Real Estate 1 lesson 4

National Association of REALTORS® Code of Ethics in Article 2 which states

"REALTORS® shall avoid exaggeration, misrepresentation or concealment of material facts relating to the property or the transaction. REALTORS® shall not, however, be obligated to discover latent defects in the property, to advise on matters outside of the scope of their real estate license, or to disclose facts which are confidential under the scope of agency or non-agency relationships as defined by state law."

Under Article 2, Standard of Practice (SOP) 2-1 states:

"REALTORS® shall only be obligated to discover and disclose adverse factors reasonably apparent to someone with expertise in those areas required by their real estate licensing authority. Article 2 does not impose upon the REALTORS® the obligation of expertise in other professional or technical disciplines."

A broker who acts as an intermediary in a transaction shall

(1) shall treat all parties honestly; (2) may not disclose that the owner will accept a price less than the asking price unless authorized in writing to do so by the owner; (3) may not disclose that the buyer will pay a price greater than the price submitted in a written offer unless authorized in writing to do so by the buyer; and (4) may not disclose any confidential information or any information that a party specifically instructs the broker in writing not to disclose unless authorized in writing to disclose the information or required to do so by The Texas Real Estate License Act or a court order or if the information materially relates to the condition of the property

From 1913 until 1993 the National Association of REALTORS® (NAR) mandated that all brokers

(both listing and selling) represent the seller as a client and work with the buyer as a customer.

Duty of Fidelity- Chapter 531 (Rule 531.1, "Fidelity") of the Rules of the Texas Real Estate Commission (TREC)

) that the primary duty of the real estate agent is to represent the interests of the agent's client, and the agent's position, in this respect, should be clear to all parties concerned in a real estate transaction; that, however, the agent, in performing duties to the client, shall treat other parties to a transaction fairly; (2) that the real estate agent be faithful and observant to trust placed in the agent, and be scrupulous and meticulous in performing the agent's functions; (3) that the real estate agent place no personal interest above that of the agent's client. (531.1

b) A license holder may be appointed under this section (associated license holder acting as intermediary) only if

) the written consent of the parties under Section 1101.559 authorizes the broker to make the appointment; and (2) the broker provides written notice of the appointment to all parties involved in the real estate transaction.

Do

- A broker needs to be sure that the actions of agents reflect and are consistent with the services offered to the consumer whether they are as a customer or a client. Clear communication is the most effective way to ensure this.

Agent

- A real estate licensee that is acting in agency relationship on behalf of a client. This is usually evidenced in the form of an employment agreement such as a listing agreement

Agency

- A relationship in which one person, the agent, is authorized to represent the interests of another, the client, in business dealings with third parties.

Imputed Notice

- In similar fashion to imputed knowledge, imputed notice provides that once a client's agent has been notified of any action, it is assumed that the client has also been notified. For example, if an agent who represents a buyer is informed by the listing agent of the seller's acceptance of an offer, it is assumed that the buyers have also been notified. If the agent should delay notifying the buyer client of this acceptance and the buyer has decided to withdraw the offer after the acceptance has been communicated to their agent, they will still be bound to the agreement. They were obligated once their agent was notified

Customer/third party

- The consumer or agent who receives information, services, or benefits but has no agency relationship with the licensee or licensee's firm.

Imputed Knowledge

- This is the concept where knowledge possessed by one agent in a company is assumed to be the same knowledge possessed by all other agents in the company and the client. The prevailing sentiment on this legal issue is that in large companies it is unrealistic and even preposterous to assume all agents possess all of the knowledge about a client and/or property represented by the broker.

Sources of Agency

-Texas Consitution -State Statutes (most prom. statue is in TX real estate licensing act where agents may be subject to disciplinary action if they acted for more than one party in a transaction without knowledge and consent of both parties -Texas Real Estate Commision (TREC) -common law -Code of ethics of NAR -industry wide practice -

In protecting the principal (client), a buyer's agent needs to:

-promote and protect client interest -look as if its for yourself -disclose any facts -points out red fags -respond to questions -identify sources when passing along info to client

A buyer's agent's duties would include the following:

-req a SDN -advise inspections -req a home warranty -explain contract -advise of issues in contract -point out red flags -consider obtaining property profile -get buyer TREC or TAR consumer advisory info -provide buyer advisory

Representation disclosure does not include;

1) a meeting that occurs at a property that is held open for any prospective buyer or tenant; or (2) a meeting or written communication that occurs after the parties to a real estate transaction have signed a contract to sell, buy, or lease the real property concerned

The Agent's Duties to the Principal

1. Duty of fidelity 2. Duty of care 3. Duty of obedience 4. Duty of accounting 5. Duty to disclose facts

TRELA also requires that a licensee disclose anything that could materially or adversely affects the consideration to be paid by any party in the transaction to any party in the transaction in writing before completion of the transaction. Some items identified under this section include:

1. Material defects 2. Liens and/or encumbrances 3. Possible inability of seller or lessor to complete the transaction 4. Possible inability of buyer or lessee to complete the transaction

The disclosures, advice, and counsel offered to the client will depend on the following:

1. The facts of each transaction 2. The knowledge and experience of the client 3. The questions asked by the client 4. The requests and requirements of the client 5. The nature of each property 6. The terms of the sale

Texas Disclosure Guidelines

2 requirements to disclosing agency: tell everyone whom you represent at first contact, give written statement (IABS) at first substantive discussion about a property

Loyalty

: An agent has a duty to protect and promote his or her client's interests in the transaction even above the agent's own interests.

Mutual agreement of the parties or bilateral termination

: If the agent and the client elect to mutually terminate their agreement, this would also serve to terminate such a relationship. This would require the mutual consent of both parties (broker and client) and should be done in writing in the form of a "mutual cancellation

accounting

: The agent has a duty to be able to account for all monies and other property contributed by the client and how it is allocated in the transaction

Completion of performance

: When the contemplated act is completed whether it is to sell a property for a seller or assist a buyer in the purchase of a property, this would constitute the completion of the act. The completion would occur when the contemplated transaction closes

Sec. 1101.560. ASSOCIATED LICENSE HOLDER ACTING AS INTERMEDIARY

A broker who complies with the written consent requirements of Section 1101.559 may appoint: (1) a license holder associated with the broker to communicate with and carry out instructions of one party to a real estate transaction; and (2) another license holder associated with the broker to communicate with and carry out instructions of any other party to the transaction.

Duty of Obedience

A fiduciary relationship requires that the agent act in good faith at all times, making a conscious effort to obey the principal's instructions as set forth in the contract unless illegal

Duty to Disclose Material Facts

A material fact in a real estate transaction is any fact that is significant or essential to the transaction - that is, any piece of information that could reasonably be expected to influence a prudent individual's decisions regarding the transaction

Chapter 531 (Rule 531.2, "Integrity") of TREC's Rules describes this duty as follows:

A real estate broker or salesperson has a special obligation to exercise integrity in the discharge of the licensee's responsibilities, including employment of prudence and caution so as to avoid misrepresentation, in any wise, by acts of commission or omission. (531.2

Confidentiality

Agents must keep confidential whatever the client confides in them unless the item is a material fact

Termination of relationship by notice from either party to the other or unilateral termination:

An agency relationship can be terminated unilaterally by either the client or the broker. However, this termination would not affect the contractual rights set forth in any employment agreement. For example, if a seller decides to list with a broker while his or her property is still listed exclusively with a different broker, he or she can terminate the listing with the original listing broker but would likely owe commissions to both brokers if there is a resultant sale with the new broker. The laws and REALTOR® Code of Ethics do require that this be disclosed to the sellers by the new broker. The prevailing sentiment is that any termination should be done mutually and done so in writing

Disclosure (full)

An agent has the duty to fully disclose to clients anything that could benefit the client's negotiating position with the other party in the transaction or pertinent to the property or transaction

the agent

An agent is any individual acting as a representative for another individual in dealings with a third party. The agent is authorized by the person he or she represents to act on that person's behalf.

Obedience

An agent must obey all lawful instructions of the client and to not exceed the authority given them by the client

accountability

An agent's representations to a client, whether they are written or verbal, can be relied upon by the client. This was upheld in a case in Arizona called Darner Motor Co. v. Universal Underwriters where Darner Motor Company had the right to rely on the verbal representations of the Universal insurance agent

REALTORS® Code of Ethics provisions on representation:

Article 1 states that the REALTOR® shall promote and protect the interests of their client. Under common law this would also mean that the REALTOR® has the obligation to dothis even above his or her own interests in the transaction. SOP 1-9 states that the REALTOR® is obligated to preserve confidential information provided in the course of any agency relationship, even after the agency relationship terminates without the consent of the client. The agent's vow of confidentiality under his or her fiduciary duty continues forever.

Reasonable care and diligence

As with the ministerial duty of reasonable skill and care, the agent does owe a duty to provide at least the standard of care to the client but also has a greater obligation to make sure that the client has theopportunity to perform the "due diligence" necessary to make a completely informed decision that would favor their interests in the transaction.

Fiduciary Duties

Confidentiality Accounting Reasonable care and diligence Loyalty Obedience Accountability Disclosure

Defining and Communicating Agency Responsibilities

Decide Disclose Document Do

the principal's duties to the agent

Duty to compensate the agent • Duty to provide information • Duty of indemnification • Duty of availability

Ministerial Duties

Honesty, Disclosure of material facts, Accounting, Reasonable skill and care, Fairness

Sec. 1101.559. BROKER ACTING AS INTERMEDIARY.

IF (1) the broker obtains written consent from each party for the broker to act as an Intermediary in the transaction; and (2) the written consent of the parties states the source of any expected compensation to the broker.

Duty of Indemnification

In addition to providing compensation, the principal has a responsibility to reimburse the agent for any financial losses incurred while carrying out the real estate transaction (beyond the cost of promotional efforts, which are the agent's responsibility). This is considered a "hold harmless" clause, releasing the agent from all damages except those resulting from the agent's own negligence or fraud.

Another way to help you remember fiduciary duties is by the acronym OLD CAR.

Obedience Loyalty Disclosure Confidentiality Accounting Reasonable care

Sec. 1101.558.

REPRESENTATION DISCLOSURE.

Brokers are the only Texas

Real estate professionals who can officially enter into an agency relationship with a buyer or seller

agency types:

Sellers Agent buyers agent limited representative/dual agency sub-agent

Decide

The broker must decide who is going to be offered services as a customer or a client and in what situations. This must take the form of an office policy and be clearly communicated to the agents employed by the broker. It is also important to remember that the consumers have the right to consent or not consent to these offers of services

"IF THE BROKER ACTS AS AN INTERMEDIARY

The broker must obtain the written consent of each party to the transaction to act as an intermediary. The written consent must state who will pay the broker and, in conspicuous bold or underlined print, set forth the broker's obligations as an intermediary.

Client

The consumer who has an agency relationship with the licensee and/or the licensee's firm.

Prospect

The consumer who is not subject to a representation relationship with the licensee or licensee's firm.

Duty of Accounting

The details of any financial transactions should be accurately recorded; proof of any deposits or exchanges of funds should be issued to the parties involved. status of these funds must be available at all times

Document

The disclosure must be properly documented to ensure clear communication and the accompanying evidence. This is achieved by using the INFORMATION ABOUT BROKERAGE SERVICES form at the inception of any relationship with a prospect.

Sec. 1101.561. DUTIES OF INTERMEDIARY PREVAIL.

The duties of a license holder acting as an intermediary under this subchapter supersede the duties of a license holder established under any other law, including common law

Disclose

The offering of these services must be clearly disclosed and the agent must clearly define the differences in how services are going to be delivered to a customer or a client. This disclosure must be done in a timely and meaningful manner, which is usually at the initial meeting between the consumer and the agent

the principal

The principal is the individual who authorizes another person to act on his or her behalf. This person may also be referred to as the client

the agent does not need to provide a written agency disclosure statement if

The proposed transaction is for a residential lease for not more than one year and a sale is not being considered; or • The license holder meets with a party who is represented by another license holder

the third party

The third party is also sometimes referred to as the customer. This individual may be a prospective seller, buyer, landlord, or tenant - anyone who expresses real interest in completing a contract toward the sale, purchase, or rental of real property and is both ready and able to do so. The third party is the person the agent is not representing.

buyers agent

This agent acts as a broker for the buyer only. This is most often true even if this agent is compensated by the seller or seller's broker. This agent does not act as an agent for the seller and owes a fiduciary duty to the buyer in addition to ministerial duties.

sellers agent

This agent acts as broker for the seller only and normally under a listing agreement. A listing agreement is an employment agreement and any agreement identified as a "listing" is considered as such. The agent would therefore have a fiduciary duty to the seller in addition to ministerial duties, which are owed to all parties by the agent.

sub-agent

This is an agent of a person who is already acting as an agent for a principal. In essence, this is "an agent of an agent." They are empowered and authorized to act on behalf of an agent. The broker is normally the agent who provides this authorization. The individual licensees are sub-agents of the broker; therefore they are sub-agents of all of the clients of the firm

Designated Licensee Representation

This is where individual licensees in the same firm can individually represent buyers and sellers in the same transaction. In some states this is an alternative to dual or limited representation that has been codified. In Texas, this practice occurs when the parties to a transaction do not wish to consent to dual agency. The broker then has the option of becoming an "Intermediary" and appointing a licensee to represent the seller only and another licensee to represent the buyer only.

Limited Representation/Dual Agency

This party acts as a broker for both the buyer and seller through one or more salespeople within the same firm. In other words, two salespeople working for the same firm would represent both the buyer and the seller in the transaction as would one individual agent orchestrating the transaction between the buyer and the seller. This is because that under the common law of agency there is one agent per employing broker and any agent employed by that broker must represent whoever the broker represents.

Broker A was advertising his brokerage services in the newspaper while his license was inactive and being renewed. Broker A has held his license for five years. Is Broker A violating any TREC rules by continuing to advertise his brokerage services during the inactive period?

YES. According to Section 1101.351 (b) of the Real Estate License Act, no individual may sell, lease, advertise, or exchange real estate services without an active license. If the licensee is a salesperson, then he or she may only sell, lease, advertise, or exchange real estate while acting under his or her sponsoring broker. If that sponsoring broker's license status is "inactive," then all agents must stop providing real estate services until the broker renews his license.

A broker must agree to act as an intermediary under this subchapter if the broker agrees to represent in a transaction

a buyer or tenant; and (2) a seller or landlord.

Duty of Care

a licensee must rep and act with principals best interest, the agent can be held professionally liable for any loss the principal suffers as a result of the agent's negligence. Agents must protect their clients from foreseeable harm

"IF THE BROKER REPRESENTS THE BUYER:

agent must disclose to the buyer any material information known to the agent

gratuitous agency

an agent can agree to work for no compensation, agent must still honor all duties of an agency relationship and principal must honor his or her duties

An agency relationship is created when

an individual authorizes another party to represent him or her and act in his or her best interest

once substantive dialouge occurs

between an agent and a potential client or third party, the agent must give the person a written statement that outlines Texas agency law. (does not include meetings that occur at open houses) nor does this cover meetings or communications that occur after parties have signed a contract to sell, buy or lease

Ultimately, agency is the fiduciary relationship

between one individual (the principal) and another (the agent). In this relationship, the agent acts on behalf of the principal to negotiate with a third individual (the third party), subject to the principal's control and consent

Article 16 states that an agent

cannot engage in any practice or take any action inconsistent with exclusive representation or exclusive brokerage relationship agreements that other REALTORS have with their clients. a REALTOR is prohibited from soliciting prospects who are subject to current exclusive listings

agents and any salespeople cannot wait any longer than

close of second business day after signing of a contract to make these deposits money can be in escrow account

Texas license Law forbids

commingling- mixing of funds for principals and personal or business accounts

A license holder who represents a party in a proposed real estate transaction shall

disclose, orally or in writing, that representation at the time of the license holder's first contact with: another party to transaction, or another license holder who reps another party

A real estate broker or salesperson, while acting as an agent for another,

fiduciary

Duty to disclose facts

fiduciary, proper factual disclosure is one of the most important tasks, sometimes involves conflicting opinions

On the other hand, if an agent represents the seller in a transaction and the seller knows of a structural problem in the house, that information is not imputed since such knowledge is not imputed down to the agent. However, the agent may

have liability for the lack of due diligence by not asking for such information. This is one of the benefits of the agentadvising the seller to provide a SELLER PROPERTY DISCLOSURE STATEMENT (SPDS

When a broker represents both sides (buyer and seller or landlord and tenant) of a real estate transaction

he or she is acting as an intermediary.

A broker may act as an intermediary between the parties

if the parties consent in writing.

In the context of real estate transactions, the agent

is a licensed representative of the seller, buyer, landlord, or tenant and facilitates the sale, purchase, exchange or lease of real property for others

This relationship is fiduciary because

it is based on the principal's trust and confidence that the agent will act dutifully and responsibly as his or her representative. A fiduciary relationship is based on the law of agency that dictates the duties owed to the principal and third party by the agent.

agent must dislose----

latent, or hidden defects in property that may not be identified in an ordinary inspection but which could alter the customers decision regarding the property

under texas real estate license law, particular info not considered material facts...

licensee is not required to inquire about, disclose, or release info relating to previous or current occupant has or had, AIDS, HIV, death by natural, suicide, accident unrelated to condition of property

Implied agency

may be created by actions or words, often accidental or unintentional, does require consent,agents should take special care to not act beyond their intentions at the initial interaction with the prospect

express agency

mutual agreement between the client and the agent. It can be either created by written or oral agreement but is most often more advantageous if it is done in writing. In most cases agency is created with sellers by agents with a listing agreement. With buyers, it is most often created orally although many agents do use buyer/broker employment agreements

Duty to compensate the agent

principal must pay agreed-upon commission to the agent unless all parties agree on something else,

Duty of availability

principal needs to make an effort to be available for all activities

A license holder shall provide to a party to a real estate transaction at the time of the first substantive dialogue with the party the written statement prescribed by Subsection (d) unless:

proposed transaction is for a residential lease for not more than a year, and sale is not considered or, license holder meets with a party who is rep by another license holder

Brokers in texas are highly

regulated by TRELA they must provide agents with a policy manual, ascertain the agents are well trained and keep their licenses current, and keep them informed of any changes in the license act or rules of the commission

SOP 16-13 states

s that all dealings with a client who is subject to an exclusive agreement shall be carried on with the client's representative or broker, except with the consent of the client's representative or broker or except where such dealings are initiated by the client. This standard of practice also provides that before providing substantive services such as writing an offer or preparing a competitive market analysis (CMA), a REALTOR® should ask the prospects whether they are subject to any exclusive representation agreement.

SOP 16-6 states

s that if an agent is contacted by the client of another REALTOR® and the client initiates the discussion, the agent may discuss the terms upon which the agent may enter into an exclusive relationship that takes effect when the current exclusive relationship expires

SOP 16-9 states

that the REALTOR® needs to make reasonable efforts to determine if the prospect is subject to a current, valid exclusive agreement to provide the same type of real estate service before entering into a representation agreement with the prospect. For example, if the REALTOR® is looking to list a property exclusively, he or she should determine is the property is subject to any other listing before taking the exclusive listing

SOP's 16-7 and 16-8 state

that the fact that a prospect retained a REALTOR® as an exclusive representative or exclusive broker in one or more past transactions does not preclude other REALTORS® from seeking such prospect's future business, or from entering into a similar agreement after the expiration of the prior agreement.

Duty to Provide information

the agent is usually not held responsible for any false statements made by the principal unless the agent had reason to believe they were false

the agency relationship

the agent works for the principal and works with but not for the third party Principal--Agent--Third party third parties are entitled to fairness, honesty and full disclosure of material facts about the property

an owner's agent must disclose

to the owner any material information known to the agent.

it is that broker who is

ultimately responsible for salespersons' actions and the true representative of the client when hired for the purposes of conducting real estate business

The written statement required by Subsection (c) must be printed in a format that

uses at least 10-point type and read as follows: "Before working with a real estate broker, you should know that the duties of a broker depend on whom the broker represents. If you are a prospective seller or landlord (owner) or a prospective buyer or tenant (buyer), you should know that the broker who lists the property for sale or lease is the owner's agent.

A broker can assist you in locating a property, preparing a contract or lease, or obtaining financing

without representing you. A broker is obligated by law to treat you honestly.

Expiration of the term agreed upon by the parties

would still owe confidentiality to the client even after the agreement expires. For example, if an agent has a listing that expires, the agent would still be bound to keep any information confided in them by the client, that is not a material fact in any further contemplated transaction, confidential. This obligation is eternal in its duration