Like-Kind Exchanges

Like-kind exchanges are useful but technical. There is risk of error. They can take numerous forms, and planning early yields best results. The best practice when undertaking an exchange is to have first-class advice and to follow that advice.

William D. Elliott tax attorney Elliott, Thomason & Gibson LLP

Economy

The national economy is plagued by uncertainty and contradictory data, and it’s trending toward a modest recession probably by the end of the year. The state’s economy is stronger and better suited to withstand the national downturn. It will decline somewhat from national pressures, but overall it should recover more quickly than many other states.

Dr. James Gaines former chief economist Texas Real Estate Research Center

Water Management

The state has a vigorous planning process focused on development of plans to meet 50-year demands through regional planning groups. Regional plans are then woven into a statewide plan. However, impediments to new water development still present a challenge.

Conservation to reduce demand is the easiest way to make our water go further, but it is hard to achieve when water is inexpensive despite its importance.

Russell Johnson partner McGinnis Lochridge

“We’ve had three different administrations and three different Waters of the United States (WOTUS) rules, and we still don’t really know what it is.” A new rule took effect March 20, 2023.

Rusty Adams research attorney Texas Real Estate Research Center

Energy Usage

Because the energy transition has been performed too aggressively, Texas is seeing backlash “behavior” regarding market instability. There are physical constraints that will stop the adoption process:

• Metal and mineral prices related to the transition are rising.

• Mining investing is not happening at a required rate.

• Technology advancements are not happening as quickly as needed for the transition to occur.

Natural gas demand is low this year, but it will increase over the next five to ten years. Expect increased natural gas prices in the U.S. as new liquefied natural gas (LNG) terminals come online.

Dr. Detlef Hallermann clinical professor and director of Reliant Energy Trading Center Texas A&M University

State Growth

People are still coming to Texas from other states and other countries, and the pressure this growth puts on infrastructure, housing, jobs, social services could be overwhelming.

Dr. James Gaines former chief economist Texas Real Estate Research Center

Q. A seller and buyer have a fully executed contract. The inspections have shown that the septic system is completely failing. The option period is over, but the lender wants the septic replaced. The seller does not want to replace it. How does the buyer get out?

A. If this septic system replacement is a “lender-required repair,” it might be more than 5 percent of the sales price. If it is, under paragraph 7E of the One to Four Family Residential Contract (Resale), the buyer can terminate and receive a refund of her earnest money. Use TREC Form 38-7 to give notice of termination. In paragraph (8), identify contract paragraph 7E as the reason for the termination.

Q. Our buyer and the seller have agreed to split evenly the amount of lender-required repairs. The bid is for a total of $20,000. How do we write this up?

A. On TREC Form 39-9 “Amendment,” paragraph 5, you would fill in $10,000 in each blank, then have both the buyer and seller sign the form.

What the Law Says

The contract is a binding agreement between the parties to the transaction. All terms of the parties’ agreement for the transaction should be reflected in the contract or addenda. Paragraph 7E of the contract provides that if the cost of lender-required repairs exceeds 5 percent of the sales price, the buyer may terminate the contact and the earnest money will be refunded to the buyer. This provision is independent of any option period purchased by the buyer.

For Example

The Joneses have a property under contract with a sales price of $300,000. The option period has ended. An inspection shows that the septic system is old and outdated. The Joneses’ lender is requiring that the septic system be replaced before they close on the loan. The sellers refuse to replace the septic system, which is estimated to cost $20,000. Buyers could terminate the contract and get a refund of the earnest money because the cost of lenderrequired repairs exceeds 5 percent of the sales price ($15,000).

Best Practice

Broker training on contracts and negotiations should include what strategies and negotiations might take place regarding lender-required repairs. The TREC contract provides that lender-required repairs will have to be done.

Q. In the example, what are the buyer’s options?

However, it does not specify who will pay for those repairs. The repairs must be done for the lender to make the loan. This becomes a negotiation.

Bonus Question

A. The buyer could negotiate with the seller to pay all or a part of the septic replacement, or the buyer could walk away and expect a refund of the earnest money. Keep in mind that even if the seller agrees to pay for the new septic system, the buyer still has the right to terminate when the repair exceeds 5 percent of the sales price.

Nothing in this publication should be construed as legal advice for a particular situation. For speci c advice, consult an attorney. Lewis (kerrilewis13@gmail.com) is a member of the State Bar of Texas and former general counsel for the Texas Real Estate Commission (TREC). Wukasch (avis@2oldchicks.com) is a broker and former TREC chair.