Basics of the Texas Purchase Contract

Welcome to the Kazi Law Firm! We are a boutique law firm steeped in Texas tradition personifying the warmth and congeniality consistent with southern hospitality. We believe in preserving integrity and professionalism with true Texan charm, staying true to our roots, while providing essential, affordable legal services to all. Located just north of Dallas, Texas in the rapidly growing suburb of Frisco; the Kazi Law Firm concentrates on contracts drafting and review, immigration law, will & estates, real estate law, landlord, tenant, mediation, and general business law needs.

When it comes to buying and selling a home, the Purchase Contract is a major player in the process. As a legally binding contract, it’s essential that you understand exactly what you’re agreeing to when you sign on the dotted line. Let’s take an in-depth look at a Texas Purchase Contract, what each section means, and what you should look out for. This blog post is part of a mini-series detailing the specifics of the Texas Purchase Agreement. If you want to learn more, keep checking the blog for additional entries.

What is a Purchase Contract?

A Purchase Contract, also referred to as a Purchase Agreement, is a contract between two parties detailing the agreed upon terms and conditions for the sale of a home. The purchase contract is usually prepared by the buyer’s agent in a transaction. When a buyer wants to make an offer on a home, their agent will draw up a purchase contract, which they will then deliver to the seller’s listing agent, usually via e-mail.

Parts of a Purchase Contract

In general, the Purchase Contract or Agreement includes:

• The parties involved in the transaction
• A brief description of the property
• Sales price $
• Earnest money deposit amount $
• Who will provide and pay for the owner’s title policy & property survey
• How property taxes will be prorated
• Closing date
• Addendum, if applicable
• Option fee amount $
• Signatures of the parties involved in the transaction (buyers & sellers)

Distinct Types of Texas Purchase Contracts

  1. One to Four Family Residential Contract (Resale): This contract is used for the resale of residential properties, including single-family homes, duplexes, triplexes, and four-plexes. However, it is not used for the resale of condominiums, new build homes, or farm or ranch homes. The One to Four Family Residential Contract is the most frequently used contract form.
  2. New Home Contract (Incomplete Construction): This contract is used for new build homes when the construction of the home has not yet been completed by the builder.
  3. New Home Contract (Completed Construction): This contract is used for new build homes where construction has been completed by the builder and no one has lived in the home previously.
  4. Residential Condominium Contract (Resale): This contract is used for the resale of a condominium unit. It contains unique provisions related to condominium transactions. However, if a seller owns a fee simple title to the land beneath the unit (in other words, the seller owns the land beneath the property), this contract is not used.
  5. New Residential Condominium Contract (Incomplete Construction): This contract is used for new build condominiums when the unit is still under construction by the builder.
  6. New Residential Condominium Contract (Completed Construction): This contract is used when construction for a new build condominium has been completed and no one has lived in the unit previously.
  7. Farm and Ranch Contract: This contract is typically used for rural properties and includes provisions that relate to farms and ranches that are not specifically outlined in other contract types.

Essential Terms to Know

Before we delve into the specific components of a Purchase Agreement, it is vital to familiarize yourself with the following most commonly used real estate terms:

Earnest Money

A deposit made by the buyer in good faith that they’re going to purchase a home. This is money that the buyer won’t get back if they decide to back out of the deal for a reason not specified in the contract. The Earnest Money is usually a percentage of the purchase price of the home.

Owner’s Title Policy

This is an insurance policy that protects the buyer if someone comes forward to claim ownership of the home after closing. This lasts for as long as the buyer owns the property.

Property Survey

A document that verifies property lines and makes note of any shared structures like fences. This document is vital to understand the boundaries of your property to ensure that you do not encroach on a neighbor’s piece of land in the future.

Title Commitment

A document that discloses any liens, defects, or obligations that affect the property and outlines the terms and conditions that must be met before the title policy is issued. Critically useful document in the chain of property ownership.

Seller’s Disclosure

A document that must be completed by the seller disclosing everything they know about the condition of their home. This includes any improvements or changes that may have been made during the time they owned the home. Also, includes roof changes or repairs from prior hail damage. Sellers tend to forget this detail and can land themselves in trouble if a failure to disclose is discovered by the buyers at a later date.

Home Warranty

A policy that covers the cost of replacing or repairing many home appliances and systems if they break after the buyer has purchased a home. Referred to as a Residential Service Contract in the Purchase Contract, home warranties are not required but are often purchased by a buyer when they close on an older home. The seller is usually responsible for paying the cost of the buyer’s home warranty. Home warranties can also range in price, from as little as $250 to as much as $550 for an average-sized house. There are several companies to choose from and it’s solely at the buyer’s discretion and preference.


In terms of real estate, escrow refers to an account in which funds related to the transaction are held by a third party.

Escrow Agent

The third party that is responsible for holding any funds during the real estate transaction, typically an escrow or title company.

Option Period

A specific time frame in which the buyer can terminate the contract for any reason without risking their earnest money deposit. Clients often inquire as to what is a reasonable option period? I have personally seen options periods from as few as 3 days to as many as 10 days. Most people tend to choose 5-7 days, if they have a home inspector lined up with swift availability. This term is negotiable between the parties.

Option Fee

A non-refundable fee paid by the buyer to the seller at the beginning of the option period. In the case that the buyer terminates the contract during the option period, the seller has the right to keep this money. Most clients ask how much the option fee should be? This is purely up to the buyer and can range from $100-$350 usually, depending on the price of the home in consideration. There is no stead-fast rule here. This term is also negotiable between the parties.

Stay tuned for more on this multi-part series involving the Texas home buying and/or selling process…

I built my law practice on the premise of being a life raft in a sea of sharks. I want to be an advocate for those that have been wronged and are too intimidated to seek help. My firm is here to explore your options, guide you through your legal journey, and give you that safe space to ask questions! There’s no such thing as a stupid question…Only the ones you don’t ask. So, my question to my clients is not “do you have any questions?” But rather “what questions do you have?”

As always, the Kazi Law Firm is standing by to help you in your time of need. Don’t hesitate to contact us today. We specialize in real estate law, landlord-tenant disputes, immigration, and wills & estate planning. Family is at the core of our practice. Just as we treat our family with respect and understanding, we treat yours. Come join the Kazi Law Firm family today!

Why swim alone in shark-infested waters when you don’t need to?