Champions Law of Agency

Fiduciary Duties

"OLD CAR": Obedience, Loyalty, Disclosure, Confidentiality, Accounting, and Reasonable Care. These duties of an agent are the minimum requirements of any agency relationship.

Agent

(1) A broker who represents a seller, landlord, buyer or tenant. (2) Sales agent or broker license holders who represent the broker with whom they are associated.

A License Holder is Not Required to Provide an IABS If:

(1) the proposed transaction is for a residential lease for not more than one year and a sale is not being considered; (2) the license holder meets with a party who the license holder knows is represented by another license holder; or (3) the communication occurs at a property that is held open for any prospective buyer or tenant and the communication concerns that property.

1101.353. Moral Character Determination

(a) If before applying for a license under this chapter a person requests that the commission determine whether the person's moral character complies with the commission's moral character requirements for licensing under this chapter and pays the fee prescribed by Section 1101.152, the commission shall make its determination of the person's moral character. (b) Not later than the 30th day after the date the commission makes its determination, the commission shall notify the person of the determination. (c) If a person applies for a license after receiving notice of a determination, the commission may conduct a supplemental moral character determination of the person. e supplemental determination may cover only the period after the date the person requests a moral character determination under this section. (d) The commission may issue a provisional moral character determination. The commission by rule shall adopt reasonable terms for issuing a provisional moral character determination.

Broker Associate

A broker associated with and conducting all of his or her business as an agent of another broker.

Two Types of Licenses

A broker license and a sales agent license. No one may hold both licenses at the same time; however, a licensed broker may act as a broker and as a sales agent.

Landlord's Agent

A broker representing a landlord in a real estate transaction.

Tenant's Agent

A broker representing a tenant in a real estate transaction.

Buyer's Agent

A broker representing the buyer in a real estate transaction, also referred to as a Buyer's Broker, Selling Broker, or Selling Agent.

Seller's Agent

A broker representing the seller in a real estate transaction, also referred to as a Seller's Broker, Listing Broker, or Listing Agent.

Cooperative Broker

A broker selling the listing of another broker. A cooperative broker may complete the transaction as a subagent of the listing broker, or may represent the buyers under an agency agreement; he also known as the other broker.

Murder on the Premises

A great many buyers object to living in a property where a murder has been committed. The impact on the desirability and value of the property is proportionate to the amount of time that has elapsed and the severity of the crime.

Megan's Law

A law that was first proposed and enacted in New Jersey, in response to the murder of Megan Kanka, which occurred on July 29, 1994 in Hamilton Township, New Jersey. Over the years, all fifty states have adopted a variant of the law which requires the registration of sex offenders.

Subagent

A license holder not associated with the seller's broker, but who is representing the seller through a cooperative agreement, often through membership in a Multiple Listing Service (MLS), with the seller's broker.

Radon

A naturally occurring colorless and odorless gas produced by the decay of radioactive materials in rocks under the ground. It enters homes through the foundations. HUD does not require testing for FHA loans. Mitigation is the term used to describe methods used to lower levels in homes and other buildings.

Protection Period

A period of time after the listing expires, during which the seller may owe the broker a fee if the property sells. Runs for a fixed number of days after the expiration of the listing. The length is negotiated between the seller and broker. The protection period terminates under several conditions, including the listing of a property with another member of TAR®.

License Holder

A person licensed by the Texas Real Estate Commission (TREC) to act as a broker or sales agent in a real estate transaction.

Customer

A person who receives limited brokerage services without establishing an agency relationship.

Paranormal Activity

A property that is believed to be haunted is avoided by most potential buyers.

Agency

A relationship between two parties, the principal and an agent. The relationship the agent has with his or her principal, or his or her broker.

Sales Associate

A sales agent or broker license holder associated with and conducting business as an agent of his or her sponsoring broker.

Team Names

According to the newly adopted TREC Rules, team names must end in either "team" or "group." Teams may no longer use the terms "realty", "brokerage", "company", or "associates" in their team name as it may mislead or deceive the public into believing that the team is responsible for the operation of the broker's business. Before a sales agent starts using a team name in advertising the broker must register the name with the Commission. e broker must notify the Commission in writing no later than the 10th days after the date the sponsored associate broker or sales agent stops using a team name.

Safe Harbor Policy

Adopted by TREC to be used in deciding if an advertisement is clear and conspicuous. On signs or any other type of advertising, a broker's name, the brokerage name, or an assumed name has to be at least 50% of the largest item of contact information.

Client

Also known as the principal. A person who engages the professional advice or services of another, called an agent, and whose interests are protected by the specific duties and loyalties of an agency relationship. Many of these duties are outlined in a listing or buyer/tenant representation agreement.

Disclosure

An agent has a duty of full disclosure of all information relating to the property and the other parties in the transaction. This would include such things as the broker's opinion of value, negotiation strategies or techniques to assist the client in negotiating the transaction, motivation of the other parties and the financial condition of the other party. Ultimately, full _________ to the client is required, regardless of whether the fact is favorable or not, whether the fact is found before or after the contract is signed or whether __________ might prevent the successful execution of the contract. The client is entitled to know the same facts that the agent knows.

Obedience

An agent is obligated to follow all of the lawful instructions of a client. A client may reasonably expect an agent to arrange for certain services to be performed. For example, a client may ask for a survey, an appraisal, or for an inspection report. In any case, be careful to have the client choose the provider. Always supply clients with lists of choices for professional services, rather than recommending any one in particular. Once a client has chosen the provider, it would be acceptable for the agent to arrange the service requested.

Implied Authority

An agent's authority to do things not specifically authorized in order to carry out express authority. Agency authority, or rights, may also be a result of "the norm", or what is considered customary in the business. For example, a homeowner can expect the listing agent to make appointments to show the property, not only during business hours, but also on weekends, and in the evenings.

Broker License Holder

An individual holding a broker's license issued by TREC. Brokers may act independently in conducting real estate transactions, or may engage other broker or sales agent license holders to represent them in the conduct of their real estate business.

Sales Agent License Holder

An individual holding a license issued by TREC - an agent of the sponsoring broker. He or she may conduct business only through his or her sponsoring broker.

Comparative Market Analysis (CMA)

Analysis based on properties that have recently sold that are most similar to the subject property.

Farming Herbicides and Pesticides

Another source of groundwater contamination. Recommend water testing.

Confidentiality

Any confidential information learned about a client must be kept confidential forever, and may not be disclosed without the written consent of the client. The only confidential information that may be disclosed is that required to be disclosed by law, such as information regarding the condition of the property or the title.

Disclosure of Representation

At the first contact with a party to a potential transaction, a license holder must disclose to that party whom he or she represents. It may be done orally or in writing. For example, when a prospective buyer calls on a listed property, the agent must inform the prospective buyer that the firm represents the seller. If a buyer's agent comes into contact with a seller or agent of the seller, the buyer's agent must likewise notify that person that he or she is a buyer's agent.

Express Authority

Authority that comes from specific instructions, either oral or written.

Fiduciary

Based on trust.

Advertising

Can create special disclosure issues and be a violation of TREC rules when it is found to be misleading. It is the broker's responsibility to make certain that sales agents are complying with advertising laws.

Criminal Activity

Common criminal activity would include meth labs, drug distribution operations, gang activity, illicit gambling operations and other undesirable business enterprises. Potential purchasers are concerned that the operators or patrons of the criminal activity might return to the property not knowing that it has new occupants.

Property Condition Issues

Damage to a property, including flood, foundation repair, fire, toxic waste, etc. even if cured, can result in stigma that reduces the value of the property.

Reasons a Property May be Stigmatized

Death, Suicide, Murder, Infectious Disease, Criminal Activity, Property Condition Issues, Paranormal Activity

Subagency

Defined as, "when a license holder is not associated with the seller's broker but is representing the seller through a cooperative agreement with the seller's broker." Subagency tends to show up more often in rural communities and the trend away from subagency is evident in the metropolitan markets. Many brokers will not allow their sponsored agents to work in subagency relationships. Such agency relationships are legal, like intermediary without appointments, but come with a higher degree of exposure for the broker, and consumer. Such exposure can often lead to unwanted litigation.

Agency by Ratification

Established when an agent acts without prior authorization and the principal accepts it.

Listing Agreement

Establishes a special agency relationship between the broker and a seller or landlord. It is a contract with a seller that gives the broker the right to find a purchaser for his or her property. Is an employment contract used by sellers to employ a real estate broker, or brokerage firm, to find a buyer for their property.

Ostensible Agency

Exists when actions lead another person to assume that one is an agent. For example, a license holder might falsely make public statements that he or she is representing a commercial property owner as a leasing agent or property manager. If the property owner learned of the misrepresentation and made no effort to correct it, ostensible agency may be created because it is reasonable for others to believe the license holder.

Agency by Actual Authority

Exists when an individual grants express authority to the agent to perform some act. The authority granted may be in oral or written form. Actual, written authority is given to a broker when a seller signs a listing agreement. An example of actual oral authority is when a buyer and agent enter into an unwritten buyer representation agreement. Actual, oral authority is often granted to the agent after the client enters into a written agreement. A common example would be a seller asking that the agent hold an open house.

Restatement (Third) of Agency

Fiduciaries are held to the highest amount of good faith, are required to exclude all selfish interest, are prohibited from putting themselves in positions where personal interest and representative interest will conflict and must, in any direct dealing with the principal, make full disclosure of all relevant facts and give the latter an opportunity to obtain independent advice.

Mold

Fungi that can be found both indoors and outdoors.

Electromagnetic Fields (EMFs)

High-tension power lines are a controversial topic. Know their location, and disclose.

Terminating a Sale Agent's Sponsorship

If a broker wishes to terminate a sales agent's sponsorship, it must be done in writing, and the license must be returned to the Texas Real Estate Commission immediately. A sales agent whose license has been returned to the Commission may not engage in the business until he or she has found a new sponsoring broker. A sales agent license holder who wishes to terminate his or her association with a broker must notify the broker in writing.

Accounting

If any funds are held for a client or a customer, these funds are said to be held in trust and must be placed in a separate account set up for this purpose.

Landfills or Waste Disposal Sites

Improperly constructed can lead to groundwater contamination. Know locations, and disclose. Recommend water testing.

Lead

In paint and pipes and soil - use the lead paint disclosure for all properties built before 1978. The seller is responsible for providing the lead paint disclosure. The disclosure allows buyer to waive their right to a lead inspection. Older homes may have lead plumbing.

Agency Agreement

In real estate, an agency relationship is created with a seller or landlord when the seller or landlord authorizes the broker to seek a buyer or tenant. Likewise, an agency relationship is created with a buyer or tenant when that party authorizes the broker to seek a suitable property. In most cases, the agency agreement includes a promise of compensation if the broker successfully fulfills the agency agreement. The most desirable method of creating an agency relationship with a buyer, seller, landlord or tenant is to do so in writing. While oral agency agreements are valid in Texas, they are generally not enforceable. Additionally, oral agreements are subject to misunderstanding and misinterpretation by both the client and the broker.

Reasonable Care

Is a requirement that an agent exhibit competence and expertise, keep clients informed and take proper care of property. This would include taking care to verify information related to a transaction and making sure that a property is secured and all doors locked after a showing. The agent is held to the standards of knowledge, expertise, and ethics defined by TRELA.

Advertisement

Is any form of communication by or on behalf of a license holder designed to attract the public to use real estate brokerage services and includes, but is not limited to, all publications, brochures, radio or television broadcasts, all electronic media including email, text messages, social media, the Internet, business stationery, business cards, displays, signs and billboards. Advertisement does not include a communication from a license holder to the license holder's current client.

Agency by Estoppel

Is created when a principal inadequately supervises an agent. The agent takes on powers that go beyond the scope of authority given by the principal.

Suicide

Is in much the same category as death on the property. Some ascribe more importance to suicide as it is thought by some to "infect" the property with negative energy.

TRELA Sec. 1101.651 Certain Practices Prohibited

Lists 30 specific violations that can result in the suspension or revocation of a real estate license. Many of these violations relate to the license holder's conduct in agency relationships.

TRELA Section 1101.558. Representation Disclosure

Mandates the disclosure of representation and that potential buyers and sellers be provided with an agency information form (discussed elsewhere). Agency relationships are often confusing to buyers and sellers, as well as the license holders themselves. e Commission's intent is clear that all parties to a transaction must understand their relationship with the broker.

Sales Agent License

May only be issued under the sponsorship of a licensed broker. A broker is responsible for all of their professional acts. They must receive all compensation through his or her sponsoring broker. In addition, they are prohibited from splitting fees with anyone, except through the sponsoring broker. They are not considered licensed, and therefore may not engage in the business until his or her license is received in the sponsoring broker's office.

Loyalty

Means putting the interests of a client first. This means working to assist the client in all phases of the transaction to arrive at the best possible result for the client, exercising maximum effort for the client's benefit. The duty of ______ is limited by the duty of honesty to all parties. Therefore, the only time it would be improper to place the interests of a client first, would be in a situation where this action would require you to treat others dishonestly. Failure to demonstrate loyalty could lead to loss of commission, loss of license and a lawsuit for damages, in addition to the possible cancellation of the transaction.

Performance

Means the principal is expected to perform as promised in the agency agreement. If, for example, you have listed a property, it is reasonable to expect the property to be available to be shown. e principal must cooperate with the agent to help meet their goals.

Commingling

Mixing client's funds with the business, operating, or personal funds of a broker, and is prohibited by the License Act.

Seller's Disclosure of Property Condition

Most sellers prepare one of these and the seller is responsible for its accuracy. The agent's role is to encourage honesty and full disclosure. While it is a broker's responsibility to discover and disclose that there may be problems on a property, that responsibility is limited to areas accessible for visual inspection. Errors & Omissions insurance can protect a broker if the seller misrepresents property condition, the broker is unaware of the misrepresentation, and could not have detected it by visual inspection.

Underground Storage Fuel Tanks

Old, rusty or leaking containers can cause groundwater contamination. Sometimes found on both commercial and residential properties, these are commonly called USTs. Recommend water testing.

Texas Real Estate License Act (TRELA)

Passed in 1939. The Texas Real Estate Commission was created to enforce and administer the act in 1949. The purpose of the Act is to protect the public against unscrupulous brokers and sales agents. Makes it illegal to practice any act of real estate brokerage without a license.

Indemnification

Protection against damage or loss. Means that the principal will protect the agent from suffering a loss due to the agent's reliance on information received from the principal. For example, if a seller gave a broker false information, which the broker passed on to a prospective buyer, the broker would be justified in expecting indemnification from the seller. For example, if the seller misrepresented the property in a Seller's Disclosure, the agent will be indemnified if the agent was unaware of the misrepresentation.

Two Levels of Responsibility

Public responsibility and fiduciary responsibility

Urea Formaldehyde Foam Insulation (UFFI)

Pumped into walls as a foam, it hardens and insulates. Moisture softens the hardened material and causes the release of hazardous gas.

Exclusive Right to Sell

Real estate brokers recommend this listing which grants an exclusive right to sell the property during the listing term. A commission is paid even if the property is sold by the owner. It is the listing agreement most brokers prefer, as it affords the broker the greatest degree of protection in earning a commission during the listing term, and provided the broker performs as promised, from executing a sales contract through to closing and funding. Brokers are more willing to spend advertising dollars and their sales efforts to secure a buyer. If the property is listed at market value, this type of listing probably serves the interest of both parties. Under this plan, the broker has sufficient time to test the market, design an advertising sales campaign, and market the property under the best possible terms. Another benefit of the exclusive right to sell listing agreement is that it helps to avoid the problem of procuring cause lawsuits because the listing broker is the only one with the right to sell the property.

Compensation

Refers to the fact that the agent should be paid on completion of the agency.

Reimbursement

Refers to the fact that the agent should be reimbursed by the principal for expenses incurred on behalf of the principal, above and beyond the expenses related to the sale itself. For example, if the agent paid for a house to be cleaned or a lawn mowed, reimbursement would be expected, assuming the client authorized the expenditure. e prudent agent gets all authorizations in writing from the client.

Death on the Property

Some buyers will pass on the opportunity to buy a property in which anybody has died for any reason. This may be problematic for homes that are quite old, as death at home was the norm prior to the early 20th century. This is a particular concern for some buyers, and a concern that raises issues for license holders. Both federal and state law place some limits on the seller's duty to disclose.

Infectious Disease

Some buyers will shy away from a property if it is known that it was occupied by somebody with an infectious disease.

Section 1101.557 of TRELA

Specifes that a broker who represents a party in a real estate transaction or who lists real estate for sale under an exclusive agreement for a party is an agent of the party. Therefore, to ensure compliance with TRELA, a good understanding of agency relationships is a requirement for any practicing sales agent or broker. e act does not provide for any other relationship between the broker and a principal to the transaction.

Procuring Cause of Sale

The effort that results in the sale of property - the act of bringing a ready, willing and able buyer to a seller resulting the sale of the seller's property. The individual who, through a series of uninterrupted activities, brought about the completion of a contract.

Special Agency

The most limited of all the agency relationships. Sometimes, it is even called "limited agency." The agent may perform only limited duties for the principal. The _____ agent is not able to bind (obligate) the principal because he or she is not allowed to sign or accept any terms or conditions on behalf of the principal. The _____ agent must simply follow the instructions of the principal.

Universal Agency

The power to act for the principal in all transactions. It has a broad range of authority to act for a principal. This agency relationship comes with a significant amount of responsibility. It is rarely used in real estate brokerage. An example would be an adult child who is given authority to act for elderly parents and to carry out all financial and business matters for them.

Net Listing

The real estate broker's commission is the difference between the minimum net established by the seller, and the price that the buyer is willing to pay. The seller establishes a minimum, acceptable net price. The real estate broker's commission is the difference between the minimum net established by the seller and the price that the buyer is willing to pay. Because of potential ethical and legal issues, net listings are outlawed in many states. While net listings are legal in Texas, TREC has recognized the potential for abuse in net listings and has passed two specific rules regarding this type of listing.

Remediation

The removal of mold.

General Agency

The right to represent the principal in a particular type of transaction or business. One common example of a general agent in real estate is the property manager. The property manager is primarily responsible for preserving the value of an investment property while generating income as an agent for the owners. Another common example is the relationship between a broker and his or her associates.

Open Listing

The seller can list his or her property with multiple competing brokers. It gives the seller the right to list the property with multiple competing brokers and to sell the property personally without liability for payment of a commission.

Exclusive Agency

The seller lists the property with only one broker, but can sell it him or herself without paying a commission. The seller agrees to list the property with only one broker during the listing term, with the provision that the seller can sell the property himself or herself, without payment of a commission. Perhaps the biggest risk to the broker in an exclusive agency listing is that the seller will not fully cooperate with the efforts of the broker if the seller thinks that he or she has a prospect to sell to and avoid paying a fee. TAR® does not have an exclusive agency listing agreement in full, and such an agreement is not preferred by most brokers. Instead, TAR® makes available an addendum that when completed and attached to an exclusive right to sell agreement, makes that agreement exclusive agency, allowing the seller to sell the property himself or herself and avoid paying any sales commission to the broker. Exclusive agency agreements are often used with builders who list their properties with a broker.

TAR Seller's Disclosure Notice

The seller should prepare the disclosure when the listing is taken. e seller should be the only one completing this form or any part of it. Most MLS systems allow for the upload of relevant documents as part of the listing data. e Seller's Disclosure Notice should be uploaded for easy access by other members. Many agents leave a number of printed copies of the disclosure in the property for agents to refer to when showing. Some sellers mistakenly believe that a seller's disclosure is not required when the property is an investment or when the seller has never occupied the property. e seller's disclosure is required whether or not the seller has ever occupied the property.

Authorizing Access

The seller's cooperation in granting access to the property is a critical factor in the successful marketing of the listing.

Fiduciary Responsibility

These are the duties to a client. a. Put the interests of the client first b. Give full disclosure to the client (advice and opinions in addition to disclosing all pertinent facts - both material and other) c. Exhibit trust and honesty d. Exercise good business judgment e. Be loyal to the principal f. Be competent

Public Responsibility

These are the duties to customers (third parties) in a transaction: a. Honesty b. Disclosure of material facts c. Handle all funds with care d. Be responsible for written or oral statements

Broker License

They must maintain a fixed place of business in the state. If they have more than one place of business, a branch office license is required for each location. It is not necessary to have a licensed broker at each location.

Asbestos

Used to insulate pipes, in chimneys, in roofs, flooring materials and siding. Problems arise in its removal - the dust can be extremely hazardous. There is no duty for the seller to remediate the presence, simply to disclose it. To remove it, the area must be sealed of, and then it can be removed. The building does not have to be tented. It is better to encapsulate it than remove it. An abatement plan outlines the method to handle the control of _____ found in a property.

Agency Coupled with an Interest

When a broker is the owner of a property that is being sold, or when a broker is interested in buying a property, we have agency coupled with an interest. A real estate license holder is obligated to advise a property owner as to the license holder's opinion of the market value of a property when negotiating a listing or offering to purchase the property for the license holder's own account as a result of contact made while acting as a real estate agent. When an agent has an interest in the property, this interest must be disclosed as soon as possible.

Conversion

When a broker spends his or her client's funds without authorization, that broker is guilty of conversion. A serious violation of TRELA

Information About Brokerage Services

When an agent and potential party enter into a "substantive" discussion of a real estate transaction, the party must be provided with a TREC-prescribed agency information form. The license holder is responsible for determining when a discussion becomes substantive, as the discussion "triggers" the requirement for the delivery of the form. A substantive discussion does not always occur at the first face-to-face meeting. A discussion can become substantive during discussions via phone, e-mail, or any other means of communication. The agency statement is found in the License Act as a part of the required Representation Disclosure. The IABS should be provided to a seller prior to a listing presentation, and should be provided to a buyer prior to discussion of a possible purchase.

Notice to Buyer Regarding Abstract or Title Policy

When an offer to purchase real estate in this state is signed, a license holder shall advise each buyer, in writing, that the buyer should: (1) have the abstract covering the real estate that is the subject of the contract examined by an attorney chosen by the buyer; or (2) be provided with or obtain a title insurance policy.

Stigmatized Properties

When some event occurs, or some people believe that a past event or condition is affecting it. A property that is stigmatized for some reason can be difficult to sell. A property can be stigmatized psychologically or physically. An example of a psychological stigma would be the belief among some that a house is haunted. Events on a property such as murder, death and infectious disease can also create psychological stigma. Physical stigma occurs as a result of some condition near or on the property. Previous flooding, foundation problems, nearby landfills and nuclear power plants in the area are examples of physical stigma. When stigmatized properties do sell, they often do so with a deep discount in the sales price.

Buyer/Tenant Representation Agreement

Will create a special agency relationship with the broker.

Duties of a Principal to Agent

• Compensation • Reimbursement • Indemnification • Performance

Sponsored Agent Activities the Broker is Responsible For

• Compliance with fair housing laws • Compliance with advertising regulations • Use of promulgated forms • Compliance with regulations for disclosure • Compliance with all aspects of the Texas Real Estate License Act

TREC Defines an Advertisement as Misleading If It:

• Implies that a sales agent is responsible for the operation of a brokerage • Fails to include the name of the broker

Benefits of Seller Agency

• Marketing. Property owners can list a property with a good agent and know that it is getting far better exposure than if the owner attempted to sell without the assistance of a broker. • Negotiations are easier when a property is listed with an agent. • Legal and finance details of the transaction are better facilitated when using a trained real estate professional. • Time is a valuable commodity. Sellers must deal with "lookers" who are not qualified and who waste the seller's time. • Safety is another major consideration.

Activities a Broker Authorizes an Agent to Carry Out

• Securing listings from sellers and landlords • Securing buyer representation agreements from buyers and tenants • Marketing listed properties • Showing properties to prospective buyers • Preparing offers • Negotiating offers The broker authorizes the license holders to carry out all of the above activities, and more.

Sponsored Agent Activities the Broker is Not Responsible For

• Timely renewal of license • Completion of continuing education requirements • Adequate opportunities for generating income • Company car, health insurance, vacation, or disability benefits