Texas Real Estate Agency 9E Ch 9

Q: What can a license holder do to avoid criminal or disciplinary actions?

A: First, a broker should not let her license or any of her sponsored sales agents' licenses lapse. The lapse of a license, often inadvertent, is a common basis for disciplinary action on the grounds of improper unlicensed activity. - Second, analyze any new factual situation according to the rules just stated to determine the extent to which the unlicensed person is being allowed to act with discretion, and how close the unlicensed person is "directly" assisting others in buying, selling, or leasing property. If still troubled, contact your attorney. You may also contact the commission for an informal opinion based on a particular fact situation. Managing brokers might gain some protection from disciplinary action by establishing written guidelines and training dictating to both their agents and unlicensed personnel what is allowed and not allowed of nonlicense holders.

Q: May the unlicensed assistant host an open house?

A: No, effective December 20, 2016, the commission changed the rules so that an unlicensed assistant can no longer host an open house.

Q: May an unlicensed person, identified as such, make calls to determine whether a person is interested in buying or selling property, or has property they wish to sell, and if so, make an appointment for a licensed agent to talk to them

A: No. Often referred to as telemarketing, any such activities conducted in Texas must be conducted by a license holder. - In Tex. Atty. Gen. Op. H-1271 (1978), the attorney general concluded that a license was required. - Also, Commission Rule 535.4(e) makes it clear that all solicitation work must be conducted by license holders.

Q: May an unlicensed person open doors for prospective buyers or tenants?

A: No. Rule 535.4(c) states that a person must be licensed as a broker or sales agent to show a broker's listings. - An unlicensed assistant cannot perform any activities for a license holder that requires a license, and therefore, cannot show a property. - This rule was amended last year to clarify that to show includes opening doors, allowing access to a property, or hosting an open house. This is a change from a previous interpretation that was contained in an old article regarding unlicensed assistants. - After the criminal background check requirement became law, that interpretation became outdated and was no longer correct. - Also, most license holders agree that many unlicensed assistants who did open properties for prospective buyers in the past offered information or answered questions about the property or neighborhood that clearly crossed the line into brokerage activity. The bottom line is an unlicensed assistant cannot show property for a license holder; this includes providing access to homes for sale and for lease.

Q: May unlicensed persons serve as property managers for rental properties?

A: Those who hold themselves out as property managers for others and for compensation must be licensed, provided the person also rents or leases the property for the property owner. In addition, Section 1101.002(1)(A)(x) of the Real Estate License Act requires a license for a person who controls the acceptance or deposit of rent from a resident of a single-family residential real property unit. Section 535.4(g) of the Commission Rules provides that a person controls the acceptance or deposit of rent if the person has the authority to use the rent to pay for services related to management of the property or has the authority to deposit the rent into a trust account and sign checks or withdraw money from the account. Many property management activities, such as bookkeeping and arranging for repairs, do not generally require a license. However, only a license holder may be a signatory on brokerage trust accounts under Commission Rule 535.146(c)(7). So long as an unlicensed person carefully limits her property management activities to those which do not require a license, neither criminal charges nor commission disciplinary action would be warranted. Note that persons acting as on-site managers at apartment complexes are exempt from licensure under Section 1101.005(7) of the act.

Broker to Other Sales Associate

Ex. broker A of ABC Real Estate, Inc., and sales associate B of XYZ Real Estate, Inc., are in an arm's-length relationship. The sales associate functions only through her broker, and when talking with broker A, has no direct relationship with her. Meanwhile, unseen and unheard, is the broker of sales associate B. All information derived by sales associate B pertaining to a real estate transaction in which she is acting as an agent of her broker is to be transferred to her broker and her broker's client. - A may not give B a fee or commission except through her broker. While the relationship is one of courtesy and respect, A and B are each advocates for their respective clients and generally have opposing goals (e.g., highest price and best terms and conditions for the seller-client versus lowest price and best terms and conditions for the buyer-client)

Common Law Rules

Facts that provide evidence of the degree of control and independence fall into three categories: behavioral control, financial control, and the type of relationship of the parties Behavioral control. Facts that show whether the business has a right to direct and control how the worker does the task for which the worker is hired include the type and degree of: Instructions that the business gives to the worker. An employee is generally subject to the business' instructions about when, where, and how to work. All of the following are examples of types of instructions about how to do work. - When and where to do the work. - What tools or equipment to use. - What workers to hire or to assist with the work. - Where to purchase supplies and services. - What work must be performed by a specified individual. - What order or sequence to follow. The key consideration is whether the business has retained the right to control the details of a worker's performance or instead has given up that right. Training that the business gives to the worker. - An employee may be trained to perform services in a particular manner. Independent contractors ordinarily use their own methods. Financial control. Facts that show whether the business has a right to control the business aspects of the worker's job include: - The extent to which the worker has unreimbursed business expenses. - Independent contractors are more likely to have unreimbursed expenses than are employees. - Fixed ongoing costs that are incurred regardless of whether work is currently being performed are especially important. - However, employees may also incur unreimbursed expenses in connection with the services that they perform for their employer. The extent of the worker's investment. An independent contractor often has a significant investment in the facilities or tools he or she uses in performing services for someone else. - However, a significant investment is not necessary for independent contractor status. The extent to which the worker makes his or her services available to the relevant market. - An independent contractor is generally free to seek out business opportunities. - Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market. How the business pays the worker. - An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time. - This usually indicates that a worker is an employee, even when the wage or salary is supplemented by a commission. - An independent contractor is often paid a flat fee or on a time and materials basis for the job. The extent to which the worker can realize a profit or loss. An independent contractor can make a profit or loss. Type of relationship. Facts that show the parties' type of relationship include: - Written contracts describing the relationship the parties intended to create. - Whether or not the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay. -The permanency of the relationship. If you engage a worker with the expectation that the relationship will continue indefinitely, rather than for a specific project or period, this is generally considered evidence that your intent was to create an employer-employee relationship. - The extent to which services performed by the worker are a key aspect of the regular business of the company. - If a worker provides services that are a key aspect of your regular business activity, it is more likely that you will have the right to direct and control his or her activities. - For example, if a law firm hires an attorney, it is likely that it will present the attorney's work as its own and would have the right to control or direct that work. This would indicate an employer-employee relationship. IRS help. If you want the IRS to determine whether or not a worker is an employee, file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS ...

Definition of Broker Associate

a broker who holds a broker's license but who is associated with another broker in order to become an agent of, but not a partner of, the other broker (principal broker) TREC does not have an associate broker license type TREC defines associate brokers as " "a broker who associates with and gets paid through another broker under a relationship that is intended to be a continuous relationship, including, but not limited to, an employment or ongoing independent contractor relationship." before an associated broker of a principal broker uses a team name or assumed name in advertising, the principal broker must register the name with TREC. When an associated broker of a principal broker stops using a team name or assumed business name of the broker in advertising, the principal broker must notify TREC no more than 10 days after the associated broker stops using the name. associated broker's advertising must include the associated license holder's name and the associated broker's name. The principal broker's name must appear in at least half the size of the largest contact information for the associated broker Before using an alternate name, an associated broker (or any other license holder) must file the alternate name with TREC and provide the legal authority to use the alternate name if the last name is different from the last name on the license issued by TREC TREC does not generally regulate the broker's contractual relationships with other brokers, except for purposes of compliance with TREC's advertising rules. The sales agent or broker associate does not directly represent the buyer or the seller, but instead, represent the principal broker and by way of the principal broker represents the buyer- or seller-client In Texas, it is not legally possible to construct a figurative internal wall within a brokerage firm and argue that because different licensed associates act for the buyer and the seller, no dual representation exists. In Texas, such an attempt likely would not hold up in court or at a TREC disciplinary hearing. The principal broker represents all buyers and sellers for which he has a signed listing contract or a signed buyer representation agreement. That means all of the principal broker's sales agents and the broker associates represent, through the principal broker, all of those same buyers and sellers. Listing brokers should set up internal management controls to ensure that their associates understand these basic agency principles.

If the brokers are REALTORS®, the Code of Ethics addresses "

"Duties to REALTORS"4 Article 15: REALTORS® shall not knowingly or recklessly make false or misleading statements about other real estate professionals, their business, or their business practices (Amended 1/12) Article 16: REALTORS® shall not engage in any practice or take any action inconsistent with exclusive representation or exclusive brokerage relationship agreements that other REALTORS® have with clients (Amended 1/04) Article 17: In the event of contractual disputes or specific non-contractual disputes as defined in Standard of Practice 17-4 between REALTORS (principals) associated with different firms, arising out of their relationship as REALTORS®, the REALTORS® shall mediate the dispute if the Board requires its members to mediate. If the dispute is not resolved through mediation, or if mediation is not required, REALTORS® shall submit the dispute to arbitration in accordance with the policies of the Board rather than litigate the matter. In the event clients of REALTORS® wish to mediate or arbitrate contractual disputes arising out of real estate transactions, REALTORS® shall mediate or arbitrate those disputed in accordance with the policies of the Board, provided the clients agree to be bound by any resulting agreement or award. The obligation to participate in mediation and arbitration contemplated by this Article includes the obligation of REALTORS® (principals) to cause their firms to mediate and arbitrate and be bound by any resulting agreement or award. (Amended 1/12)

IRS's Employer's Supplemental Tax Guide

... 2. Employee or Independent Contractor? An employer must generally withhold federal income taxes, withhold and pay over social security and Medicare taxes, and pay unemployment tax on wages paid to an employee. An employer does not generally have to with-hold or pay over any federal taxes on payments to independent contractors.

Explanation of Independent Contractor Agreement

1. Parties: - This paragraph names the parties to the agreement. - The names of the parties should be clearly identified and accurately spelled. - If a corporation or other business entity is involved, that name should be specifically and accurately used. 2. Term: - The agreement has a commencement date, and references paragraph 21 for the definition of when the agreement ends. 3. Definitions: - This paragraph identifies exactly what certain words in the agreement mean. Every time a specifically defined word is found in the agreement, the complete and precise definition given in this section is how the word is defined. - For example, files is defined in paragraph 3B as "any documents, instruments, contracts, written agreements, disclosures, memoranda, books, publications, records, correspondence, reports, data, lists, compilations, studies, surveys, images, and all other data, whether in written or electronic format, which are related to the broker's real estate business." The term files ❏ includes ❏ excludes associate's prospect lists. - This might differ from a dictionary definition of files. The point is that the definitions section of any contract provides the definition that the parties desire the word(s) to mean specific to that contract. Carefully read any definitions section and refer back to it often for clarification. 4. Best Efforts: - This paragraph clarifies that the associate does not promise to obtain listings and prospects, but will employ best professional efforts to solicit for listings and prospects and provide brokerage services to prospects procured by or assigned to the associate. 5. Exclusive Association: - The associate, by signing the agreement, promises to work exclusively for the broker named in the agreement. The sales agent associate is not allowed under TRELA to represent more than one broker at a time. If the associate desires to be sponsored by a different broker, TRELA requires a formal process in order to place a sales agent license under a different broker. Remember, when you leave one broker and move to a new broker, the listings that you may have acquired belong to the previous broker. - Also, the sales associate is not allowed to do the business of managing property or conducting any brokerage business without the knowledge and written consent of the broker. 6. Legal and Ethical Compliance: - The agreement requires that the associate comply with all applicable laws and standards of practice, including, but not limited to the following: TRELA Rules of TREC NAR Code of Ethics Bylaws of national, state, and applicable local associations of REALTORS® Rules and regulations of any listing services Standards or policies of the broker 7. Licenses and Trade Associations: - The primary purpose of paragraph A is to verify in writing that the broker is legally holding a broker license, is a member of the National Association of REALTORS®, the Texas Association of REALTORS® and a local body of REALTORS®, and will maintain all of those associations and licenses. - In paragraph B, the associate verifies her license status, and indicates whether she is or will become a member of NAR, TAR, and a local board of REALTORS®. In addition, the associate declares that she will maintain her license and keep REALTOR® memberships active and in good standing during the entire time she is affiliated with this broker. 8. Independent Contractor: - The associate agrees that he is an independent contractor. - The broker will not withhold any taxes or Federal Insurance Contributions Act (FICA) tax, unemployment compensation, or workers' compensation, unless ordered by a court of law or the IRS. - The associate must provide the broker a Statement of Understanding each year - The broker is not in a partnership with the associate. 9. Associate's Authority: - This section delineates the type of authority the associate has when acting for the broker. - The broker gives the authority to the associate as follows: The associate may sign listing agreements, buyer or tenant representation agreements, and commission agreements on behalf of the broker. - The associate must comply with paragraph 6 of the agreement in order to be able to have this authority. - All contractual agreements (listings, representation, commission, and others) must be taken in the broker's name. - All of these agreements must be submitted within the time specified in the blank spaces in this paragraph. - The associate does not have the authority to cancel, terminate, or compromise any agreement in the broker's name without the broker's permission. - If, for instance, the associate is on a listing appointment and the seller asks the associate to reduce the commission from 7% to 5%, the associate does not have the authority to do so without the authorization of the broker. - The associate may not bind or obligate the broker to any agreement or relationship other than those authorized in writing by the broker. 10. Files and Confidentiality of Operations: - The same concept of confidentiality that has been discussed between the broker and a seller or buyer-client is true about the relationship between the broker and the broker's agent. - Unless the agent has permission from the broker to divulge confidential information to others, she must have permission from the broker/ principal. - The difficulty in this situation is knowing what information is confidential and what is not. - To make the understanding between agent and associate clear, this section of the Independent Contractor Agreement specifies what is meant concerning confidentiality of operations. - The agent has an obligation to maintain a file. - This requirement goes further and states that the file must be kept in the broker's office and must comply with the format regularly used by the broker for storing files. - The agent agrees that the files and anything related to the files will be kept in confidence and will not be shared with anyone without the knowledge and consent of the broker. There are two exceptions: The law requires the revelation of the information. The information is already public information. - The agreement also clarifies that the agent may not give any information, unless required by law, about 1) the broker's prospects or relationship with any prospects, or 2) the broker's policies and business operations. - Carefully consider the amount of information this requirement covers. The agent must be careful to protect the broker's industry secrets. The broker's ability to compete in the marketplace, and accomplish any financial goals may succeed or be usurped by the words of an agent. The concept is similar for the agent's broker. Anything the agent says may be overheard by the broker's competitor and be used against the broker. - Important: Paragraph 10 survives the termination of the agreement. This means that agents are responsible for keeping the broker's business secrets even after they no longer are licensed under that broker. - Note that all information composed, transmitted, or received on the broker's computer or network is considered part of the broker's records. Any enforcement agency can review it if required by law. The agent may not use, install, copy, or distribute any trademarked or patented material via the internet or by other means. 11. Ownership of Listings and Representation Agreements: - As discussed previously, the broker is the owner of all listings and representation agreements if the broker is named as a party in the contract/agreement. 12. Receipt of Money by Associate: - The associate must promptly deposit all checks or funds received in trust by the associate for others (earnest money deposits, etc.). This must be done according to the contractual requirement of the parties to the transaction. - Real estate sales agents are not allowed to maintain a separate trust account, escrow account, or management account for real estate business purposes. Only the broker may maintain a trust account for these purposes. - This area is one of the most violated areas under TRELA, either by mistake with good intentions or intentionally. 13. Facilities: - This paragraph specifically identifies any facilities at the broker's office that the broker may allow the agent to use for work related to the broker's real estate business. The allowed facility is filled in on the blank spaces. It may include the address of the office from which the associate will work on a daily basis and other locations as deemed appropriate by the broker. The agreement also clearly states that the associate is not required to be present in the broker's office. 14. Advertising: - All advertising related to the broker's business must be placed by the broker or with the broker's knowledge and consent. The broker has sole discretion whether to include the associate's name in such advertising. The associate will always give the broker information and get the broker's consent before placing any advertisement related to the broker's real estate business. - Improper or illegal advertising of real property has serious ramifications. Department of Housing and Urban Development (HUD) regulations, fair housing laws and rules, local/city fair housing laws, the Americans with Disabilities Act, and many other rules and regulations have specific guidelines for proper advertising. Generally, the broker or the broker's manager will review all proposed real estate advertising by the agents to determine whether any wording is incorrect or there are any violations of advertising laws. - This paragraph also clarifies the definition of advertising. The areas of advertising included in the definition are inclusive and cover all publications, newsletters, radio or television broadcasts, electronic media (email and the internet), business stationery, business cards, signs, and billboards. 15. Assignment of Prospects: - This paragraph refers to the definitions section to define the term assign. The broker has the right to appoint an agent to deal with prospects that either the associate or the broker procures. - The broker also has sole discretion in assigning leads and prospects procured by the broker through the broker's real estate business to any of the broker's associates. - Additionally, the broker may reassign a prospect from one associate to another if the broker determines a reassignment of the prospect is necessary for the orderly, ethical, or lawful operation of the broker's real estate business; the associate who was first assigned is not able to continue to provide service to the prospect; or the initial associate's independent contractor agreement terminates. - It does not matter who procured the prospect; this applies to all prospects. 16. Associate's Fees: - TRELA makes it very clear that the broker is paid directly, not the sales agent working for the broker. The TAR Independent Contractor Agreement for Sales Associate restates that again. TRELA also makes it clear that the sales agent is prohibited from paying a fee directly to another person in the real estate transaction. The broker pays and receives the fees. Without specific permission from the broker, the sales associate has no authority to do anything with the money earned on behalf of the broker.This paragraph describes the payment that will be paid to the agent and refers to an attached fee schedule as a source for the specific percentages or amounts to be paid. In order to make the fee schedule part of the contractual agreement, the following words were added to the agreement: "which are incorporated into this agreement." This phrase keeps the fee schedule from being extraneous material and thus not allowed as a part of the contract by the courts. - When is the associate's fee earned and payable under this agreement? Earned: At the time the broker's fees are earned under the applicable agreements for brokerage services that the associate performs for the broker. Payable: At the time the broker receives broker's fees under the applicable agreements for brokerage services. Exception: Unless the fees are subject to arbitration, litigation, or a court order. - If an associate of the broker claims a fee from a transaction for which another associate also claims a fee, the amount of the fee payable to the associate will be divided between the associate and the other associate claiming the fee in accordance with an agreement between them 17. Expenses: - The broker is not liable for any expenses incurred by the associate. The associate is not liable to the broker for the office facilities that broker provides under the agreement. The broker and the associate have the right to contract otherwise. - This paragraph refers to the definition section and allows the broker to write or type in any conditions concerning special expenses. - Note: Special expenses may include items such as desk fees, transaction fees, errors and omissions insurance premiums, franchise fees, and the like. Special expenses will be deducted from the gross fees that the broker receives and paid to the providers of the special services before calculating the associate's fees payable under the agreement; invoiced to the associate by the broker and due and payable upon receipt of the invoice; and charged to associate in accordance with either the attached fee schedule or some other named document. 18. Offset: - The broker has the right to deduct any amount owed by the associate to the broker from any amount owed by the broker to the associate. 19. Defense of Disputes and Litigation: - If one of the parties to a transaction that the associate is conducting complains, files a lawsuit, or brings a dispute, the broker and the broker's sales associate promise to cooperate fully with each other to defend the action. - Note: The broker is a separate entity, even though the sales associate is functioning as the broker's agent. The sales associate may want to consider having his own legal counsel to defend against any lawsuit or complaint filed against the sales associate or the broker. - Payment of any deductible amounts from errors and omissions insurance will be paid as stated in the blank space in this paragraph. - This agreement states the following: If any defense expenses are not paid by an errors and omissions insurer, Broker and Associate will share all such expenses and costs related to defend the dispute, litigation, or complaint in the same proportion as they would share the fee resulting from the transaction as if there were no dispute, litigation, or complaint; provided that both broker and Associate are named as defendants or respondents to the dispute, litigation, or complaint. The sales associate contemplating signing any independent contractor agreement needs to pay particular attention to any promise to co-litigate or co-defend in a lawsuit. The associate and/or broker may determine that she cannot mutually defend a dispute, litigation, or complaint with the other party. In that case, each party will be responsible for its own costs to defend the dispute. Notification to the other party of this choice by one of the parties is required. - If the broker and the associate agree to co-defend in the litigation or dispute, the broker has sole discretion to do the following: Determine whether to defend or compromise Employ attorneys or other experts Direct the course of any defense strategy Determine the terms and conditions of any compromise or settlement Exception: The broker may not obligate the associate to pay anything of value without the associate's written consent. - Notwithstanding paragraph 19F, the broker and the associate are each responsible for the payment of any amounts for which they are found individually liable. - If the associate is negligent, misrepresents, commits fraud, makes false statements, violates TRELA, or violates any other state or federal statute, and the broker is found liable by a court, arbitrator, or government agency, the associate will indemnify and reimburse the broker all expenses necessary to defend against such action. - Paragraph 19 survives the termination of the agreement. 20. Prosecution of Claims: - The broker retains all rights to either sue or not sue, or bring a complaint, or settle any claim that the broker may have against any person. The sales associate has no authority to make this decision. 21. Termination: - The broker and/or the associate may terminate the independent contractor agreement. Written notice to the other party must be given. - Any fee to the associate that remains unpaid on the date of termination is to be paid in accordance with the following: The attached schedule Any other fee schedule mentioned in the blanks in this paragraph - Once terminated, all negotiations and other brokerage services commenced by the associate are terminated. - Once terminated, the associate is obligated to do the following: Cease all negotiations Provide the broker a written list of all current listings and pending sales and leases Turn over to the broker all files related to the broker's real estate business Turn over to the broker all the broker's personal property (keys, signs, equipment, supplies, manuals, forms, etc.) - The associate may not remove any files related to the broker's real estate business from the broker's office unless the associate has the written consent of the broker. 22. Notices: - All notices (legal communication between the parties) must be in writing and are effective when hand-delivered, mailed, sent by facsimile transmission, or sent by electronic mail from one party to the other. - Note: If the associate wants to notify the broker, she must use one of the listed forms of notice specified by the broker. If the associate tries to use some other form of notice, the law may not recognize that the attempted notification by the sales associate to the broker took place. 23. Special Provisions: - This blank section in the agreement is used for agreements of the parties that are not already stated in the agreement. Because both the associate and the broker are parties to this agreement, they are both allowed to write additional stated agreements in this section. 24. Agreement of the Parties: - Once again, the fee schedule, Statement of Understanding, IRS Form W-9, and any additional form written into the blank spaces are made a part of the agreement. - The document contains the entire agreement between the parties. It must have the agreement of both parties to be changed. - The agreement may not be assigned to any other party except with the written agreement of the other party. - The parties' obligations and rights become a benefit to the respective party's successors, permitted assigns, heirs, executors, and administrators. - The laws of the State of Texas govern the interpretation, validity, performance, and enforcement of the agreement. - If any clause is not valid or enforceable by a court of law, the remainder of the agreement will not be affected and all other provisions of the agreement remain valid and enforceable. - Waiver of any provision in the agreement by any party is effective only if the waiver is in writing. The final statement of the independent contractor agreement says the following: "This is intended to be a legally binding agreement. READ IT CAREFULLY. If you do not understand the effect of this agreement, consult your attorney BEFORE signing." The last thing the associate and the broker do is sign and date the agreement. They must be sure that all the additional information requested on the last page is accurate (e.g., license number, home address, home phone, mobile phone, e-mail address).

Q: What functions may an unlicensed office manager perform?

A: Unlicensed persons may perform administrative tasks such as training or motivating personnel, as well as those tasks dealing with office administration and personnel matters. An unlicensed person may serve as the bookkeeper for the company. However, only a license holder may be a signatory on brokerage trust accounts under Commission Rule 535.146(c) (7). An office manager may also serve as a trainer. However, Commission Rule 535.4(d) states that an unlicensed person may not direct or supervise agents in their work as license holders. Therefore, an unlicensed person may not direct or advise agents in their attempts to help others buy, sell, or lease property. They may not review contracts or help make deals work. These tasks are properly conducted only by licensed persons

Q: May the unlicensed assistant place "for sale" signs, open a property or accompany inspectors, or place newspaper advertisements, as directed by the broker?

A: Yes, subject to the following guidelines. Commission Rule 535.5(g) provides that answering the telephone and acts of a clerical or secretarial nature do not require a license. Clerical or secretarial employees need not be licensed so long as they do not engage in solicitation and do not hold themselves out as licensed agents. - Further, Commission Rule 535.5(g) also states that an unlicensed clerical or secretarial employee, identified to callers as such, may confirm information concerning the size, price, and terms of property advertised. Taken together, this means that an unlicensed person may, after identifying himself as an unlicensed person, confirm information previously advertised to callers or persons dropping by. The unlicensed person should not give information about properties other than that inquired about and should refer any requests for information regarding other properties to a licensed agent. For example, the assistant might confirm that a particular property called about has three bedrooms and one bath, as previously advertised. However, the assistant may not attempt to identify properties which instead have two baths and bring these to the attention of the caller. Such questions must be referred to a license holder. The assistant should not attempt to qualify the caller in any respect. Many other duties that are administrative in nature can be safely performed, such as inputting data into a computer or typing contracts, but only as specifically directed by a license holder. Support personnel can order supplies, schedule maintenance, and all the other things that are involved in keeping the office open. Bookkeeping and office management functions may be performed by an unlicensed assistant, as discussed next

Q: May unlicensed persons assist in arranging financing?

A: Yes. However, great care must be taken that the person acts solely in an administrative capacity. An unlicensed assistant may be directed by a broker or sales agent to assist a particular buyer in obtaining information and forms to apply and qualify for a loan. However, these acts should be at the direction of a license holder. Mortgage brokers and loan originators are licensed by the Texas Department of Savings and Mortgage Lending, and any questions regarding the requirements for licensure for persons dealing with financing issues should be directed to that agency

Q: May unlicensed assistants set appointments to show a listing?

A: Yes. Under the general rules stated previously, it is permissible for an assistant to call a homeowner and schedule an appointment for the broker to bring a potential buyer to see the home.

Sales Agent and Broker Associate Compensation

An associate's compensation is set by mutual agreement between the broker and the associate. A broker may agree to pay a salary or a share of the commissions from transactions originated by an associate. Associates may have a DRAWING ACCOUNT AGAINST THEIR INDIVIDUAL EARNED SHARR OF COMMISSIONS. In such a case, the associate SHOULD SIGN A NOTE FOR EACH DRAW to preserve the independent contractor status, if such status is desired. A departure from traditional compensation plans is the 100% commission plan. Generally, in a brokerage firm that has adopted this system, associates pay a monthly service charge to the broker (to cover the costs of office space, telephone service, supervision, and administration) and receive 100% of the commissions from the sales they negotiate

Foreign Brokers or Brokers Licensed in Other States

An exception to the prohibition for compensation to individuals not licensed in Texas states that a licensed broker may pay a commission to a licensed broker of another state. This exemption is valid only if the out-of-state broker does not attempt to physically conduct in Texas any of the negotiations for which commission or other compensation is paid A second exception relates to brokers who are residents of a foreign state that does not require a person to be licensed to act as real estate broker. This addresses real estate practitioners outside the United States. The rules permit compensation to real estate professionals in other countries, even though that country may not require licensure of those persons engaged in the practice of real estate in that country

Non-MLS Subagency Agreements

Any brokers, even if they are not members of an MLS, can voluntarily contract with each other to create their own broker-to-broker cooperative agreements, to cover either one property at a time or all properties in their respective inventories for any agreed period of time. Remember, a license holder cannot pursue litigation for recovery of a commission unless the agreement to compensate was in writing. It is generally accepted that compensation indicated in the MLS would constitute such an agreement between brokers. If the cooperating broker is not a member of the MLS, however, then the cooperating broker would be well advised to obtain something in writing from the listing broker designating the cooperative fee.

Employment and Compensation of Personal Assistants

Assistants are generally given responsibilities that do not require licensure, such as maintaining records, scheduling, and placing signs and lockboxes on properties. Some license holders employ assistants who are licensed so that more extensive duties can be assigned It may be difficult to employ a personal assistant as an independent contractor because the essence of the relationship is that the employer carefully directs and controls the actions of the assistant

Agreements Between Brokers

Broker Information -appears on the last page of the TREC residential sales contract has a blank where listing brokers indicate what they have agreed to pay the "other broker." merely a notice to the parties that the listing broker will compensate the other broker in a transaction by the amount specified, when and if the listing broker is compensated by the seller-principal. If the buyer's broker is not protected by a buyer representation agreement, and if at the closing, the seller refuses to compensate the listing broker because of an alleged breach of fiduciary duty by the listing broker, the buyer's broker has no way to secure compensation from anyone in the transaction. Compensation to a broker operating under the terms of a buyer-tenant representation agreement is dictated by the terms of the agreement The Texas Association of REALTORS® agreement: - permits payment to be made directly by the buyer-client to the broker or permits the broker to be compensated through funds provided by the seller. In addition, the agreement may provide that the broker receive a flat fee, hourly compensation, and/or a retainer fee. Most often, the buyer's broker will be paid through funds paid by the seller in the same way that a subagent is usually compensated.

Employee vs. Independent Contractor

Brokers engage sales agents as either employees or independent contractors. Any agreements between brokers and their associates should be in the form of written contracts that define the obligations and responsibilities of the relationships. Whether an associate operates under the broker as an employee (compensation based on time) or as an independent contractor (compensation based on results) will affect the relationship between them As an employer, a broker is required by the federal government to withhold Social Security and income taxes from wages paid to employees. The broker also is required to pay unemployment compensation taxes, as required by state and federal laws. In addition, a broker may be required to provide employees with such benefits as health insurance and profit-sharing plans. Independent contractors operate more freely than employees, and the broker may not control their activities in the same way. Crucial elements of preserving independent contractor status are that the: independent contractor's services must be performed under the terms of a written contract between the broker and the associate; broker may control what the independent contractor does, but not how it is done; and contract must state that the independent contractor assumes responsibility for paying any required income and Social Security taxes and receives nothing from the broker that could be construed as an employee benefit. In Texas, brokers are not required to carry workers' compensation coverage for independent contractors

KEY POINTS

Brokers enter into employment agreements with property owners, buyers, and tenants through listing and representation agreements. Sponsoring brokers and associated broker and sales agent license holders enter into employment agreements and conduct brokerage activities as employees of the firm or as independent contractors. Sales agent license holders cannot perform brokerage activities independently. All activities must be under the direction of the sponsoring broker. Independent contractors must (1) have a written contract with the broker, (2) be allowed to determine how they carry out brokerage functions, and (3) pay their own income and Social Security taxes. Brokers may contract with other brokerage firms to represent their clients in a subagency capacity. - Subagency can be achieved through an MLS or directly with selected brokers for a particular property or for an agreed period of time. Brokers may not share compensations with unlicensed persons, other than the principals in a transaction, except as provided in TRELA. Brokers licensed in other states may share in a broker's compensation; however all negotiations physically conducted in Texas must be handled by Texas license holders. (TRELA § 1101.651; 22 TAC 535.131)

Employment Relationship Between Brokers and Principals

Brokers generally enter into employment contracts with property owners through listing agreements and property management agreements brokers enter into employment agreements with buyers and tenants through buyer-tenant representation agreement Under the terms of most employment contracts with principals, brokers are responsible for the payment of brokerage expenses associated with the agreement. In addition, the broker pays any income tax due because of any compensation received during the course of the employment. brokerage fees are generally paid at the time of closing and funding of the transaction, some courts have ruled that the broker's fees are considered earned and payable when the broker produces a ready, willing, and able buyer under the terms of a listing agreement. The basic theory is that the broker was hired to find a suitable buyer for the seller's property, and when that has been accomplished, the broker should be entitled to a commission even if the seller decides not to sell. Under TAR's current Residential Buyer/Tenant Representation Agreement, a person is not obligated to pay the buyer/agent fee until the fee is earned and payable. The fee is earned as soon as the buyer enters into a contract to buy or lease a property, and is payable at closing, if the buyer later breaches the sales contract with the seller, or if the buyer breaches the buyer/tenant agreement. A broker in Texas may represent a seller or a buyer on the basis of a verbal agreement. Equally important is the fact that the broker will find little recourse against the principal who refuses to pay the broker on the strength of a verbal agreement. In order to recover compensation from the seller, the broker will be required to bring suit against the seller (there are exceptions for commercial brokers who may obtain a contractual voluntary lien for commission). For brokers to sue for a commission, TRELA § 1101.806 requires that brokers prove they were duly licensed at the time the brokerage services began; the agreement for compensation be in writing and signed at least by the party to be charged the commission; and at the time of signing the contract to purchase, the buyer was advised in writing to have an abstract of title examined by an attorney, or to secure a policy of title insurance.

SUGGESTIONS FOR BROKERS

Brokers should carefully document relationships with associates by entering into a written employment agreement with each associate. In addition, because most associates are not considered employees, the broker should understand and adhere to the strict guidelines regarding independent contract status—most importantly, the requirements relating to directing how independent contractor duties are to be performed.

Broker to Other Broker

Brokers who are brokers of different companies function in an arm's-length relationship when involved in a real estate transaction. When one broker is representing the seller and the other is representing the buyer, they are each advocates for their respective clients and will negotiate strongly to obtain the best possible price, terms, and conditions for their clients.

Undisclosed Principal

If a real estate agent is acting on behalf of an undisclosed principal, and the agent does not disclose the identity of the principal being represented, nor does the agent disclose the agency to the third party in the transaction, the agent will be presumed to be acting on his own behalf. In that case, the agent will be liable as though a party to the contract. Agents should therefore be careful when representing undisclosed principals. The agents may be the ones liable for the acts of the principals. It is also grounds for disciplinary action against a license holder to act in a dual capacity as a broker and undisclosed principal in a real estate transaction.

Salesperson

If a salesperson who works for you does not meet the tests for a common law employee, discussed earlier in this section, you do not have to withhold federal income tax from his or her pay even if a salesperson is not an employee under the usual common law rules for income tax withholding, his or her pay may still be subject to social security, Medicare, and FUTA taxes as a statutory employee. To determine whether a salesperson is an employee for social security, Medicare, and FUTA tax purposes, the salesperson must meet all eight elements of the statutory employee test. works full time for one person or company except, possibly, for sideline sales activities on behalf of some other person, sells on behalf of, and turns his or her orders over to, the person or company for which he or she works, sells to wholesalers, retailers, contractors, or operators of hotels, restaurants, or similar establishments, sells merchandise for resale, or supplies for use in the customer's business, agrees to do substantially all of this work personally, has no substantial investment in the facilities used to do the work, other than in facilities for transportation, maintains a continuing relationship with the person or company for which he or she works, and is not an employee under common law rules.

Employment Relationships Between Brokers and Associates

In Texas, about two-thirds of all brokers work for the remaining one-third. The broker is held responsible to the state and the public for the conduct of license holders who are either licensed under the broker or working as independent contractors or employees referred to as a sponsoring broker, principal broker, or designated broker. employed, associated, or sponsored license holder is then licensed either as a sales agent or as a broker associate who is a broker generally is called a broker associate or associate broker. An active sales agent license holder is required to work under the sponsorship of an actively licensed broker. The broker may either be an individual or a business entity. term business entity is defined in 22 TAC § 535.1(2) as a "domestic or foreign corporation, limited liability, partnership, or other entity authorized under the Texas Business Organizations Code to engage in the real estate brokerage business in Texas and required to be licensed under the Act." If the broker is a business entity, however, then one of its managing officers must be licensed as an individual broker in Texas, who then acts as the designated broker for the business entity broker may work independently or may enter into an agency relationship with another broker (broker associate) to represent that broker in dealings with the public. broker is liable to the commission, the public, and the broker's clients for any conduct engaged in under TRELA by the broker or by a sales agent sponsored by the broker during the ordinary course of employment broker as a principal to an independent contractor agreement with his sales associates is responsible for the acts of his agents. In the case of a business entity, the designated broker of the business entity is the person held liable each of these licensed associates (sponsored sales agents and broker associates) is the agent of the broker and represents the broker in a fiduciary capacity. Listings are made in the name of the broker, not the sales agent or the broker associate. The broker is the party responsible to clients, whether acting directly or indirectly through the broker's agents. If a broker has a listing (open or exclusive), that broker and all the licensed associates of that firm represent the seller in a fiduciary capacity. This is true of all licensed associates working in each of the listing broker's offices *licensed sales agents cannot lawfully sell their services directly to the public. *Sales agents must perform all tasks under the direct supervision of a broker. This is true even if the sales agent is, for tax purposes, an independent contractor. sales agents who are licensed with a broker are agents and employees of the broker and act for the broker

Compensation of Nonlicense Holders

In Texas, license holders are not permitted to share commissions with unlicensed persons, other than a principal in the transaction, or those parties exempt from licensure pursuant to TRELA § 1101.005. include cash payments of money in any amount, or any gifts exceeding $50 in value 1990 Texas law prohibits a broker from sharing a sales commission with an attorney UNLESS the ATTORNEY IS ALSO LICENSED AS A BROKER (22 TAC § 535.31). However, an attorney may conduct real estate transactions for compensation as long as the ATTORNEY PAID DIRECTLY BY PRINCIPAL.

Broker and Subagents

Listing agreements and buyer representation agreements may, with the agreement of the principal, include a clause that allows the broker to appoint subagents. A buyer's broker, if given such permission, may appoint subagents as readily as a seller's broker. By definition, subagent means "a license holder who represents a principal through cooperation with and the consent of" another broker. A subagent is not sponsored by or associated with the principal's broker. - Subagency involves two separate brokerage firms, both representing the interests of the same client in an ARMS AROUND RELATIONSHIP as both firms represent the interests of the same client. The other consumer in the transaction is treated as a customer by all license holders in both brokerage offices. TRELA defines a subagent as follows: Sec. 1101.002(8)"Subagent" means a license holder who: (A) represents a principal through cooperation with and the consent of a broker representing the principal; and (B) is not sponsored by or associated with the principal's broker

MLS Subagency Agreements

MLS systems now offer participants optional subagency; that is, the systems allow their participants to place listings that offer cooperation and compensation to either buyer-agents or subagents of the listing broker. One of the issues that can be a danger for the broker and the seller or buyer-client is the possibility of vicarious liability relative to a subagent. TRELA addresses this issue thoroughly in § 1101.805 Liability for Misrepresentation or Concealment.

Sales Associate to Sales Associate Within the Same Brokerage

Sales associates working in the same brokerage are both agents for the broker of that company. All the activity each one conducts is through the authority of and at the discretion of the broker. All listing agreements and all buyer representation agreements are the property of the broker. the broker is the owner of the listing and controls every aspect of the relationship with the seller The broker is responsible for all the actions of each license holder operating under his broker license when the sales associate is acting on the broker's behalf in a real estate transaction, and within the authority authorized by the broker.

Use of Unlicensed Assistants in Real Estate Transactions

Such unlicensed persons, sometimes referred to as administrative assistants, can be of great help to a busy agent care must be taken to ensure that the unlicensed person does not conduct any of the activities for which a real estate license is required Sections 1101.351(a) and 1101.758 of The Real Estate License Act: it is a crime for an unlicensed person to engage in activity for which a real estate license is required. The broker or sales agent that employs an unlicensed person might be criminally charged for the crime, as well TREC may take disciplinary action against a broker or sales agent that pays or associates with an unlicensed person who engages in activities that require a real estate license Preliminarily, the real estate brokerage activities must be for another person or entity The activities must also be for a fee or something of value, or with the intention of collecting a fee or something of value direct activities & indirect activities are categories need a license

San Sebastian Realty Co., Inc. v. Huerta

The broker, San Sebastian, and the seller, Huerta, entered into a listing agreement to sell Huerta's property. The broker found a buyer, Nichols, who leased the property with an option to purchase. According to the broker, the buyer exercised his option to purchase and sent notice of such to the seller during the term of the lease. The seller refused to sell to the buyer and failed to pay the broker's fee. The broker sued the seller for breach of contract, among other things. The broker argued that his fee was payable when the seller sold or agreed to sell the property; the broker found a ready, willing, and able buyer; or the seller granted an option to purchase. The broker further argued that he found a ready, willing, and able buyer, and the seller granted the option to purchase by cashing the buyer's earnest money check of $1,000. The seller responded by arguing that while the broker may have earned the fee, the listing agreement required payment only when the fee was "earned and payable," and it was payable only if the sale closed and funded, the seller refused to sell, or the seller breached the listing agreement. Because she never received the notice that the buyer was exercising his option to purchase, the seller alleged that she had not refused to sell. When the seller finally learned that the buyer wanted to purchase the property, the buyer asked to extend the option period, and therefore the seller argued that the buyer withdrew his offer to purchase under the option. The seller acknowledged receipt of the $1,000, but she assumed it was rent because that was the monthly rent fee, and she did not receive any other money from the buyer for that month. Further, the seller argued that she had not breached the listing agreement, and therefore, the fee to the broker, although earned, was not payable The trial court granted the seller's motion for summary judgment and the broker appealed. Among other things, the broker argued that the trial court erred in granting the seller's cross-motion for summary judgment. The motion essentially argued that the fee was not payable because she had not breached the listing agreement with the broker. The appellate court reviewed the terms of the listing contract and the facts of the case and agreed with the seller's argument that the listing agreement required payment of the broker's fee only if the sale closed and funded, the seller refused to sell, or the seller breached the listing agreement. The court further noted that, of the three possibilities, the broker only alleged that the seller refused to sell after the buyer exercised his option to purchase. The court concluded that the broker failed to provide sufficient evidence that the buyer sent the seller a notice that he intended to exercise his option to purchase and the seller's refused to sell to the buyer under the terms of the lease. In making that conclusion, the court noted "[t]hat no sale has yet taken place is not evidence that the [sellers] refused to sell; it is only evidence that a sale has not yet occurred." The court, therefore, affirmed the trial court decision in favor of the seller. **This decision clearly articulates that earned and payable is not the same as earned, and it is important to review the terms of the listing or buyer representation agreements or contracts to determine when a person is obligated to pay the broker's fee.

Independent Contractor Agreement

The first agency relationship that a new license holder will enter into is the one between the license holder's sponsoring broker and the license holder. The SPONSORING BROKER IS THE PRINCIPAL in this agency relationship, and the LICENSE HOLDER IS AGENT OF BROKER. Sales associates owe all fiduciary duties and common law agency duties to their broker. broker acting as principal to the broker's sales associate owes his sales associate/agent the duties of 1) performance, 2) compensation, 3) indemnification, and 4) reimbursement , unless there is an agreement to the contrary or there is no written agreement to compensate. Duties of the broker acting as the principal to the broker's agents: Performance: The principal is required under this obligation, to do as much as possible to ensure that the purpose for which the agency was created, can be accomplished. - In this situation, it relates to the broker providing INFORMATION, BUSINESS GUIDANCE, AND AVAILIABLITY TO THE BROKERS' AGENT. Compensation: Generally, the broker will clearly outline, in the employment agreement or a separate compensation agreement 1) the method and amount of payment due to the agent, 2) how the payment will be made, and 3) under what circumstances the payment is due and payable. - Generally, the broker is paid by a seller, buyer, landlord, or tenant based on an agreement with that entity. - The broker's agent does not have privity of contract with any of those entities and relies solely on the agreement for compensation with the agent's broker. - If the broker does not pay the agent, the agent cannot sue the seller, buyer, landlord, or tenant directly. - Consequently, the agent should have a clear and precisely written agreement covering the broker's promise to pay, and all the contingencies concerning payment Indemnification: If the agent suffers a loss because of the actions of the agent's principal broker while the agent is acting on behalf of the broker and the agent bears no responsibility for the loss, the broker may have to indemnify the agent for the loss. Reimbursement: Generally, if the agent has paid for expenses on behalf of the agent's broker while working within the authority of the agency relationship with the broker, the broker owes the agent reimbursement for those expenses. - For example, the broker goes on vacation and asks his agent George to manage the office in his absence. - After his broker leaves, George finds that all the copy paper has been used and the other sales associates in the office have no paper for the copy machine. - George goes to the local office supply store and purchases enough paper for the office to last until the broker returns. - When the broker returns from his vacation, the broker will owe George reimbursement for the paper.

Unlicensed Brokerage Owners

The issue of an unlicensed person who owns all or part of a real estate company sharing in the income earned by the company is clarified in 22 TAC § 535.147(b) as follows: An unlicensed person may share in the income earned by a business entity licensed as a broker are EXEMPTED FROM LICENSE REQUIREMENTS under the Act IF the person ENGAGES IN NO ACTS FOR WHICH A LICENSE IS REQUIRED AND DOES NOT LEAD THE PUBLIC TO BELIEVE THAT THE PERSON IS IN THE REAL ESTAE BROKERAGE BUSINESS.

Broker to Broker's Agent/Sales Associate

The relationship between brokers and their agents/sales associates is one of a broker/principal to sales associate/agent. The sales associate will generally become an independent contractor as opposed to an employee. The licensed sales associate of the broker functions at the direction of the broker, and the broker is responsible for all acts of the sales associates when acting in the capacity of agents with third parties in a real estate transaction.

Sales Associate of One Company to Sales Associate of Another Company

if the sales associates are each acting on behalf of their own broker and the clients of the respective brokers, the associates are in an arm's-length relationship with one another. Each is advocating for his client (buyer or seller) and each has opposing goals. The major difference between the broker-to-broker relationship and the sales associate-to-sales-associate relationship is that the brokers have all the authority and control The sales associates function only through, for, and at the directive of the broker. Sales associates are not allowed, under TRELA, to: sponsor other sales agents or broker associates, take listings or buyer representation agreements in their own name, hold trust funds of buyers or sellers in their own name, or bring suit against a buyer- or seller-client over the listing agreement or buyer representation agreement.

Licensed sales agents cannot legally

list property in their own names (22 TAC § 535.2(f)); enter into buyer agency or intermediary agreements in their own names, either orally or in writing; sue directly sellers, buyers, landlords, or tenants for unpaid commissions (generally); open their own offices without hiring a designated broker to be responsible for all the sales agents in the offices and registering the designated broker's name with TREC; work independently without having a licensed sponsoring broker to shelter or hold each sales agent's license; hold a license under more than one broker at the same time; take listings or buyer-tenant representation agreements when they move to a new brokerage office with or without the current broker's consent (although the broker may release represented owners or buyers from their agreements and allow a sales agent's new broker to attempt to contract with the owners, buyers, or tenants); advertise in their own names unless the broker's name also appears, and it is clear to the public which one is the broker (TRELA § 1101.652(b)(23); 22 TAC § 535.154(a)(d)); open their own client trust accounts for sales or rentals (22 TAC § 535.159(f)); accept compensation directly from clients or other brokers for real estate sales and transactions without the broker's consent (TRELA § 1101.651(b); 22 TAC § 535.3); or pay a commission to any person except through the broker under whom they are licensed or with that broker's knowledge and consent (TRELA § 1101.651(c); 22 TAC § 535.3).

TREC Rule 22 TAC Section 535.2(i)

requires the broker to maintain written policies and procedures to ensure the following: (1) Each sponsored sales agent is advised of the scope of the sales agent's authorized activities subject to the Act and is competent to conduct such activities. (2) Each sponsored sales agent maintains his license in active status at all times while he is engaging in activities subject to the Act. (3) Any and all compensation paid to a sponsored sales agent for acts or services subject to the Act is paid by, through, or with the written consent of the sponsoring broker. (4) Each sponsored sales agent is provided on a timely basis, before the effective date of the change, notice of any change to the Act, Rules, or Commission promulgated contract forms. (5) In addition to completing statutory minimum continuing education requirements, each sponsored sales agent receives such additional educational instruction the broker may deem necessary to obtain and maintain, on a current basis, competency in the scope of the sponsored sales agent's practice subject to the Act. (6) Each sponsored sales agent complies with the Commission's advertising rules. (7) All trust accounts, including but not limited to property management trust accounts, and other funds received from consumers are maintained by the broker with appropriate controls in compliance with § 535.146. (8) Records are properly maintained pursuant to subsection (h) of this section.

Avoidance

when the principal seeks to invalidate a contract based on an agent's breach. In the event the agent breaches fiduciary duties or other contractual duties the principal may elect to avoid the contract entered into with the agent or avoid paying the agent under the terms of the contract. This means that if an agent breaches the agent's fiduciary duty, the agent's principal broker may refuse to pay the agent Ex. A sales associate, acting as an agent, breaches a contractual or fiduciary duty or causes damage or harm to a third party. As a result, the third party brings a lawsuit against the principal/broker. The third party wins the suit against the broker. The broker then sues the agent to seek indemnification from the agent.