Residential Real Estate Contracts in Texas: Do You Have A Contract?

This article is an introductory level explanation of when a valid real estate contract exists in Texas. We do not cover business or commercial contracts (and therefore do not discuss the Uniform Commercial Code, the Business & Commerce Code, and related statutes) although many principles mentioned in this article overlap with these other areas.

The principles discussed in this article are not intended to be an exhaustive or academic treatise on the subject of contract law. The intention is merely to hit certain practical and pragmatic highlights that affect creation of Texas real estate contracts.

The Texas Real Estate Commission (TREC) and Texas Realtors (TXR) sales contracts form the context for this discussion. Beyond that, these contracts and their addenda are not specifically addressed. For a detailed examination of these promulgated forms, read our companion web article entitled Residential Real Estate Contracts in Texas: Protection the Interests of Buyer or Seller.

Offer and Acceptance

Since contract negotiations can become fast-paced and complex when utilizing multiple media, it is useful to know when you actually have a contract. Contracts begin with offer and acceptance which, in the case of real estate contracts, must be in writing pursuant to the Statute of Frauds (details below).

Offer and acceptance must be clearly communicated and there must be a meeting of the minds on material terms. For instance, if an offer is made containing specific terms and conditions, and the other party counters with a slightly different set of terms and conditions, then as a matter of law the original offer has been rejected. Why? No meeting of the minds on material terms—so the original offer is effectively irrelevant. A counter-offer now awaits action. G.D. Holdings, Inc. v. H.D.H. Land & Timber, L.P., 407 S.W.3d 856 (Tex.App.—Tyler 2013, no pet.).

Can a draft of a contract be converted into a final contract without signatures? Yes, so be careful how drafts are handled. “Texas law recognizes that a contract need not be signed to be executed unless the parties explicitly require signatures as a condition of mutual assent. If a written draft of an agreement is prepared, submitted to both parties, and each of them expresses his unconditional assent thereto, there is a written contract.” Phillips v. Carlton Energy Grp., LLC, 475 S.W. 3d 265, 279 (Tex. 2022).

Consideration for Texas Real Estate Contracts

The traditional common law rule that consideration (in the form of earnest money) must pass before there is a valid real estate contract does not apply to Texas residential contracts. In Texas, the mutual promises contained in the customary TREC or TXR contracts are considered legally sufficient to meet the meet the consideration requirement for a valid contract. Payment of earnest money is a contract obligation, not a requirement for contract validity. Therefore, a signed TREC contract does not fail (i.e., is not void) for want of earnest money; instead, failure to pay agreed-upon earnest money is a buyer default for which the seller may seek remedies including specific performance. Limestone Grp., Inc. v. Sai Thong, L.L.C., 107 S.W.3d 793 (Tex. App.—Amarillo 2003, no pet.)

Note that the option fee is not earnest money. It is independent consideration for the buyer’s unrestricted right to terminate during the option period. In effect, the buyer is purchasing a specific time period for inspections. Payment of an option fee is a conceptually separate transaction from tender of earnest money—although the two amounts may be combined in a single check when submitted to the title company.

The Statute of Frauds

A valid contract for the conveyance of real property requires a signed writing:

Bus. & Com. Code Sec. 26.01. Promise or Agreement Must be in Writing

(a) A promise or agreement [for conveyance of real estate] is not enforceable unless the promise or agreement . . . is (1) in writing; and (2) signed by the person to be [bound].

(b) Subsection (a) applies to . . . (4) a contract for the sale of real estate; (5) a lease of real estate for a term longer than one year; (6) an agreement which is not to be performed within 1 year from the date of making the agreement. . . .

Property Code Section 5.021 contains another version of the Statute of Frauds that is also called the Statute of Conveyances:

Prop. Code Sec. 5.021. A conveyance of an estate of inheritance, a freehold, or an estate for more than one year, in land and tenements, must be in writing and must be subscribed and delivered by the conveyor or by the conveyor’s agent authorized in writing.

“The statute of frauds requires that a memorandum of an agreement, in addition to being signed by the party to be charged, must be complete within itself in every material detail and contain all of the essential elements of the agreement so that the contract can be ascertained from the writings without resorting to oral testimony.” Sterrett v. Jacobs, 118 S.W.3d 877, 879-80 (Tex.App.—Texarkana 2003, pet. denied).

What if an offer is revoked?

For a contract to arise an offer must be accepted before it is revoked. How can one tell if revocation has occurred? Any statement (oral or written) by the offeror expressly revoking the offer will do the job. The Statute of Frauds does not apply to a revocation.

Problems can arise if statements or actions of the offering party are ambiguous. The established rule in Texas is that an offer is considered revoked if the person making the offer speaks or acts inconsistently with the offer that was previously made, and the offeree has knowledge of this inconsistent behavior. That’s all it takes. Antwine v. Reed, 199 S.W.2d 482 (Tex. 1947).

Are electronic communications valid to create a contract?

Can emails or a sequence of emails taken together constitute a binding contract? Yes, if by reading all the emails together the intent of the parties to enter into a contract is clear. Dittman v. Cerone, No. 13—11—00196—CV, Court of Appeals of Texas, Corpus Christi—Edinburg, March 7, 2013. The principal statute affecting electronic communications is the Uniform Electronic Transactions Act (UETA) which clearly states that a contract may be valid and enforceable even though it is in electronic form.

Electronic signatures are a related issue. Is a sender’s name in the from line of an email the same as a signature? Can a person’s standardized signature block at the end of an email have the same effect as a custom signature on a written contract? Yes to both questions according to the 1st Court of Appeals in Houston: “A signature block from an email performs the same authenticity function as a ‘from’ field. Accordingly, it satisfies the requirement of a signature under the UETA” as well as the Statute of Frauds. Khoury v. Prentis Tomlinson Jr., No. 01-16-00006-CV (Tex.App.—Houston [1st Dist.] March 30, 2017). Although the 2nd Court of Appeals in Fort Worth reached a contrary result in a similar case, it is likely that Khoury charts the future direction of Texas law in this area.

Many real estate lawyers consider it good practice to include a contract special provision requiring that all terms and conditions of the contract (including future amendments and modifications) must be expressly included within the four corners of a signed written document—and not implied, inferred, assumed, or cobbled together from emails, texts, or oral statements. This has obvious benefits in avoiding misunderstandings and litigation.

Contract Amendments and Extensions

TREC form number 39-8 is customarily used to amend or extend residential real estate contracts. Filling out the form is straightforward enough. But what about consideration? Say, for instance, the parties want to extend the closing date for 30 days. Does the buyer have to pay an extension fee for this to be legal? The answer is no, not unless the parties clearly intend that payment and receipt of a fee is required as a condition precedent.

Online Notaries

For contracts that require it, online electronic notarization is now permitted in Texas. Chapter 406 of the Government Code discusses “regular notaries” (Subchapter A) and “online notaries” (Subchapter C) who have the same authority as traditional notaries. The online notarization process involves two-way video and audio conferencing and still requires that a signer produce valid, government-issued identification. The Secretary of State is tasked with developing rules and standards for this process.

Existing Contracts: Rules of Construction

Real-world contracts—particularly ones dealing with creative and non-standard transactions—are occasionally ambiguous. Terms and conditions may even contradict one another. In such cases, the court may look to certain rules of construction in the interpretation of existing contracts.

For instance, Texas law favors enforcement of express contract terms if they are clear and unambiguous, disallowing any evidence from the outside (extrinsic evidence that is found outside the four corners of the written document) that purports to change these terms. If the contract is clearly written, extrinsic evidence “that contradicts, varies, or adds to the terms of an unambiguous written agreement [is generally inadmissible. Extrinsic] evidence of surrounding facts and circumstances, including evidence of industry custom and usage, cannot be used to add, alter, or change the contract’s agreed-to terms.” Barrow-Shaver Resources Company v. Carrizo Oil & Gas, Inc., 590 S.W.3d 471 (Tex. 2019).

The parol evidence rule bars oral extrinsic evidence when contract terms are clear.

Another rule is that typewritten (or word processed) terms usually prevail over any items that are handwritten (unless agreed to by the parties and initialed). Also, words prevail over numbers. In one case a promissory note stated in words that the amount of the debt was “one million seven thousand.” The printed numbers, however, were “$1,700, 000.” The lender lost the case since words prevail over numbers. Charles R. Tips Family Trust v. PB Commercial LLC, 459 S.W.3d 147 (Tex.App.—Houston [1st Dist.] 2015, no pet.).

Contract Drafting Considerations

A well-drafted contract should be a comprehensive document. (If it is one page or less, something is amiss.) All duties and obligations of the parties should be expressly stated. Nothing should be assumed or implied. No one should be allowed to rely on anything unless expressly stated in writing within the four corners of the contract. Oral statements should be disclaimed. A contract that fails to thoroughly address key points of agreement, involves unwritten assumptions, or relies on oral statements can easily form the basis for future litigation.

Get a Good Real Estate Attorney

Both buyer and seller should get an experienced real estate transactions lawyer and listen to his or her advice. Clients are often driven by emotions—the desperate desire to get rid of a property or an irrational determination to acquire one. Since the lawyer does not usually receive a commission, he or she has no stake in the transaction and may be the only person providing factual and objective advice.