Red Flags in a Houston Real Estate Contract You Should Never Ignore

You've found the house. The realtor hands you a contract and says everything is standard. It probably is — and yet Houston buyers lose thousands of dollars every year because of clauses they didn't notice, deadlines they didn't track, and checkboxes they didn't understand.

The Texas Real Estate Commission's standard contract — called the One to Four Family Residential Contract (Resale) — runs more than eight pages and dozens of numbered paragraphs. Most buyers sign it in one sitting. A few of those paragraphs are quiet traps. Here's what to look for before you initial anything.

#Red Flag #1: The AS-IS Checkbox (Paragraph 7D)

Paragraph 7D of the TREC contract gives the parties two choices for describing the condition of the property. Option (1) states that the seller will complete specific repairs listed in the contract. Option (2) states that the buyer accepts the property as-is — meaning in its present condition, with no obligation on the seller to fix anything before closing.

Many buyers assume "as-is" means the deal is final and they waive all rights to inspect. That is not accurate — but the nuance matters.

Checking the as-is box does not remove your right to inspect the property during your option period. What it does remove is the seller's obligation to negotiate repairs afterward. You can still discover a cracked foundation, a failing HVAC, or unpermitted construction — and then terminate (recovering your earnest money if you act within your option period) or accept the condition and move forward.

The danger: buyers who check the as-is box and fail to complete a thorough inspection within the option period have no recourse when problems surface after closing.

What to watch: If the seller is pushing hard for the as-is checkbox and resisting any inspection contingency, treat it as a signal. Sellers who have nothing to hide do not typically object to a standard inspection.

#Red Flag #2: Option Period Traps (Paragraph 23)

The option period — governed by Paragraph 23 — is the buyer's single most valuable right in the TREC contract. During this window, you can terminate for any reason and recover your earnest money in full. Once it expires, that right disappears.

In Houston's current market (as of June 2026), option periods typically run 3 to 10 days, with an option fee of $100 to $1,000 or more in competitive situations. The option fee is paid directly to the seller, is non-refundable, and is separate from the earnest money — but it is typically credited toward the purchase price if you close.

Three traps buyers fall into:

1. Delivery vs. sending. Termination notice must be delivered to the seller or seller's agent before the option period expires — not just sent. Emailing at 5:01 p.m. when the deadline was 5:00 p.m. is too late. Texas courts enforce "time is of the essence" clauses strictly. There is no grace period.

2. Confusing inspection period with option period. These terms are sometimes used loosely. If the contract gives you 10 days for inspections but only 5 days for the option period, you can inspect for 10 days — but your right to terminate ended on Day 5. Make sure you know which deadline is which.

3. Option fee check delivery. The option fee must be delivered to the seller within 3 days of the contract's effective date. If you miss that window, courts have found that no valid option period was created — meaning you cannot terminate and recover your earnest money.

Schedule reminders for every deadline the moment you sign. Use multiple alerts. Have your attorney send any termination notice directly to confirm delivery.

#Red Flag #3: Earnest Money Forfeiture Triggers

Earnest money in Harris County typically runs $5,000 to $25,000 on homes priced under $500,000 — and up to 1–2% of the purchase price on higher-value properties. It's held in escrow by a licensed title company until closing. If everything goes well, it applies to your purchase. If something goes wrong, whether you get it back depends entirely on which clause applies.

When you can recover your earnest money:

• You terminate during the option period for any reason
• The property fails to appraise and you follow the financing addendum notice procedures
• The seller fails to cure a valid title objection within the contract deadline
• The seller breaches the contract

When you forfeit your earnest money:

• Your financing falls through but you failed to provide timely written notice under the Third Party Financing Addendum — there is a strict deadline, often 3 to 5 days after loan denial
• You simply change your mind after the option period expires
• You miss any contractual deadline that triggers a default

The financing addendum is especially important for buyers purchasing through mortgage lenders. The addendum requires you to notify the seller within a specific window if financing is denied. Buyers who receive a denial letter but wait too long to send the required notice lose their earnest money — even though the financing fell through for a legitimate reason.

#Red Flag #4: Title Commitment Schedule B Exceptions

Before closing, the title company issues a title commitment — a preliminary report of what the title insurer will and will not cover. Schedule B-2 of the commitment lists exceptions: defects, liens, easements, and restrictions the insurer specifically excludes from coverage.

This document is the most important thing you will read before closing. Most buyers skim it. Here is what can hide inside:

• Unpaid property tax liens from a prior owner that attach to the land, not the person who owed them — now your problem as the new owner
• Unresolved heirship chains, common in older East End (77011, 77012) and Northside (77009, 77022) properties, where prior owners' estates were never formally probated and distant heirs retain a colorable legal claim
• Federal tax liens recorded by the IRS against the seller — the insurer will not cover them unless they are satisfied from closing proceeds
• Broad restriction language like "subject to all restrictions of record" — meaning you are buying the property subject to every recorded deed restriction and covenant without knowing what they say

A title defect is not automatically a deal-killer. Some are routine and the title company can clear them in a day. Others — an open heirship chain, an unresolved federal lien — are serious enough that you should pause or renegotiate. The critical thing is understanding what each exception means before you sign closing documents.

Buyers in Magnolia Park (77011–77012), Denver Harbor (77020), Northside (77009/77022), and Galena Park (77547) encounter Schedule B exceptions more frequently than buyers in newer subdivisions. If your property is in one of these areas, have an attorney read every line.

#Red Flag #5: HOA Addendum — Timing Traps You'll Miss

If the property is in a mandatory HOA, the TREC contract requires an Addendum for Property Subject to Mandatory Membership in an Owner's Association. This addendum requires the seller to provide a resale certificate from the HOA that discloses:

• Current monthly and annual dues
• Pending special assessments — major upcoming costs like roof replacement or parking lot repairs that you as the new owner will inherit
• The HOA's reserve fund status (under-funded reserves = future assessments are likely)
• Rules and architectural restrictions

The timing trap: The contract typically gives the seller 10 days to obtain and deliver the resale certificate. Your option period may be only 5 to 7 days. If the resale certificate arrives after your option period expires, you've lost the right to terminate — even if the certificate reveals a $12,000 special assessment coming due next year.

What to do: Request the resale certificate from the seller before you sign the contract. This is unusual but entirely reasonable for any deed-restricted community. If the seller's agent pushes back, that is itself a red flag.

#Red Flag #6: Survey Gaps — Old vs. New

The TREC contract has a survey section that most buyers do not read carefully. Texas lenders generally require a current survey, which runs $400 to $1,500 in Houston depending on lot complexity. Sellers will often offer to use an existing survey to save money — and buyers agree without understanding what they're giving up.

An existing survey that is 10 or 15 years old won't show:

• A neighbor's fence that now encroaches on your property
• A deck, shed, or addition built after the survey was completed
• New utility easements or drainage lines that cross your lot
• Changes to recorded plat lines in older subdivisions

In older East End and Northside Houston properties, boundary disputes from informal prior surveys are common. An encroachment discovered after closing can cost significantly more to resolve than the survey would have cost upfront.

The rule: Insist on a new survey for any property with a complex lot, improvements added after 2010, or a location in an older Houston neighborhood. If the seller objects, negotiate who pays — but do not waive it.

#Red Flag #7: Seller Disclosure Omissions (Texas Property Code § 5.008)

Texas law — specifically Texas Property Code Section 5.008 — requires sellers of residential properties to provide buyers with a written disclosure of all known material defects affecting the property's value. This disclosure must be provided before the buyer is bound to the contract.

The disclosure must cover known structural problems, roof conditions, HVAC status, flooding or water intrusion history, foundation repairs, termite damage, mold, and past insurance claims — among other conditions.

If a seller intentionally fails to disclose a known material defect, the buyer may be entitled to:

• Actual damages (repair costs or diminution in value)
• Potentially treble damages (up to three times actual damages) under Texas law in cases of intentional or grossly negligent non-disclosure
• Attorney's fees and court costs

In Harris County, flooding history is the most frequently contested non-disclosure issue. Many properties in East End (77011/77012), Denver Harbor (77020), and Northside (77009/77022) have experienced flooding or standing water after heavy rains. Sellers do not always disclose this fully. Request FEMA flood map data and Harris County floodplain determinations before closing — and compare them to what the seller disclosed.

#What to Do Before You Sign

Follow this checklist on every Houston home purchase:

1. Read every paragraph of the TREC contract — especially 7D, 23, and the financing addendum
2. Write down every deadline (option period, financing objection, HOA certificate, title objection) and put them in your calendar with multiple alerts
3. Request the resale certificate before signing if the property is in an HOA
4. Order a new survey — do not accept an old one for older or complex properties
5. Review the title commitment Schedule B-2 line by line and ask what each exception means
6. Cross-check the seller's disclosure against Harris County flood plain data and HCAD records
7. Have an attorney review the contract before you sign — not the morning of closing

#Schedule a Consultation

A contract review with a Houston real estate attorney before you sign is far less expensive than resolving a problem after closing. Our office can review your TREC contract, flag anything unusual in the title commitment, and explain every exception in plain English or Spanish.

The Law Office of Kristopher A. Alvarez, PLLC serves buyers across Greater Houston from two offices:

• Montrose: 1603 W. Alabama St., Houston, TX 77006
• East End: 6841 Avenue I, Houston, TX 77011

Bilingual — se habla español. Call or text (832) 404-2300, or schedule a consultation online.

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