The TREC Purchase Contract Explained for Texas Home Sellers

You accepted an offer. Congratulations — now there’s a 9-page contract in your inbox, and your buyer’s agent wants it signed today. Most Texas home sellers read it once, sign where the arrows point, and hope for the best. That is a mistake.

The TREC purchase contract — officially TREC Form 20-16, the One to Four Family Residential Contract (Resale) — is the standard sales document for nearly every Texas home transaction. It governs who gets the earnest money if the deal falls apart, how long the buyer has to walk away for free, what happens if the lender kills the loan at the last minute, and exactly when you must vacate the property.

Here’s what most sellers don’t find out until day 45: there is one paragraph in this contract that lets a buyer walk away and take their earnest money with them — legally, no recourse. If you didn’t read it before signing, you may have already agreed to it.

What Is the TREC Purchase Contract?

The Texas Real Estate Commission (TREC) publishes standardized contract forms that licensed agents are required to use for residential transactions. TREC Form 20-16 — the One to Four Family Residential Contract (Resale) — is the form you will encounter on virtually every single-family home sale in Texas.

TREC sets the framework. Your agent fills in the blanks: price, earnest money amount, option fee, option period length, financing terms, closing date, and possession date. What is not negotiable is the underlying structure — the rules about what happens if financing falls through, who keeps what when a deal dies, and when the title officially transfers.

You can download the current version directly from the Texas Real Estate Commission at trec.texas.gov at no cost. Read it before you accept an offer — not after.

The Paragraphs That Can Make or Break Your Sale

Paragraph 3 — Sales Price and Earnest Money

Paragraph 3 sets the purchase price and the earnest money amount. Earnest money is the deposit the buyer places into escrow with the title company to demonstrate they are serious. In Texas, this is typically 1% of the sales price — on a $300,000 home, that is $3,000 held in escrow until closing.

The most common misconception: sellers believe the earnest money is theirs if the buyer backs out. It is not — not automatically. Whether you receive it depends entirely on why the buyer terminated and when they terminated relative to the contract’s contingency deadlines.

Paragraph 5 — The Option Period (The Buyer’s Unrestricted Exit)

This is the paragraph most sellers underestimate. The option period gives the buyer an unrestricted right to terminate the contract for any reason — no explanation required — as long as they notify you in writing before the option period expires. In exchange, the buyer pays a small option fee directly to the seller, typically $100 to $500, non-refundable.

That option fee is yours to keep no matter what happens. But the earnest money goes back to the buyer if they terminate during the option period. On a standard 10-day option period, your buyer can order a home inspection, decide they don’t like the foundation report, and terminate on Day 9. They collect their $3,000 earnest money. You keep the $250 option fee.

Option periods are negotiable. A buyer with nothing to hide will often agree to a shorter window — 5 days instead of 10. A cash buyer may waive the option period entirely.

Paragraph 4 — The Financing Contingency (Where Deals Die)

This is the one. Paragraph 4 governs what happens if the buyer’s lender declines the loan. Under the standard TREC contract, if the buyer cannot obtain the loan described in the contract after making a good-faith effort, they are entitled to terminate and receive their earnest money back in full.

In practice, this means a buyer can be under contract on your home for 30, 40, even 50 days — you’ve turned down showings, passed on other interested parties, taken your home off the market — and if their lender pulls the loan approval, they walk away with their earnest money. You’re back on the market with a listing that buyers will immediately ask questions about.

Financing contingencies can be tightened through negotiation: shorter loan approval deadlines, stronger pre-approval requirements, larger down payments that reduce lender risk. But in a standard TREC contract with a financed buyer, you carry this risk from acceptance to close.

Paragraph 9 — Closing Date and Possession

Paragraph 9 sets the closing date and when you must deliver possession of the property. These are not always the same moment. Sellers sometimes negotiate a leaseback — an agreement to remain in the property for a set period after closing in exchange for paying rent to the new owner.

What sellers often don’t account for: the closing date in Paragraph 9 is not a hard deadline in the way they expect. Either party may request an extension by written addendum. If the buyer’s lender needs five more days to fund, they’ll request it. You can refuse — but refusal may leave you choosing between accepting a default claim or negotiating a new date under worse conditions. Most sellers accept short extensions rather than restart the process.

What Actually Happens When a Buyer Backs Out

The real mechanics depend on the stage and reason:

• Buyer terminates during the option period: Earnest money returns to the buyer. You keep the option fee. No further recourse for either party.
• Buyer terminates due to failed financing after option period: Earnest money returns to the buyer under the Paragraph 4 contingency. You keep the option fee.
• Buyer defaults without a valid contingency: You may be entitled to the earnest money as liquidated damages. The title company will not release it without written consent from both parties or a court order — a process that can take months even when you are clearly in the right.

The real cost of a failed deal isn’t just the money. It’s 30 to 45 days off market, a listing that now has a “back on market” flag, and buyers wondering what went wrong. That is the risk you accept every time you sign a contract with a financed buyer.

How a Cash Sale Changes the Contract

A cash transaction uses the same TREC Form 20-16 — but several of the most problematic sections are either eliminated or dramatically simplified.

No Paragraph 4 (Financing Contingency). There is no lender. There is no loan approval deadline. There is no underwriter who can decline funding on Day 38. The contract is not contingent on financing because no financing is involved. This eliminates the single largest source of failed real estate transactions in Texas.

Shorter or waived option period. Cash buyers typically request a 3 to 5 day option period, or waive it entirely. They are experienced purchasers who evaluate properties quickly and do not need 10 days to decide whether they are proceeding.

No appraisal requirement. Conventional lenders require an appraisal before funding. If the appraised value comes in below the contract price, the deal stalls — the buyer must make up the gap in cash, renegotiate the price, or terminate. Cash buyers price based on their own assessment. No third-party appraisal can kill the transaction.

Faster close. Without a lender’s underwriting timeline, a cash transaction can close in 7 to 14 days. We have helped homeowners across Bexar County and the full I-35 corridor close in under two weeks — including properties facing active foreclosure proceedings where the seller had a hard deadline. If you are dealing with an inherited property or need to close before a specific date, a cash offer removes the variables that cause traditional contracts to miss their closing dates.

Where to Get the Official TREC Forms

TREC publishes all standardized contract forms at trec.texas.gov at no charge. The One to Four Family Residential Contract (Resale) is Form 20-16. Download it before any offer reaches your table — not after you’ve already signed.

Licensed Texas real estate agents are required by the Texas Occupations Code to use TREC-promulgated forms for residential transactions. If an agent presents you with a non-TREC form for a standard residential sale, ask them to explain why before you sign anything.

For transactions involving probate estates, properties with tax liens, or distressed situations with approaching deadlines, TREC addenda modify specific terms of the standard contract. Your title company can identify which addenda apply and walk you through what changes.

Frequently Asked Questions

What is TREC Form 20-16 in Texas real estate?
TREC Form 20-16 is the One to Four Family Residential Contract (Resale), the standard purchase agreement used in Texas home sales. It is promulgated by the Texas Real Estate Commission and required for use by licensed agents in residential transactions. The form covers all key terms: price, earnest money, option period, financing, closing date, and possession.

Can a Texas home seller keep the earnest money if the buyer backs out?
Not automatically. If the buyer terminates during the option period, the earnest money returns to the buyer — regardless of why they terminated. If the buyer terminates after the option period due to a failed financing contingency under Paragraph 4, the earnest money also returns to the buyer. Sellers retain earnest money only when a buyer defaults without a valid contractual contingency, and even then the release typically requires mutual written consent or a court order.

What is the option period in a Texas home purchase contract?
The option period (Paragraph 5 of TREC Form 20-16) is a negotiated window — typically 7 to 10 days — during which the buyer has an unrestricted right to terminate the contract for any reason. The buyer pays a non-refundable option fee directly to the seller (typically $100 to $500) to purchase this right. If the buyer terminates during this period, their earnest money is returned in full.

How does a cash purchase differ from a financed purchase under TREC Form 20-16?
A cash purchase eliminates Paragraph 4 entirely — there is no financing contingency, so the deal cannot be derailed by a lender. Cash buyers also typically agree to shorter or waived option periods and do not require an appraisal. The result is a faster, more certain close: typically 7 to 14 days versus 30 to 60 days for a financed buyer.

What happens if the buyer misses the closing date on a Texas real estate contract?
Either party can request a closing date extension by written addendum before the original closing date passes. If the buyer fails to close by the contract date without requesting an extension or having a valid contractual justification, it may constitute a default — but recovering earnest money under a default claim requires cooperation from both the buyer and the title company, or a court order. Most sellers find it simpler to grant a short extension than to pursue a default claim.

ZI Properties LLC | Licensed in Texas | Serving the I-35 Corridor: San Antonio, New Braunfels, San Marcos, Kyle, Buda, Austin, and surrounding areas