The contract is your protection as a buyer. As a first-time buyer, the contract can feel intimidating, and that is exactly why some sellers or agents might push terms that put you at risk. I have been a loan officer for over 23 years and a real estate agent for 18 years, and I have seen contracts that protect buyers well and contracts that put buyers in serious financial danger. In this article, I am going to share five contract terms that, in my opinion as a dual-licensed professional, you should never agree to.
Note: This article is based on my experience working with buyers across Texas. Contract laws vary by state, and this is not individualized legal advice. Always review your specific contract with a licensed real estate professional or real estate attorney. I am sharing negotiation strategies and common pitfalls, not legal requirements.
Prefer to watch? Patrick walks through all five contract terms in this video.
Term 1: Nonstandardized Contract
In Texas, the standard purchase contract used by most real estate professionals is the TREC (Texas Real Estate Commission) one-to-four family residential contract. It is a nine-page standardized form that agents know inside and out. Every clause, every nuance has been refined through years of use. When you sign a TREC contract with a licensed agent, you are working with a document designed to protect both parties.
The problem arises when you are presented with a nonstandardized contract. This can happen in two common scenarios: buying a home from a builder who uses their own new build contract, or buying from a for-sale-by-owner seller who drafts their own agreement. These contracts are not reviewed or regulated by TREC, and they can contain clauses that heavily favor the seller.
Never sign a nonstandardized contract without having it reviewed by a real estate attorney on your side. A builder contract or an FSBO contract drafted by the seller can hide terms that put your earnest money at risk, shift liability for defects to you, or impose timelines that are impossible to meet. You are paying hundreds of thousands of dollars for a home. Spending $200 or $300 to have an attorney review the contract is a small price for that level of protection.
Patrick's advice on nonstandardized contracts: The standardized TREC contract exists for a reason. It has been tested, refined, and is understood by agents, title companies, and lenders across Texas. If someone asks you to sign a different contract, slow down. Have a real estate attorney review it before you sign anything. This is not negotiable.
Term 2: Waiving the Option / Inspection Period
The option period is one of the most powerful protections a buyer has in Texas. It is a negotiated timeframe, typically 7 to 10 days after the contract is accepted, during which you can have the home inspected, review all disclosures, and decide if you want to move forward. If during that period you discover something you do not like, you can cancel the contract and your earnest money comes back to you.
Never, and I mean never, waive your right to an option or inspection period. Some sellers in competitive markets may push you to waive this right to make your offer more attractive. In my opinion, that is a term you should not accept. Without an option period, if the inspection reveals serious problems with the roof, foundation, electrical, or plumbing, you either have to proceed with the purchase or lose your earnest money. On a $300,000 home, that is $3,000 you just cost yourself.
In Texas, you pay a small option fee directly to the seller, usually $100 to $300, which is nonrefundable. That is the price of having the freedom to back out. Your earnest money, typically 1% of the purchase price held by the title company, stays protected as long as you are within the option period.
Texas-specific note: The TREC contract includes a standard option period clause. If you are buying outside of Texas, check whether your state provides a similar contingency. Some states call it a feasibility period or due diligence period. Whatever the name, it is the same concept: a window of time to inspect the property and decide if you want to proceed, with your earnest money protected.
Term 3: Agreeing to Fund Appraisal Shortfalls
This is one that most first-time buyers never think about. Here is how it works. You agree to buy a home for $300,000. You order the inspection and the appraisal. The appraisal comes back at $292,000, which is $8,000 short of the contract price. Your lender lends on the lesser of the purchase price or the appraised value. So the lender bases all their numbers on $292,000, not $300,000.
If you have agreed to fund appraisal shortfalls, meaning you signed away your right to be protected, you are now obligated to come up with that $8,000 in additional cash out of pocket just to close the deal. On top of your down payment and closing costs. That can be a huge and unexpected financial burden.
The solution is built right into the Texas third-party financing addendum. This addendum has a clause, commonly used with FHA and VA loans, where you specify the contract price. If the appraisal comes in below that price, the addendum says the deal gets renegotiated or you can walk away without losing your earnest money. Never sign away your right to appraisal shortfall protection.
How this works in practice: A savvy agent and loan officer working together can use the third-party financing addendum to protect you. The clause slides the contract price into a specific slot, and if the appraisal comes in lower, the deal is either renegotiated or you walk away with your earnest money intact. As a dual-licensed professional, this is something I handle routinely for my clients.
Term 4: Waiving the Financing Addendum
Here is a scenario that happens more often than you might think. You are preapproved, your offer is accepted, you are out of the option period, and you are marching toward closing. Then, on day 15, the underwriter finds something unexpected in your file and denies the loan. Without a financing addendum in your contract, you are out of luck. You lose your earnest money and could even face legal exposure for breach of contract.
The third-party financing addendum in Texas includes a clause called buyer approval. It gives you a set number of days, typically 15 to 20, for the underwriter to approve or deny your loan. If the underwriter denies the loan within that window and through no fault of your own, you can walk away and get your earnest money back. Never omit this addendum from your contract.
One advantage I have as a dual-licensed professional is that I can get loans approved quickly. I can structure the financing addendum with a shorter timeline, often 10 days instead of 20. Sellers love that because it reduces uncertainty, and it makes your offer more competitive while still protecting you if the loan falls through.
Why this matters: Even with a preapproval, loan denials happen. Changes in your credit report, employment verification issues, or property condition problems can all surface during underwriting. The financing addendum is your safety net. Without it, you are writing a blank check with your earnest money.
Term 5: Handshake Deal for Seller Stay After Closing
This one sounds harmless. The closing is set, you sign the papers, the loan funds, and you own the home. But the sellers say they need a few extra days to finish moving, and you agree on a handshake that they can stay for a week after closing. Do not do this without a formal written agreement.
After closing, you are the owner. If the sellers stay without a written lease, you have no recourse if they damage the property, fail to leave on time, or cause other issues. In Texas, there is a specific form for this situation: the seller's residential temporary lease, published by TREC. This form outlines exactly how long the sellers can stay, how much rent they will pay per day, and requires a security deposit upfront to cover any potential damage.
Never rely on a handshake or a side agreement when the sellers need to stay after closing. Even if you are trying to be accommodating, put everything in writing. Use the formal seller's temporary lease to protect yourself. It is a simple document that prevents major headaches down the road.
Patrick's advice on seller stays: It is fine to let the sellers stay after closing if that helps the deal come together. But always use the proper TREC form for a seller's residential temporary lease. Specify the move-out date, the daily rent amount, and collect a security deposit. This is a standard part of the process, not an unusual request.
Patrick's Take: Why a Dual-Licensed Professional Protects You
I see both sides of every contract. As a loan officer, I know exactly what your lender will require, how appraisal shortfalls work, and how to structure the third-party financing addendum so your earnest money is protected. As a real estate agent, I know how to negotiate terms that protect you while keeping your offer competitive. That dual perspective is something most buyers never get from a single person.
The five terms I shared today are not just random gotchas. They are the most common ways I see first-time buyers put their earnest money at risk. A nonstandardized contract you did not have reviewed, a waived option period, an appraisal shortfall you agreed to cover out of pocket, a missing financing addendum, or a handshake deal for the seller to stay after closing. Each one can cost you thousands of dollars or worse.
My advice is simple: the contract is your protection. Read it carefully. Understand every term before you sign. And work with someone who has been through hundreds of transactions and knows what to look for from both the real estate and financing perspectives.
Checklist: Contract Protections to Verify Before Signing
Use this checklist when your agent presents the purchase contract. Never sign until you can check every item.
Contract is standard TREC form (or reviewed by an attorney if nonstandard)
Never sign a builder or FSBO contract without attorney review
Option period is included (7 to 10 days recommended)
This protects your earnest money during the inspection window
Appraisal shortfall protection is in the third-party financing addendum
Specify what happens if the appraisal comes in below the purchase price
Third-party financing addendum (buyer approval clause) is included
Protects your earnest money if the loan is denied through no fault of your own
Seller's temporary lease in place if sellers stay after closing
Never rely on a handshake, always use the formal TREC lease form
Earnest money amount is reasonable (around 1% of purchase price)
Anything significantly above 1% should be discussed and understood
Frequently Asked Questions
What is a nonstandardized contract and why is it risky?
What happens if I waive the option period?
What happens if the appraisal is lower than my offer?
Do I need a financing addendum if I am preapproved?
Can I let the sellers stay after closing without a lease?
Continue Your Education
Explore more resources from Patrick to master every step of the home buying process.
Complete First-Time Home Buyer's Roadmap
Full start-to-finish guide
Home Inspection Negotiation Guide
Use the inspection to negotiate a better deal
Fixer-Upper Homes and Renovation Loans
Finance repairs and build equity
Video Library
Watch Patrick's educational videos
Ask Patrick
Get your questions answered
Ready to Start Your Home Search?
Every buyer journey is different, but the first step is always the same: a conversation. I will help you understand your options, run the numbers, and build a plan that fits your goals and your budget. Whether you are looking in San Antonio, Bulverde, or anywhere across the Texas Hill Country, I am here to guide you through every step from pre-approval through closing.
Patrick Kevin Fagan
Loan Officer and Realtor · AXEN Realty LLC · San Antonio and Texas Hill Country
Licensed Sales Agent · 454749 · TX
Sincerely, Patrick Kevin Fagan