Unit 4: Real Estate Brokerage and Law of Agency

agency by ratification

"after the fact" an agent who obtains a purchase contract for a property that has not been listed might be considered an agent by ratification if the seller subsequently ratified, or agreed to, the contract.

A broker found guilty of antitrust violations can receive a maximum of 10 years in prison and how much in fines?

$1,000,000

principal

(client) the person who employs the broker—may be a seller, a prospective buyer, an owner who wishes to lease the property, or a person seeking property to rent.

primary ingredients in creation of agency

1. delegation of authority by the principal 2. acceptance of such by the agent 3. reliance on the agent by the principal 4. control of the agent by the principal

In addition to proportionate responsibility for damages under the DTPA, a defendant may be held jointly and separately responsible for all damages recoverable if the defendant's percentage of responsibility is found to be more than what percentage?

50

Deceptive Trade Practices Act

Although permissible under agency law, statements of opinion and puffing should be avoided because of possible claims under the Deceptive Trade Practices Act that they mislead the consumer.

duties of loyalty

An agent must always place a principal's interests above those of the agent and above those of others with whom the agent deals.

duties of care

As an agent, the broker must exercise a reasonable degree of care while transacting business entrusted to the broker by the principal, and the broker is liable to the principal for any loss resulting from the broker's negligence or carelessness

If a sponsoring broker suggests that an independent contractor violate rules - such as altering or backdating a property disclosure form - who is liable?

Both the sponsoring broker and the independent contractor would be held liable for the infraction.

Brokers will often provide time for license holders to work "desk duty," a period in which the desk person fields incoming calls to the brokerage and may work with callers who are not otherwise affiliated with other sales agents. May brokers assign (order) sales agents to work specific hours of desk duty?

Brokers may assign desk duty hours to employees, but may negotiate contracts with independent contractors that include desk duty expectations.

A seller has accepted an offer from a ready, willing, and able buyer, and the real estate agent is anticipating the closing of the transaction and receiving a commission. However, if the transaction does not close, the broker still would receive a commission under which circumstances?

Failure of the owner's spouse to sign the deed

Which duty owed to the agent by the principal consists of furnishing accurate information when requested by the broker?

Information

duties of disclosure

It is the broker's duty to keep the principal fully informed at all times of all facts or information the broker obtains that could affect the principal's decisions. The broker may be held liable for damages for failure to disclose such information.

puffing

Making exaggerated or unsubstantiated statements of value when selling real estate

If the largest brokerage in a community decides to offer different competitors varying levels of commission splits or fees, is that considered boycotting or price-fixing?

No, brokers are entitled and encouraged to make business decisions regarding how they will compensate various competitors.

Inside a brokerage office, if all the independent contractor sales agents are on the same commission split, is that price-fixing?

No, each real estate brokerage has its own policies regarding sales agent compensation and has the right to fix those amounts.

Is the sponsoring broker liable for the unauthorized misdeeds of an independent contractor?

No, in most cases independent contractors are responsible for their own malfeasance.

Is a license holder entitled to stop a transaction (refuse to close) if he or she believes either the seller or buyer will be unable to fulfill the compensation clause in the contract?

No, the license holders must permit the transaction to close and litigate compensation after the fact.

When a seller, on the advice of the listing agent, reduces the price of the home, are potential buyers entitled to know why?

No, the listing agent is not obligated to volunteer why there has been a price reduction.

Does the obligation to be honest with all parties extend to a sales agent, representing a seller, who is confronted by a potential buyer wanting to know why the seller is selling?

No, the sales representative should not lie but should not provide any personal or financial information about a property that the seller does not want released.

May sales agents who work for competing companies, but in the same tier of property values, share information with each other about properties that are either new on the market or about to be brought to market?

Sales agents may form loose networks with each other as long as price-fixing does not take place, fair housing laws are not violated, and sales agents from outside the confederation also are allowed to present buyers.

If a broker is forced into an intermediary position because a buyer expresses interest in a company listing, and therefore appoints two other associated license holders to represent seller and buyer, respectively, do the respective appointees need to be of roughly equal skill and experience?

Texas law is silent on the issue

Can a broker arbitrarily penalize an independent contractor based on varying factors, such as the sales agent's difficulty in closing a deal or failure to produce paperwork in a timely fashion?

Texas real estate regulations are silent on in-office compensation disputes.

When sales agents work as independent contractors, what is the commission split required by TREC regulations?

The Texas Real Estate Commission does not regulate commissions

duties of obedience

The broker is obligated to act in good faith at all times, obeying the principal's instructions.The broker, however, is not required to obey unlawful or unethical instructions because illegal acts do not serve the principal's best interest.

duties of accounting

The broker must be able to report the status of all funds received from or on behalf of the principal. The Texas license law requires that brokers give accurate copies of all documents to all parties affected.

If a listing agent advertises a property as "valued at more $25,000 above similar homes on the same block," does that claim have to be backed up?

The claim does not have to be proven, but the agent should be prepared to offer some measurement on which the claim is based.

indemnification

The principal agrees to indemnify or reimburse the broker if the broker suffers financial injury while performing duties as broker. This means the broker is "held harmless" during the agency relationship.

compensation

The principal is liable for compensating the broker by paying the specified fee on completion of the broker's duties. This means that the principal must pay a commission or fee when the broker has performed the broker's portion of the listing agreement and produced a buyer who is ready, willing, and able to purchase.

availability

The principal must be available at reasonable times to consider offers, accept notices, or permit the showing of the property. If the principal will not be available, arrangements must be made to ensure accessibility for the broker.

information

The principal must furnish accurate information requested by the broker. The broker is entitled to rely on such information, unless he has reason to know of its falsity.

listing agreement

The real estate broker-seller relationship generally is created by an employment contract

Texas Deceptive Trade Practices-Consumer Protection Act

This act declares, among other things, that "false, misleading or deceptive acts or practices" in the advertising, offering for sale, selling, or leasing of any real or personal property are unlawful.

In order to earn a commission under the terms of the License Act, a licensed broker must meet several stipulations and advise the buyer to obtain what type of insurance?

Title

Is it illegal for a sales agent receive a "finder's fee" directly from a lender in exchange for sending potential mortgage business to the bank?

Yes, any time two or more brokers join to take action against a single competitor, it would be considered boycotting.

If all the franchise offices in a community—each one independently owned but all under the same franchise flag—agree on how they will compensate each other, is that considered price-fixing?

Yes, anytime independent brokerages agree to set fees between themselves, it is considered price-fixing.

If a broker obtains a listing agreement and counsels the seller on matters such as the right price and home preparation, can that broker then claim neutrality if a buyer approaches the broker later with an interest in the property?

Yes, if the brokerage is large enough, the broker may appoint two associates, one to represent the buyer and one to represent the seller, who may then counsel those principals.

Can a buyer broker accept both a portion of a commission split from the listing broker and a fee from the buyer client?

Yes, if the buyer agent agreement calls for a fee to be paid, and the listing agreement also calls for a commission split, the buyer broker may collect from both sides of the transaction.

If a sales agent hopes to buy a property listed by another brokerage, is that agent obligated to inform the seller that he is also a license holder?

Yes, in Texas, real estate license holders must always disclose their backgrounds when buying property on their own behalf.

In an educational setting where competitors are in the same class, is it permissible to discuss how brokers may derive commission levels?

Yes, instructors are permitted to teach "the business of brokerage."

Is the sponsoring broker liable for the unauthorized misdeeds of a licensed employee?

Yes, the chain of liability goes all the way up from the employee to the broker, to the owner of the company.

An agent's legal requirement to act in the client's best interest and with the utmost good faith is called

a fiduciary relationship

substantive communication

a meeting or written communication that involves a substantive discussion relating to specific real property. A face-to-face meeting with a prospective client in which properties are discussed is a substantive communication.

broker

a person who is licensed to buy, sell, exchange, or lease real property for others and to charge a fee for services.

If a homeowner who has NOT hired a broker agrees to accept an offer brought to him by a broker, he may create

an agency by ratification

a listing agreement between the seller and the broker creates

an expressed agency

When the Texas IABS is delivered, the sales agent or the broker should

ask for a verbal or confirming email that the consumer has received it

special agent

authorized to represent the principal in one specific act or business transaction, under detailed instructions (normally a real estate broker)

The practice of unfairly excluding brokers from real estate professional associations or withholding patronage from other businesses is known as

boycotting the competition

brokerage

business of bringing buyers and sellers together in the marketplace

principal duties of the law of agency

care obedience accounting loyalty disclosure

That people buy at their own risk and should examine the property before they buy is expressed by the concept of

caveat emptor

agency

created at a broker level, not the sales agent level

implied agency

created by a brokers actions or words Buyers can easily assume that when they contact a sales agent to show them property, the sales agent becomes "their agent." An implied agency with the buyer can result if the words and conduct of the sales agent do not dispel this assumption.

buyer representation agreement

creates a broker-buyer agency agreement

Broker X represents a prospective buyer. When he calls to schedule an appointment to show a property listed by another broker, X must

disclose that representation at the time he schedules the appointment to show the property.

Recovery under the DTPA for an act committed knowingly is limited to

economic plus mental anguish damages

To earn a commission, a broker must

ensure that the transaction closes

To protect themselves from financial loss due to liability for mistakes and negligence, many brokers and agents purchase which kind of insurance?

errors and omissions

boycotting competitors

esults when brokers are unfairly excluded from real estate professional associations or when two or more businesses conspire against other businesses or agree to withhold their patronage to reduce competition

fraud

intentional misstatement of a material fact made for the purpose of harming or taking advantage of another person

allocation of customers or markets

involves an agreement between brokers to divide their markets and refrain from competing against one another

antitrust laws

laws prohibit monopolies and contracts, combinations, and conspiracies that unreasonably restrain trade. The most common antitrust violations that can occur in the real estate business are price-fixing, boycotting competitors, and allocating customers or markets.

The broker must NOT act in self-interest because of the duty of

loyalty

The Deceptive Trade Practices Act (DTPA) does NOT apply to the actions of real estate agents when an agent

makes an exaggerated or unsubstantiated statement of value given as advice, judgment, or opinion when selling real estate.

The brokers in a certain area meet and agree that some brokers will handle residential property under $100,000, others will handle residential property over $100,000, others will handle commercial property, and others will sell condominiums. This is an example of

market allocation

intermediary broker

may appoint a licensed associate (appointed license holder), with the written consent of the parties, to communicate with and carry out instructions of each party. The written consent must state who will pay the broker and set forth the broker's obligations

An agency is terminated by which without liability for breach of contract

mutual agreement

An attorney who is NOT licensed by the Texas Real Estate Commission (TREC) but performs brokerage services in a transaction may

not receive part of a broker's commission on the sale of a property

If a sales agent leaves one company and becomes a sales agent for another firm, and that sales firm soon adopts the pricing, commission structure, and business practices of the first company, is that a violation of antitrust laws?

probably not

The DTPA does NOT apply to transactions that exceed $100,000 where there is a written contract and the consumer is represented by legal counsel, EXCEPT for which type of property?

residential

An unlicensed assistant may not

solicit prospects or listings for a licensed agent

procuring cause

that the broker had taken action to start or cause a chain of events that resulted in the sale

fiduciary relationship

the agent is placed in a position of trust and confidence and normally is responsible for the money and/or property of another

caveat emptor

the courts charged the buyer with the responsibilities of inspecting the property and searching the public records to ascertain interests of other persons, including the rights of parties in possession.

The four statutory positions a broker might take

the intermediary position, seller representation, subagency, and buyer representation

When a property is listed for sale, an agency relationship is created between

the listing agent's broker and the seller

express agency

the parties state the contract's terms and express their intentions

price-fixing

the practice of setting prices for products or services rather than letting competition in the open market establish those prices

law of agency

the rights and duties of the parties in a real estate transaction—the principal, the agent, and the customer

misrepresentation

the unintentional misstatement of a fact

the purpose of antitrust laws is

to prevent a company or companies from joining together block competitors from entering the market while simultaneously agreeing how much to charge consumers.

general agent

to represent the principal in a broad range of matters and may bind the principal to any contracts within the scope of the agent's authority.

If a sales agent is working with sellers and makes a mistake in a transaction, in theory the party responsible for the mistake is

usually the sales agent's sponsoring broker

A broker may act as an intermediary

with the written consent of each party to the transaction.

May sales agents working as independent contractors play golf every day and report to the office only periodically?

yes, independent contractors set their own hours