Section 11: Law of Agency and the Brokerage Business in Texas

Although an agency relationship doesn't live on forever, there are some fiduciary duties that continue beyond the relationship. Which two of these duties live on after the agency relationship is over?

-Accounting -Confidentiality

Special/Limited agent

-Acts as an intermediary, but doesn't make decisions or enter into contracts on the client's behalf -Has limited authority to act on a client's behalf -Most real estate transactions involving a buyer and seller deal with this type of agency

Designated Agent

-Appointed by the broker to assist one party in an in-house transaction -Only the licensee appointed to the client owes fiduciary duties to that client -Also known as an appointed or assigned agent

Sales agent

-Develop a sales agent's business

Universal Agent

-Empowered to do anything the principal could do personally -Has the most authority of any agent -Not a common role for a real estate agent

Duties to Customers

-Honesty and fair dealing -Reasonable skill and care -Disclosure of material facts -Prompt presentation of all written offers and counter-offers

Revealing all facts to the client that are pertinent to the transaction describes which fiduciary duty?

Disclosure

Disclosure

Divulge all facts pertinent to the transaction

Info

Emily likes her new clients, but she doesn't think they are telling her everything she needs to know about the property.

Why is the licensee required to make the agency disclosure?

It's the law

Which of the following fiduciary duties is owed to both clients and customers?

Prompt presentation of all written offers and counter-offers

Accounting

Properly handle all money or property entrusted to you

Jenson signed a seller agency agreement with Susan. Right before closing, a hurricane destroyed the property. What happened to Jenson and Susan's agreement?

The agreement terminates by force of law.

Candace and Phil Tolson listed their home for sale with Trent Richards, the broker for Richards Homes. Sadly, Trent became incapacitated due to a car accident. What's the status of the listing agreement?

The agreement terminates by operation of law.

Procuring cause

has to do with who started the chain of events that led to the sale. If, for instance, Lisa, a sales agent, shows a property to Tim, and the next week Tim buys it from the listing agent, Lisa may be owed a compensation as the licensee who effectively made the sale. She started the chain of events that led to Tim's purchase. As a listing broker operating under an exclusive listing agreement, you are owed a commission no matter who brings in the buyer, unless it is the seller and the seller has reserved the right to locate the buyer and avoid the commission

Ratification

is acceptance after the fact, sometimes in contrast to a prior agreement. For instance, if your buyer wanted the seller to leave behind the washer and dryer, and the seller took the appliances instead of leaving them, your buyer could ratify the seller's actions after closing by occupying the house without complaint, and perhaps telling the seller, "That's fine. I wanted a new set, anyway," and then purchasing a new set.

In Texas, the Information About Brokerage Services brochure ______.

is required by law

ready, willing, and able buyer

one who wants to and is capable of consummating the transaction at the price the seller previously agreed to

Agency

refers to the type of relationship between a buyer or seller and a real estate licensee

When does express agency exist?

When a written or oral agreement is in place

Express agency

you and your client agree to and understand the relationship. Express agreements may be written or unwritten. Written express agreements are ideal: They establish an agency relationship because they write out the duties and responsibilities for both you (the agent) and your client. This allows you and your client to understand expectations required for each party.

Agency agreement

could be oral, implied (based on behavior), or in writing by contract. -There is also an official agency disclosure form.

Rules for Gift-Giving

-In Texas, someone who refers a client to a real estate licensee in a proposed real estate transaction must be a real estate licensee to receive compensation. -Someone without a real estate license can make a referral, and can receive a gift or merchandise with a retail value of $50 (or less). -An unlicensed person may not receive any cash referral fee, regardless of the amount.

Which of the following four duties does the client owe the agent?

-Indemnification -Availability -Info -Compensation

The IRS is quite particular about independent contractor status. Which of these statements about that status are correct?

-Independent contractors can't be paid an hourly wage or monthly salary. -Independent contractors can deduct certain business expenses. -To qualify to for independent contractor status, you must be able to set your own hours.

The Information About Brokerage Services Form

-The role of the intermediary -The role of the sub-agent -The role of the owner's agent -The role of the buyer/tenant's agent -A list of minimum duties brokers owe to their clients

You're holding an open house for Brenda. Walt and Mary walk in and ask for a flyer that gives details about the property. Walt and Mary are now your ______.

Customers

Percentage of sales

A broker is paid a percentage of the sales price from the seller's proceeds at closing (or alternatively from the buyer at closing if working under a buyer agency agreement in which the seller offers no cooperating fee).

The Sanders family is selling their home. They've signed an agreement with James from Town Agency. The sale will pay 5% commission, to be split 50/50 with the buyer's agent, if there is one. You represent the Damons as a buyer's agent with City Realty. The Damons make an offer that the Sanderses happily accept. Shortly after closing, you'll receive your commission check from your broker. Which two of the following relationships represent agency?

-James and the Sanderses -You and the Damons

Do you know the rules pertaining to commission sharing in Texas? Let's find out. Which two of the following statements about commission sharing are true?

-Licensees may not accept compensation from anyone other than their broker. -Sponsoring brokers may not pay commission to real estate licensees who are not with their brokerage.

Follow these guidelines to reduce your risks of implied agency and undisclosed dual agency:

-Make sure your firm's policies on agency and dual agency are clear, including the disclosure requirements. -Clearly understand and communicate fiduciary duties as an agent. -Before acting in any way as an agent, secure an express agency agreement in writing. -If you're engaging in dual agency, ensure you have all parties' written consent. -Provide all parties with the proper disclosures.

Broker

-Mentor a sales agent -Review transactional paperwork and advertising

Fiduciary Duties and OLD CAR

-Obedience -Loyalty -Disclosure -Confidentiality -Accounting Reasonable skill and care

Independent contractor

-Paid for results, not time worked -Broker doesn't withhold income or Social Security taxes

Employee

-Paid for time worked on salary -Broker withholds income and Social Security taxes -Hours worked are dictated -Broker pays unemployment compensation on wages paid

General agent

-Responsible for handling all dealings for a specific piece of client property -Property managers generally serve in this role -Enters into contracts on behalf of the client

Both broker and sales agent

-Supervise a personal assistant -Responsible for sales agent's actions

When Does Agency Terminate?

-The client's goals were met during the term of the agency agreement (i.e., the sale is completed). -The specified term in the agency agreement expires. -The client and agent mutually agree to dissolve the relationship. -The property is destroyed for any reason, making the property unmarketable. -The client revokes the agreement with cause prior to the agreement's expiration date. -The agent renounces the agreement prior to the agreement's expiration date.

The Texas Real Estate License Act (TRELA) requires the following three requirements for compensation:

-The person earning the commission must hold a valid real estate broker's license in Texas at the time the act that earned the compensation was begun (or that person must be a licensed attorney in Texas); -The compensation agreement (the agreement to pay compensation) must be written and signed by the party who is paying the commission; and -The licensee must have given the buyer written notice prior to closing that the buyer must obtain or be provided with a title insurance policy, or have an attorney (that the buyer chooses) examine the property's abstract of title.

In Texas, a broker who has produced a ready, willing, and able buyer is typically entitled to a commission if the transaction doesn't go through for any of the following reasons:

-The sellers change their minds and decide not to sell; -The sellers' title is defective; -The sellers commit fraud in relation to the real estate transaction; -The seller's spouse refuses to sign the property's deed; -The buyer and seller mutually agree to cancel the transaction; -The sellers insist on adding terms that weren't in the original listing agreement; or -The sellers cannot give the buyers possession of the property within a reasonable amount of time.

Additional Agency Disclosure Requirements and Exceptions

-While Texas law does not require that the Information About Brokerage Services brochure be signed, your brokerage may require that customers sign the form. -A licensee's name does not need to be on the Information About Brokerage Services form.

In Texas, what two forms can the agency disclosure take?

-Written -Oral

So, are you clear on the agency disclosure requirements in Texas? The three things you need to remember are:

-You must provide all customers (anyone you do not represent) with the Information About Brokerage Services brochure at the time of the first substantive dialogue with that party. -You must provide agency disclosures to any party you do not represent in a transaction or possible transaction. (There are limited exceptions, such as an open house, a lease of under a year, and if the party is already represented.) -Business websites must also link (from a noticeable location on the homepage and in a minimum font size) to the Information About Brokerage Services brochure.

Honesty and fair dealing

Be truthful and treat others equitably in all of your interactions.

Now that you've had a chance to read through the resource, you should be able to answer the question without a problem. What is agency by ratification?

Acknowledgement by a potential client that a licensee has completed work on the consumer's behalf, and therefore an implied agency relationship exists.

Sean had been showing homes to potential clients, Amy and Chris Williams, for weeks before the couple finally agreed to sign a buyer agency agreement with him and acknowledge him as their agent. What type of agency is this considered?

Agency by ratification

Implied agency

An agency relationship may be created without anything in writing, or even without verbal agreement. -which exists when you act on behalf of a consumer in such a way that the consumer believes you are their agent.

Availability

Andy has two offers that he wants to share with his seller clients, but they aren't answering their phone or responding to texts.

You need to be able to explain to your client what it means for you to be their agent and fiduciary. Out of the choices, which one best describes the fiduciary duties an agent owes a client?

As your agent, I'll obey any lawful instructions you provide me. I'm loyal to you and I put your interests ahead of any others. Anything you share with me will remain confidential, and I'll quickly disclose to you any material information about the transaction. You can personally hold me accountable for any money or property exchanged throughout our relationship and know that I'm providing you the services you expect of me.

In Texas, when is the licensee required to make the agency disclosure?

At first contact with another party to the transaction or another licensee (who represents another party to the transaction)

You are hiring a personal assistant. You've narrowed the candidates down to two people. Candidate A is an unlicensed individual with two years' real estate industry experience. Candidate B also has two years' experience, but has a license. You'd like the assistant to perform actions such as completing real estate forms and discussing terms with clients or prospects.

Candidate B

Christine listed her house with you. Tailleur represents the buyer, Rebecca, and the seller's mother, Freida, is paying your commission. Which of these factors determines how legal agency is determined in this situation?

Christine listed the property with you.

You have a listing agreement with Sam, which makes him your ______.

Client

The client owes the agent the primary duties of ______, information, indemnification, and availability.

Compensation

Which duty requires the client to pay an agent upon completion of the agent's duties?

Compensation

Many of an agent's fiduciary duties to the client end upon termination of an agency agreement. Which fiduciary duty never ends?

Confidentiality

In general, a person in a position of loyalty and trust is a(n) ______.

Fiduciary

Obedience

Follow client instructions (just the lawful ones, though)

What type of real estate agency relationship usually exists when a licensee has the broad responsibility of handling all of the details of a specific transaction?

General

Ginnie's Aunt Becca listed the old family mansion with Ginnie. Ginnie put it on the market for Becca, but then she and her cousins talked with Becca and decided they wanted to keep the property in the family. What's the best way to terminate the agreement?

Ginnie and Becca can mutually agree to terminate the agreement.

It's not enough to know the difference between a customer and a client. You also need to be able to explain differences to a consumer. Out of the following correct choices, which one best describes to the consumer the difference between customers and clients and the benefits of being a client?

If you're my customer, I'll work alongside you. If you're my client, I'll do that and more. I'll represent you and negotiate on your behalf. I become your fiduciary and work for you.

The client owes the agent the primary duties of compensation, information, ______, and availability.

Indemnification

The client owes the agent the primary duties of compensation, ______, indemnification, and availability.

Info

Carlton listed his property with an agreement end date of August 31. The property went under contract on May 12 and closed on July 2. When did Carlton's listing agreement officially terminate?

July 2

Confidentiality

Keep information shared by the client private

Putting clients' interests ahead of all others describes which fiduciary duty?

Loyalty

Melissa signed a six-month listing agreement with Greg on February 12. Her property is very specialized, and Melissa was adamant about the sales price. By September, the property still hadn't sold. Melissa expressed her displeasure with Greg for his inability to sell the property. What's the status of the listing agreement?

Melissa and Greg's agreement expired in August

Nate represents Elena in the purchase of a house. Katherine represents the seller, Timothy. Which of the following statements accurately reflects the agency duties owed?

Nate owes Timothy the duty of disclosure

Is this statement true or false? The Information About Brokerage Services brochure is not a contract.

True -simply an info form

We'd like to introduce Alison, a real estate licensee. Alison just received a call from the Masons. They are interested in putting their house on the market, and would like to talk more with Alison about this process. Alison meets with the Masons the next day, and is excited about this new prospect. She leaves them with her business card and a promise to call back in two months when they say they'll be ready to act. In return, Alison leaves with an unsigned agency agreement and contact information for Brent, their son who is ready to buy his first home. Are the Masons Alison's clients?

No

Principal

Party to a transaction (buyer, seller, etc.)

Reasonable skill and care

Provide clients with quality, knowledgeable, and prudent service

Reasonable skill and care part II

Provide quality, knowledgeable, and prudent service.

Loyalty

Put client's interests ahead of all others

Prompt presentation of all written offers and counter-offers

Quickly deliver offers and counter-offers.

The fiduciary duty of ______ requires licensees to provide both clients and customers with quality, knowledgeable, and prudent service, and live up to the trust placed in them.

Reasonable skill and care

Disclosure of material facts

Reveal all information pertinent to the transaction.

We just mentioned that one way to avoid implied agency is to recognize what it is. What's another way to avoid an unwanted implied agency situation? Select the best answer.

Secure an agency agreement in writing before performing any acts of an agent.

As a real estate agent, you'll be compensated for the services you provide your clients (well, assuming the transaction closes). But is it compensation that defines your relationship, or is it something else? Identify which of these determines the existence of an agency relationship.

Signed agency agreement

Agent

Someone who acts on behalf of someone else

Which of the following is the definition of a client in Texas?

Someone who has agency representation with the real estate sales agent or broker.

Fiduciary

Someone who is in a position of trust and loyalty

Customer

Someone who is working with a real estate sales agent or broker, but who is not represented by them

When working with a client on a real estate sale, a real estate licensee is usually acting as which type of agent?

Special

When the listing agreement's purpose has been fulfilled, what happens to the agency agreement?

The agency agreement terminates by completion.

Compensation

The deal is done, and Randall is looking forward to collecting his well-earned commission.

In Texas, who is required to disclose the agency relationship, and who receives the disclosure?

The licensee must disclose the agency relationship to any party to the proposed transaction that the licensee does not represent.

Renee listed her property on March 13. After several months, lots of marketing and effort from the agent, a price adjustment, and several showings but no offers, Renee decided to list the property with another firm. Based on this situation, under which of these conditions can Renee list the property with another firm without breaching her agreement?

The listing agreement expired

Rex has a reputation in the community for being a bit odd. He listed his ranch for sale and insisted on the low price he's placed on it, though his agent told him it's underpriced. Rex's distant family hears of the potential sale, and they go through the courts to present evidence that Rex isn't legally competent to manage his business affairs; the judge agrees. What's the status of the listing agreement?

The listing agreement is terminated by force of law.

Client

The party the broker represents

Simon is a buyer represented by Peter. Peter shows Simon several homes currently on the market. What is Peter's relationship to the sellers?

The sellers are Peter's customers

Which of the following actions would result in the legal termination of an agency agreement?

The term specified in the agency agreement expired.

Is the following statement true or false? Only a licensed real estate broker or sales agent is entitled to a judgment by the courts with regard to a lawsuit to collect compensation for real estate services.

True

Marcy listed her property with Jennings Homes in March. The market was slow, and Marcy's property isn't in great condition—though she's sure she can get top dollar for it because of its location. Her agent encouraged her to either reduce the price or fix the property up, but she refused. Both Marcy and her agent are frustrated. What's the best option for both of them?

They can mutually agree to terminate the listing.

Charlie represents Sue, a buyer. Charlie is being paid by Claude, the seller, through his brokerage. What's true about this situation?

This doesn't change the agency relationships.

Indemnification

While showing her buyer clients a property, one of Nancy's clients slipped on the driveway and broke his arm.

Today, just a year later, the condo is back on the market with another listing agent. The Radcliffs are renewing their vows and have decided to celebrate their new commitment to one another with a new home. You're working exclusively with a buyer client who's also in love (with the condo, but not with the price). You reassure your buyer that there's room to negotiate. You tell him the property is paid off and the sellers are more concerned with selling fast than making a profit. Did you breach your duties to the Radcliffs?

Yes. You broke the sellers' confidentiality.

You drive over to the house and encounter a police officer leaving as you pull up. "What happened?" you ask the homeowner. "Well, the police say the thieves entered through an unlocked door in the back." You and the homeowner are thinking the same thing: Did you lock the door after the showing? No! You were so involved in the conversation that you forgot to lock the back patio door. The homeowner says, "I trusted you with my home. I'm holding you responsible for this." Who's actually responsible for the homeowner's damages and losses?

You. You were acting as the agent and failed to secure the client's property.

Flat fee

a broker receives $1,000 for each property sold

Fee for service

a consumer selects from a menu of services and pays a fee for each