is a contract. If the seller accepts a backup contract, the Addendum for "Back-Up" Contract becomes the recognition form.

Paragraph 20: Federal Requirements

Paragraph 20 addresses federal withholding for foreign sellers and currency reporting concepts.

Exam clue:

FIRPTA-style withholding is a federal requirement issue. License holders should not provide tax advice about it.

Paragraphs 21, 22, and 23: Notices, Addenda, and Attorney Review

Paragraph 21: Notices

Paragraph 21 states that notices must be in writing and identifies acceptable delivery methods and addresses for buyer, seller, and copies to agents.

Exam clues:

Fact pattern says Think
Buyer gives oral termination notice Notice problem.
Option-period notice sent late Paragraph 5 and Paragraph 21 problem.
Notice sent to wrong address Notice effectiveness issue.
Email or fax address listed Paragraph 21 delivery issue.

Paragraph 22: Agreement of Parties and Addenda

Paragraph 22 lists addenda that may be part of the contract and says the contract contains the entire agreement of the parties and can only be changed by written agreement.

Common addenda listed include financing, seller financing, POA, temporary leases, loan assumption, sale of other property by buyer, mineral reservation, backup contract, coastal area, hydrostatic testing, appraisal termination, environmental, short sale, lead-based paint, propane gas, residential leases, fixture leases, improvement district assessment, Section 1031 exchange, and other listed addenda.

Exam recognition:

Fact pattern clue Addendum
Lender loan Third Party Financing Addendum.
Seller financing Seller Financing Addendum.
Mandatory POA POA addendum.
Buyer moves in before closing Buyer's Temporary Residential Lease.
Seller stays after closing Seller's Temporary Residential Lease.
Buyer assumes existing loan Loan Assumption Addendum.
Buyer must sell another property Addendum for Sale of Other Property by Buyer.
Seller reserves minerals Mineral reservation addendum.
Second buyer is backup Backup contract addendum.
Low lender appraisal termination right Appraisal termination addendum.
Environmental concerns Environmental assessment addendum.
Short sale Short Sale Addendum.
Property built before 1978 Lead-based paint addendum.
Leased fixtures Fixture leases addendum.

Paragraph 23: Consult an Attorney Before Signing

Paragraph 23 is a bright-line exam paragraph.

TREC rules prohibit real estate brokers and sales agents from giving legal advice. The form tells parties to read the contract carefully and consult an attorney before signing.

Exam clue:

When a party asks what a paragraph legally means, whether a clause protects them, how to draft a custom remedy, or whether they should waive a right, the agent should not give legal advice.

Broker Information and Receipt Sections

After the main contract paragraphs, the form includes execution, broker information, and receipt sections.

Execution and Effective Date

The effective date is the date of final acceptance filled in by the broker.

Exam importance:

Many deadlines run from the effective date. Earnest money, option fee, additional earnest money, seller disclosure timing, title commitment timing, survey timing, and objection deadlines can all depend on dates.

Broker Information

The broker information section identifies broker firms, representation roles, associates, supervisors, licenses, contact information, and team names.

Exam connections:

Field Related exam topic
Represents buyer only Agency disclosure and representation.
Represents seller only Listing broker role.
Intermediary Texas intermediary rules.
Licensed supervisor Broker responsibility and supervision.
Team name Advertising and registered names.
Broker fee disclosure Compensation agreements and separate written agreements.

Receipt Sections

The receipt sections acknowledge contract receipt, earnest money receipt, option fee receipt, and additional earnest money receipt.

Exam trap:

Receipt of the contract is not the same as receipt of earnest money or option fee. The exam may separate those deadlines and acknowledgments.

Original Scenario Examples

These examples are original learning examples. They are not copied exam questions and are not official Pearson VUE questions.

Scenario 1: Existing Home With Bank Financing

A buyer contracts to purchase an existing single-family home. The buyer will obtain a conventional mortgage from a lender.

Best exam recognition: One to Four Family Residential Contract plus Third Party Financing Addendum.

Why: Existing single-family resale points to the base contract. Lender financing points to third-party financing.

Scenario 2: Condo Unit

A buyer is purchasing a resale condominium unit. The agent prepares the One to Four Family Residential Contract because the property is residential.

Best exam recognition: Wrong base contract.

Why: TREC states the One to Four Family Residential Contract is not for condominium transactions. Use the Residential Condominium Contract for a resale condo.

Scenario 3: Seller Keeps a Chandelier

The seller wants to keep an attached dining room chandelier.

Best exam recognition: Paragraph 2 exclusions issue.

Why: If the item would otherwise be included as an improvement or fixture, the seller's retained item must be handled properly in writing.

Scenario 4: Buyer Wants the Refrigerator

The buyer wants the refrigerator, washer, and dryer included in the sale.

Best exam recognition: Non-Realty Items Addendum.

Why: Movable personal property that is not real property usually needs the appropriate non-realty addendum rather than casual wording.

Scenario 5: Solar Panels Are Leased

The home has solar panels attached to the roof, but the seller leases them from a solar company.

Best exam recognition: Paragraph 4 fixture lease issue and Addendum Regarding Fixture Leases.

Why: Attached leased items are not just ordinary accessories. The lease obligation matters.

Scenario 6: Buyer Misses Option Fee

The contract states an option fee and option period, but the buyer does not deliver the option fee within the time required.

Best exam recognition: Buyer does not have the unrestricted termination right under Paragraph 5.

Why: The option right depends on the stated fee and timely delivery.

Scenario 7: Seller Disclosure Arrives Late

The buyer had not received the seller's disclosure notice when the contract was signed. The seller later delivers it within the stated time.

Best exam recognition: Paragraph 7B.

Why: When the notice is delivered after the effective date, the buyer may have a limited termination right after receipt, depending on the paragraph and timing.

Scenario 8: Buyer Wants Agent to Write an Appraisal Clause

The buyer asks the sales agent to draft custom wording allowing termination if the appraisal is low.

Best exam recognition: Unauthorized practice of law and possible appraisal addendum issue.

Why: TREC Rule 537.11 prohibits agents from drafting or recommending legal language such as appraisal clauses. Use an approved form where applicable or advise attorney consultation.

Scenario 9: Seller Remains After Closing

Seller needs ten days after closing to move out.

Best exam recognition: Paragraph 10 possession issue and Seller's Temporary Residential Lease.

Why: Seller possession after closing should be covered by a written temporary lease.

Scenario 10: Fire Before Closing

After the effective date, a kitchen fire damages part of the property. Seller cannot restore the property before closing.

Best exam recognition: Paragraph 14 casualty loss.

Why: Damage after the effective date is casualty loss, not simply inspection or repair negotiation.

Common Mistakes

Mistake Better exam habit
Using this form for condos Condo resale uses Residential Condominium Contract.
Using this form for builder new homes Builder new homes use New Home Contract forms.
Ignoring farm and ranch facts Farm and ranch has a separate contract.
Treating option fee like earnest money Option fee buys the unrestricted termination right.
Missing the 5:00 p.m. option notice deadline Option termination notice has a time component.
Assuming "as is" prevents inspections Buyer may still inspect under Paragraph 7A.
Drafting custom clauses in Special Provisions Special Provisions is for informational items, not legal drafting.
Confusing addendum and amendment Addendum adds terms, amendment changes an existing signed contract.
Treating possession as automatic before or after closing Off-timeline possession needs a written lease.
Letting parties rely on oral notices Notices must be in writing under Paragraph 21.
Deciding earnest money disputes as the agent Escrow and release procedures apply.
Forgetting TREC form versions change Verify the current TREC form before use.

Study Plan

Use this as a contract study plan.

Day Focus Drill
1 Paragraphs 1 through 4 Identify parties, property, price, and lease triggers.
2 Paragraph 5 Drill earnest money, option fee, option period, and deadline facts.
3 Paragraph 6 Drill title policy, survey options, objections, and title notices.
4 Paragraph 7 Drill inspections, disclosure, lead paint, as-is, repairs, environmental matters.
5 Paragraphs 8 through 13 Broker disclosure, closing, possession, special provisions, expenses, prorations.
6 Paragraphs 14 through 23 Casualty, default, mediation, escrow, notices, addenda, attorney review.
7 Worked scenarios Read fact patterns and name the paragraph before answering.

Last-Minute Contract Recognition Sheet

If the scenario says Go to
Wrong property type Form recognition before paragraph analysis.
Buyer or seller names Paragraph 1.
Fixtures, accessories, exclusions, minerals Paragraph 2.
Loan, cash portion, seller financing Paragraph 3.
Tenant, leased solar panels, natural resource lease Paragraph 4.
Earnest money, option fee, option period Paragraph 5.
Title policy, survey, objections, POA notice Paragraph 6.
Inspection, seller disclosure, lead paint, as-is Paragraph 7.
License holder is a party Paragraph 8.
Closing date or deed Paragraph 9.
Buyer early possession or seller leaseback Paragraph 10.
Custom clause request Paragraph 11 and Rule 537.11.
Closing costs Paragraph 12.
Tax split Paragraph 13.
Fire after effective date Paragraph 14.
Party fails to comply Paragraph 15.
Dispute resolution Paragraph 16.
Attorney's fees Paragraph 17.
Earnest money release dispute Paragraph 18.
Backup offers Paragraph 19 and backup addendum.
Foreign seller withholding Paragraph 20.
Written notice Paragraph 21.
Attached forms Paragraph 22.
Legal advice request Paragraph 23 and Rule 537.11.

What To Pair With This

Pair this article with Why it helps
TREC Forms Recognition Guide Helps identify which addendum or form a scenario is pointing toward.
TREC Promulgated Contract Forms Overview Explains when license holders must use TREC forms and when exceptions apply.
Unauthorized Practice of Law on the Texas Real Estate Exam Essential for Paragraph 11 and legal-advice traps.
Texas Real Estate Duties to Clients and Minimum Services Connects contract handling to client duties.
Broker-Sales Agent Relationships and Supervision Brokers supervise form use and sponsored sales agent conduct.
Texas Real Estate Fee Splitting, Rebates, and Compensation Useful context for broker fees and compensation agreements.
Free Texas Real Estate Practice Test Use after reviewing the paragraph map.

FAQ

What is the One to Four Family Residential Contract used for?

It is used for resale residential properties that are single-family homes, duplexes, triplexes, or fourplexes. TREC says it is not for condominium transactions, new homes sold by a builder, or farm and ranch properties.

Is the One to Four Family Residential Contract the most common TREC contract?

TREC describes it as the most frequently used contract form. For exam purposes, that makes it a high-value form to recognize in residential resale scenarios.

Which version did this article use?

This article follows TREC No. 20-18, checked on June 16, 2026. TREC listed No. 20-19 as available for voluntary use until July 1, 2026, when it becomes mandatory. Verify the active version on TREC before real-world use.

What paragraph covers earnest money and option fee?

Paragraph 5 covers earnest money, additional earnest money, the option fee, and the termination option. It is one of the most tested paragraphs because it combines money, deadlines, and termination rights.

What paragraph covers title and survey?

Paragraph 6 covers title policy, title commitment, exception documents, survey options, objections, and several statutory title notices.

What paragraph covers inspections and seller disclosure?

Paragraph 7 covers access, inspections, utilities, seller disclosure notice, lead-based paint disclosure, as-is acceptance, repairs, environmental matters, and residential service contracts.

What paragraph is the unauthorized practice of law trap?

Paragraph 11 is the major trap because it is for informational items only. A broker or sales agent should not draft legal clauses, contingencies, remedies, or language affecting party rights. TREC Rule 537.11 reinforces that boundary.

What paragraph covers possession?

Paragraph 10 covers buyer possession and smart devices. If buyer moves in before closing, think Buyer's Temporary Residential Lease. If seller stays after closing, think Seller's Temporary Residential Lease.

What paragraph lists addenda?

Paragraph 22 lists addenda that may become part of the contract. It is a useful recognition paragraph for financing, POA, lease, appraisal, environmental, short sale, lead paint, fixture lease, and other addendum facts.

Can a Texas sales agent explain this contract?

A license holder may explain informational items or choices in the form, but may not give legal advice or opinions about legal effect. If the party asks for legal interpretation, custom language, or advice about rights and remedies, the license holder should advise attorney consultation.

What should I practice for contract questions?

Practice naming the paragraph from the clue: earnest money, option period, title commitment, survey, seller disclosure, inspections, possession, special provisions, closing costs, prorations, casualty loss, default, escrow release, notices, and addenda. The Texas real estate exam prep app includes original Texas contract practice. Native Texas exam prep. Original questions. No copied exam questions. Not affiliated with TREC or Pearson VUE. Not a 180-hour pre-license course or a pass guarantee.

Are the examples in this article official Pearson VUE exam questions?

No. The examples in this article are original learning examples. They are not copied exam questions and are not official Pearson VUE questions.

Primary-source verification (2026-06-16): This article was checked against TREC's One to Four Family Residential Contract (Resale) page for TREC No. 20-18 and TREC No. 20-19, the TREC No. 20-18 PDF, TREC's Contracts page, TREC Rule 537.1, TREC Rule 537.11, Pearson VUE's Texas Real Estate exam page, and the Pearson VUE Texas Real Estate Content Outlines. TREC listed No. 20-19 as voluntary until July 1, 2026, when it becomes mandatory. Requirements, form versions, effective dates, exam policies, and procedures can change. Verify current details with TREC and Pearson VUE before making licensing, form-use, or scheduling decisions.

Sources and Methodology

This article uses official sources first and translates the contract into exam-facing study patterns.

The method:

  1. Use TREC's One to Four Family Residential Contract page to confirm scope, form ID, effective dates, and use limits.
  2. Use the TREC No. 20-18 PDF to follow the paragraph structure from parties through receipts.
  3. Use TREC's Contracts page to identify related addenda and current form-version caveats.
  4. Use TREC Rule 537.1 for definitions of contract forms, mandatory use, voluntary use, license holder, and informational item.
  5. Use TREC Rule 537.11 for mandatory form use and unauthorized practice of law boundaries.
  6. Use Pearson VUE's Texas content outline to confirm that promulgated contracts, forms, and addenda are exam topics.
  7. Convert each paragraph into exam clues, common mistakes, and original scenarios.