Can a Texas license holder draft their own contract for a residential resale?

No, with narrow exceptions. TREC rules require license holders to use the promulgated form when one applies. Drafting a custom contract for a transaction a promulgated form covers is the unauthorized practice of law. If a transaction genuinely falls outside the promulgated forms, the proper course is to refer the parties to an attorney rather than improvise — and the exam tests this distinction directly.

What is the difference between the option fee and earnest money?

The option fee buys the buyer the unrestricted right to terminate during the option period. Under current TREC residential contract language, the option fee is delivered to the escrow agent (typically the title company) within 3 days after the effective date, is generally non-refundable to the buyer, and is credited to the sales price at closing. Earnest money is also delivered to the escrow agent and is conditionally refundable in many termination scenarios, including a properly exercised option-period termination. Mixing up the two — especially assuming the option fee is refundable like earnest money — is one of the most common exam mistakes.

When does the option period end?

Under current TREC residential contract language (Paragraph 5B), the buyer must deliver written notice of termination by 5:00 p.m. local time where the property is located, by the date specified in the contract. Late delivery can make the termination ineffective and the earnest money is no longer refundable on that basis. The 5:00 p.m. deadline replaced earlier practitioner assumptions about "end of day" or 11:59 p.m. — if you studied from older materials, this is one of the items to update before exam day.

Is the Seller's Disclosure Notice always required?

No. Texas Property Code §5.008 lists exemptions, including transfers between spouses, transfers to or from a government entity, new construction never occupied, and transfers by an executor of an estate. When no exemption applies, the seller must deliver the notice as required by the contract and §5.008. If the buyer receives the notice after the effective date, the buyer may have a statutory termination right for a limited period after receipt — the exam tests both the exemption list and the consequence of late delivery.

Texas Real Estate Contracts & Agency — Study Guides & Practice Questions

Texas Real Estate Contracts & Agency

Contracts is one of the largest modules on the Texas real estate exam, and for a simple reason: many Texas residential transactions handled by license holders run through TREC-promulgated forms, and the exam is structured to test whether you actually understand those forms. License holders are required by rule to use those forms when one applies. The exam tests whether you understand what the forms say, when each one is used, how the option period and earnest money interact, and what makes a contract enforceable or terminable. Expect detailed questions on the One to Four Family Residential Contract (Resale), the addenda, the unrestricted right to terminate during the option period, the disposition of earnest money on different terminations, and the elements of an enforceable contract under the statute of frauds. The 2021 contract revisions changed how the option fee is delivered (to the escrow agent rather than directly to the seller), and the option-period notice deadline is 5:00 p.m. local time where the property is located — not 11:59 p.m., and not "end of day." Candidates studying from materials older than that revision are at the greatest risk of losing points on this module.

Key Subtopics

TREC promulgated forms — which contracts and addenda are mandatory, and the rule against license holders drafting their own. The exam tests this both as a rule and as a violation scenario: drafting a custom contract where a promulgated form covers the transaction is the unauthorized practice of law.
The option period — paying for the unrestricted right to terminate, and how the option fee and earnest money differ. The two are distinct funds with different purposes, different legal consequences, and different refund rules even though both are delivered to the same escrow agent — confusing them is one of the most common exam errors.
Earnest money — who holds it, when it is released, and the most-tested dispute scenarios. The escrow agent (usually the title company) holds the funds and disburses only on instructions consistent with the contract or a signed release.
Listing agreements — exclusive right to sell, exclusive agency, and open listings. The three types differ in who can earn a commission and under what conditions, and the exam tests the distinctions with scenario questions.
Common contingencies — financing, inspection, appraisal, third-party approval. Each contingency creates a termination right under specific conditions; the exam tests when a buyer can walk versus when they have already waived the right.
Seller's Disclosure Notice under Texas Property Code §5.008. The statute lists exemptions, and when no exemption applies, late delivery can create a buyer termination right for a limited statutory period after receipt.
Termination, default, and the remedies available under the TREC contract. The contract distinguishes between buyer default and seller default and prescribes the available remedies for each.

Study This Cluster

Contracts has the largest article set in the cluster system because the exam tests so many separate documents and clauses. The most efficient study path is forms first, then the period mechanics (option period, earnest-money timeline), then the specific clauses (contingencies, disclosures). Once you know how each piece works in isolation, run timed practice questions to combine them — the real exam rarely tests a clause in isolation.

TREC Promulgated Forms — which forms are mandatory and which are optional.
Option Period and Termination — how the unrestricted right to terminate works.
Earnest Money Explained — who holds it, who gets it on default, and the release process.
Contract Contingencies — financing, inspection, appraisal, and sale-of-other-home.
Listing Agreements: Types and Terms — the three listing types and the exam traps.
Property Disclosure Requirements — the Seller's Disclosure Notice and its exemptions.
Contracts & Agency Practice Questions — timed practice set with explanations.

Frequently Asked Questions

Can a Texas license holder draft their own contract for a residential resale?: No, with narrow exceptions. TREC rules require license holders to use the promulgated form when one applies. Drafting a custom contract for a transaction a promulgated form covers is the unauthorized practice of law. If a transaction genuinely falls outside the promulgated forms, the proper course is to refer the parties to an attorney rather than improvise — and the exam tests this distinction directly.
What is the difference between the option fee and earnest money?: The option fee buys the buyer the unrestricted right to terminate during the option period. Under current TREC residential contract language, the option fee is delivered to the escrow agent (typically the title company) within 3 days after the effective date, is generally non-refundable to the buyer, and is credited to the sales price at closing. Earnest money is also delivered to the escrow agent and is conditionally refundable in many termination scenarios, including a properly exercised option-period termination. Mixing up the two — especially assuming the option fee is refundable like earnest money — is one of the most common exam mistakes.
When does the option period end?: Under current TREC residential contract language (Paragraph 5B), the buyer must deliver written notice of termination by 5:00 p.m. local time where the property is located, by the date specified in the contract. Late delivery can make the termination ineffective and the earnest money is no longer refundable on that basis. The 5:00 p.m. deadline replaced earlier practitioner assumptions about "end of day" or 11:59 p.m. — if you studied from older materials, this is one of the items to update before exam day.
Is the Seller's Disclosure Notice always required?: No. Texas Property Code §5.008 lists exemptions, including transfers between spouses, transfers to or from a government entity, new construction never occupied, and transfers by an executor of an estate. When no exemption applies, the seller must deliver the notice as required by the contract and §5.008. If the buyer receives the notice after the effective date, the buyer may have a statutory termination right for a limited period after receipt — the exam tests both the exemption list and the consequence of late delivery.

Bottom Line

Contracts is the biggest single source of exam points, and it is where Texas-specific rules — promulgated forms, the unrestricted option period, the §5.008 disclosure, the 2021 escrow-agent option-fee delivery, the 5:00 p.m. notice deadline — diverge most from generic national content. Candidates who study the actual TREC forms and the specific termination scenarios will outperform candidates relying on generic materials. For module weighting and the other tested clusters, see the Texas exam blueprint.