Texas Real Estate Sales Agent ExamContractsMedium
A seller accepts an offer on their home, and both parties sign a TREC One to Four Family Residential Contract (Resale). Before closing, a fire damages the property, rendering it uninhabitable. According to the contract, what is the most likely outcome regarding the sales agreement?
- AThe seller is obligated to repair the damage before closing.
- BThe contract becomes voidable at the seller's option only.
- CThe buyer may terminate the contract and receive a refund of earnest money.
- DThe buyer is obligated to purchase the property and assume the repair costs.
Show answer & explanationAnswer & explanation
Correct answer: C. The buyer may terminate the contract and receive a refund of earnest money.
In Texas, under the TREC One to Four Family Residential Contract (Resale), if the property is damaged by casualty loss before closing, the buyer may terminate the contract and receive their earnest money back, unless the seller agrees to restore the property to its previous condition.
Why the other options are wrong
- A. The seller is not automatically obligated to repair; it's an option, but the buyer has the right to terminate.
- B. Both buyer and seller have options, but the buyer's right to terminate is a key protection in this scenario.
- D. The buyer is generally not obligated to purchase a severely damaged property under the TREC contract unless they choose to proceed after a casualty loss.
Casualty Loss (TREC 1-4 Contract)
Damage to the property before closing (e.g., fire, flood) that may give the buyer the right to terminate the contract and receive their earnest money.
- Applies if damage occurs between contract execution and closing.
- Buyer generally has the option to terminate or proceed if seller repairs.
- Seller is usually responsible for maintaining the property until closing.
Memory trick: Casualty Causes Contract Chaos.