Chapter 19

A sponsoring broker must deliver correspondence from the Commission to his/her sponsored sales agents within how many days?

10

How many years must a broker maintain records according to the Texas Real Estate Commission?

4

OFFICE REQUIREMENTS

A resident broker must maintain a fixed office in this state. The address of the office will be designated on the broker's license. To be considered a brokerage, and receive income from real estate sales, a brokerage must file with TREC and meet TREC's two rules for a business entity. It must designate one of its managing officers as its designated broker maintain errors and omissions insurance with a minimum annual limit of $1 million if the designated broker owns less than 10 percent of the business entity.

Employment agreements

All employment agreements for real estate brokerage services must be made in the broker's name. The broker must see that sponsored license holders solicit and accept listings and other agreements for brokerage services only in the broker's name. The broker owns all listing contracts and buyer representation contracts and is the agent of the principal.

Agent

An agent is one who, in exchange for valuable consideration, acts for and on behalf of another. A licensee becomes an agent only when an agency relationship is established. Even then, it is the broker who is the client's agent. Licensees are the broker's agents. And as agents of the broker, all licensees in that broker's office have the same obligations and responsibilities to the principal as their employing broker has. All agency relationships have three important criteria: the principal relies on the agent for expert advice and counsel the relationship involves compensation the agent must work for the principal's best interests Agency relationships are fiduciary in nature and invoke all the fiduciary duties, as previously explained: obedience loyalty disclosure confidentiality accountability reasonable care The law expects a license holder to act with a reasonable degree of care, skill and diligence. Since the principal hires a license holder for expertise in the real estate field, the principal expects the license holder to use that expertise on the principal's behalf. License holders derive their responsibilities from their broker. Generally these responsibilities are to find buyers and sellers for property, explain agency relationships and enter into agency agreements. Agency responsibility flows from the broker to sponsored license holders so that each license holder at the office has the same relationship to each client. The broker is responsible for every authorized real estate action his/her sponsored license holders perform.

Single agency

The agent represents one party in a transaction, either a seller/landlord or a buyer/tenant, directly and exclusively as an agent. This relationship is normally bound by a written agency agreement having a specified and limited duration. The seller's broker represents the seller and the buyer's broker (if there is one) represents the buyer. In this situation, license holders have no agency relationship with the other license holder's clients, and there is no mistaking whose interest is to be placed first

Policy and procedures manuals in the brokerage office must include the broker's policy on

permitted agency relationships.

The intermediary relationship Definition

"Intermediary" means a broker who is employed to negotiate a transaction between the parties to a transaction and for that purpose may act as an agent to both of the parties. The law says, simply, that a broker must agree to act as an intermediary if the broker agrees to represent a buyer/tenant and a seller/landlord in a transaction

Fee splits

A broker licensed in Texas may cooperate with a foreign broker (defined by TREC as any licensed real estate broker who is not a Texas license holder) and share (split) earned commissions with that foreign broker. Only Texas license holders may handle real estate negotiations physically conducted within Texas. A license holder may not split a commission or fee with any person not actively licensed who engages in acts for which a license is required. An unlicensed person may share in the income earned by a business entity licensed as a Texas real estate broker if the person does not engage in any acts for which a license is required and does not lead the public to believe that the person is in the real estate brokerage business. A license holder may not share compensation with an unlicensed business entity created by a license holder for the purpose of collecting a commission or fees on behalf of the license holder. Brokers are required to tell their clients about how a commission will be split. This is not the split between the broker and his agents. This is the split between the broker and other brokers. The split offered by a broker is a term of the listing agreement and must be discussed prior to the signing of the listing agreement. In Texas, no state-approved form covers buyer representation, seller representation, or representing more than one party. The Texas Association of Realtors® and many local Boards of Realtors® provide these forms for their members. A buyer's broker must determine from the listing broker, at initial contact, whether the listing broker is authorized and willing to split the commission

Intermediary agency

A broker may act as an intermediary between parties to a real estate transaction if both of the following are true: The broker obtains written consent from each party for the broker to act as an intermediary in the transaction. The written consent states the source of any expected compensation to the broker. The details of this relationship are further explained in a separate section.

Delegation

A broker may delegate to another license holder the responsibility to assist in administering compliance with the Texas Real Estate License Act and the Texas Real Estate Commission (TREC) Rules but the broker may not relinquish overall responsibility. The delegation must be in writing and provide the name of the designee to the Commission within 30 days. If the delegation is anticipated to last for less than three (3) months, no reporting is necessary. The broker must also notify the Commission when the delegation ends. This license holder is generally an office manager or office assistant and is also responsible (with the designated broker) for the actions of the license holders that he/she supervises.

Communications

A broker must respond to sponsored license holders, license holders with competing brokers, clients, customers and all others within three (3) business days. A sponsoring broker must deliver correspondence from the Commission to sponsored sales agents within ten (10) calendar days.

License maintenance

A broker must see that sponsored sales agents maintain their licenses in active status at all times while they are engaging in activities subject to the licensing act. TREC requires 18 hours of Continuing Education (CE) for real estate license holders. The broker must keep sponsored license holders up to date on laws, rules and regulations, including any additional education the broker feels is necessary.

Disclosure

A broker owes the highest fiduciary obligation to the principal and is obliged to convey to the principal all information known to the broker which may affect the principal's decision unless prohibited by other laws. The fiduciary obligation is to place the principal's interests above those of the broker and one way is to be sure the principal has all the information necessary to conclude a transaction. The broker should disclose all information that is allowed and required to be disclosed and let the client judge its relevance.

Appointed intermediaries

A broker who complies with the written consent requirements may appoint a license holder associated with the broker to communicate with and carry out instructions of one party to a real estate transaction another license holder associated with the broker to communicate with and carry out instructions of any other party to the transaction It is common in an intermediary situation that one license holder in the office is the listing agent and another is the buyer's agent. Often, there is a different agent from the listing agent who obtains the buyer, so it makes sense that the broker will appoint each person to the client that he or she has already been working with. A license holder may be appointed only if the written consent of the parties under TRELA authorizes the broker to make the appointment the broker provides written notice of the appointment to all parties involved in the real estate transaction A license holder appointed under TRELA may provide opinions and advice during negotiations to the party to whom the license holder is appointed.

Minimum services brokerage

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 that party's agent. A broker, as described by the Texas Real Estate License Act (TRELA), may not instruct another broker to directly or indirectly violate TRELA must inform the party if the broker receives material information related to a transaction to list, buy, sell, or lease the party's real estate, including the receipt of an offer by the broker must, at a minimum, answer the party's questions and present any offer to or from the party The Texas Real Estate Commission (TREC) more specifically requires a minimum services broker to communicate any offers and any information related to the transaction to the party (the person who paid them) answer the party's questions Minimum services brokers cannot completely withdraw from an active role in a transaction, despite their minimal obligations. TREC states that the delivery of an offer to a party does not in itself violate TRELA if the party's broker consents to the delivery a copy of the offer is sent to the party's broker the person delivering the offer does not engage in another activity that violates TRELA The minimum services broker can even have the other broker deliver the offer directly to the party (seller or buyer - whoever is paying the minimum services broker), if everyone follows these simple rules.

Unlicensed referrals

A real estate license holder can accept a referral for real estate services from any source, but cannot pay for a referral from an unlicensed person. While referrals between brokers are common and legally compensated, referrals from unlicensed parties create a set of issues for the real estate license holder. To refer business to another person in connection with a proposed real estate transaction and with the expectation of compensation, the person must be licensed by TREC. Compensation, in this context, includes money, rent bonuses, discounts, and gifts of merchandise worth more than $50.

Declared agency policy

A brokerage must declare the brokerage's agency policy. The declaration should be included in the Policies and Procedures manual, and every sponsored license holder should be required to sign a document stating their understanding of the brokerage agency policy. The Texas Real Estate Commission (TREC) wants all brokerages to operate under a predetermined agency office policy without variants. If there ever is a dispute about agency, the first thing the Commission will ask for is the brokerage's written office policy, and the brokerage had better be able to produce one. The types of agency policies that a brokerage might use include buyer only - the broker and license holders all represent buyers exclusively seller only - the broker and all sponsored license holders represent sellers exclusively single-sided - broker and license holders represent buyers and sellers, but never in a single transaction intermediary - license holders represent buyers and sellers in a single transaction if appointed by the broker and the broker is authorized to act as an intermediary

First Contact

A buyer or tenant agent in any single agency real estate transaction must disclose the agency relationship at first contact with the other party's agent. If made to the listing agent, the listing agent becomes responsible for conveying the agency disclosure to the principal. As with seller and landlord disclosures, the buyer agent's agency disclosure can be initially made orally but must ultimately be made in writing. The written disclosure obligation must be fulfilled prior to the seller or landlord signing any transaction document.

Which of the following scenarios would require agency disclosure?

A buyer tells an agent about needing to buy a house in the neighborhood as soon as possible and needing help.

Which of the following scenarios regarding compensation complies with license law?

A client gives the broker consent to receive a fee from an unlicensed landscaper

What is one of the three principal disclosures license holders must provide to prospective buyers?

A description of the possible brokerage relationships

Some exceptions exist to the rules for completing the seller's property condition report. Which of the following is such an exception?

A father transfers the property to his only surviving son

A real estate broker licensed in another state is referred to as

A foreign broker

Exceptions

A license holder is not required to provide the notice if the proposed transaction is for a residential lease for less than one year and a sale is not being considered the license holder meets with a party the license holder knows is represented by another license holder the communication occurs at a property that is held open for any prospective buyer or tenant and the communication concerns that property

Prior consent

A license holder may rebate a portion of a fee or commission to a party in the transaction when the salesperson has the prior written consent of the salesperson's sponsoring broker and the party represented by the license holder. No commission or fee, however, may be paid in a manner that misleads any party to the transaction regarding the transaction or the financial circumstances of the buyer. A license holder may receive compensation in a transaction from someone other than the person the license holder represents only with the prior consent of the license holder's client. This does not apply to referral fees paid by one licensed real estate broker or sales agent to another. If a person not represented by the license holder agrees to pay a service provider in the transaction, the license holder must obtain that party's consent before accepting compensation for services from the service provider. The term "service provider" excludes persons acting in the capacity of a real estate broker or sales agent.

Not allowed

A license holder who represents a party in a transaction may not contract with a service provider to the transaction if, under the contract, the license holder provides services on behalf of the service provider, and is prohibited from offering similar services on behalf of a competing service provider A license holder may not accept payment for services provided on behalf of a service provider if the payment is contingent upon someone in the transaction purchasing services from the service provider.

Disclosure form

A license holder who represents a party to a real estate transaction must use the TREC "Disclosure of Relationship with Residential Service Company" to disclose to the party any payment received for services provided on behalf of a residential service company licensed under the Texas Occupations Code.

To whom

A licensed broker may pay a commission for performing an act of a broker only to a person who is a license holder, or a real estate broker licensed in another state who does not conduct any of the negotiations for which the compensation is paid in this state Brokers can only pay brokers (and their own sponsored license holders). It is a violation of the Texas Real Estate License Act for a broker to share a commission with an unlicensed person. Texas attorneys are exempt from TRELA and can receive compensation directly from the buyer or seller in a real estate transaction without holding a Texas real estate license. However, a Texas real estate broker cannot share a commission with an attorney who does not hold a real estate license because brokers can only pay brokers. A sponsored license holder may not pay a commission to another license holder. The payment must be paid by the sales agent's sponsoring broker to the other licensed holder's current sponsoring broker. A sponsored license holder cannot give a gift, gift card or other valuable consideration for real estate services without the approval of the sponsoring broker. A gift is considered anything valued under $50.00 that is not cash or a cash equivalent. Some brokers allow their sponsored license holders the right to give gifts without direct authorization from the broker.

Broker's responsibilities

A real estate broker is a person licensed by the state of Texas to negotiate and facilitate real estate transactions for clients and customers. Brokerage activities include finding suitable properties; negotiating contracts; marketing properties; showing property; navigating repairs; writing contracts for listing, purchasing and leasing homes, land, commercial properties, retail spaces, farms, ranches, fine homes, and estates; and property management. In addition, brokers may have responsibilities associated with sponsoring other license holders and operating a brokerage office or business entity.

From whom

A sales agent may not accept compensation for a real estate transaction from a person other than the broker that is sponsoring the sales agent or was sponsoring the sales agent when the sales agent earned the compensation. Many real estate transactions are completed through the efforts of other brokers who assist the broker who has the listing. These cooperating brokers typically find and bring the buyers who make the offer on a specific brokerage listing. A cooperating broker (buyer's broker) has no agreement in place with the seller, so that broker must rely on his/her buyer-client for a commission formalized through a written agreement called a Buyer Representation Agreement. Frequently, that Buyer Representation Agreement states that the buyer's agent will make an effort to be compensated through the listing broker. If that is unsuccessful the buyer would be obligated to pay the buyer's broker the agreed commission. A sponsored license holder who lists a home for sale will receive a share of the employing broker's commission on the listing side. This share will be based on the compensation agreement this agent has with his or her employing (sponsoring) broker. Any and all compensation paid to a sponsored license holder for real estate acts or services subject to the Act is paid with the written consent of the sponsoring broker.

Consent and disclosure

A written listing agreement or a written agreement to represent a buyer that authorizes a broker to act as an intermediary in a real estate transaction is sufficient consent provided it states that the broker may NOT disclose that the seller will accept a price less than the asking price disclose that the buyer will pay a price greater than the price submitted in a written offer disclose the confidential information of either party treat a party to a transaction dishonestly violate the Texas Real Estate License Act The form that most brokers use for disclosure of an intermediary status was created by the Texas Association of REALTORS® (TAR). This form cannot be used by a license holder who is not a member of TAR. Brokers who do not have access to this form have to include similar language in special provisions of the earnest money contract or have an attorney draw up a similar document for the office to use. There is no need to use this intermediary notification form or to make appointments while the buyer is looking at properties. However, when the buyer wants to make an offer with a buyer's agent on a listing that is at the same office as the buyer's agent, then it is time to use this form. Undisclosed intermediary agency is not legal in Texas. Disclosed intermediary agency is legal, provided the disclosures are made in the proper manner, and provided the brokerage company permits intermediary agency to be conducted as a matter of its agency policy. It is therefore critical for practitioners to know precisely the intermediary agency disclosure requirements.

Sponsoring brokers are responsible for which of the following?

Brokerage actions performed by sponsored license holders

Creation

An agreement between a customer and a broker to authorize representation creates an agency relationship This agreement should be in writing and clearly define the time frame, the scope of authority, and the responsibilities of the parties. Agency can also be created inadvertently by the actions of the license holder. A license holder might say something to a customer that would fall under the category of advice and opinions. These two services are owed only to clients. The acts of giving advice and opinions to a customer create what is called an implied agency. If a licensee accidentally creates an implied agency with a buyer while formally representing a seller, the licensee has created a type of undisclosed dual agency. The broker must correct such a situation as soon as possible or risk being held responsible for violating agency law and license law.

Exception

An unlicensed person may make a referral to a licensee and receive compensation if the person meets all of the following conditions: is engaged in the business of selling goods or services to the public sells goods or services to a real estate license holder who intends to offer them as an inducement to potential buyers, sellers, landlords or tenants after selling the goods or services to the real estate license holder, refers the person's customers to the real estate license holder payment to the person for the goods or services is not contingent on the consummation of a real estate transaction by that person's customers

substantive dialog

At the time when a license holder who represents a seller or landlord has the first substantive dialog with a party, the license holder must provide written notice in at least a 10-point font that describes the ways in which a broker can represent a party to a real estate transaction, including as an intermediary states the basic duties and obligations of a broker to a transaction party the broker represents provides the name, license number, and contact information for the license holder and the license holder's supervisor and broker, if applicable Initially, a seller or landlord agent may make the representation disclosure orally, but must ultimately fulfill the agency disclosure obligation in writing. The listing agent must maintain a written record of the disclosure.

Which of the following is NOT a fiduciary duty in an agency relationship?

Authority

Record keeping

Brokers must maintain records for at least four years, including disclosures - such as the lead-based paint disclosure, seller's disclosure notice, etc. commission agreements - between broker and license holders listing agreements and buyer representation agreements work files - these include anything that is important for a transaction contracts and addenda - all purchase agreements and lease agreements receipts of compensation - any Commission Disbursement Authorizations (CDA's) property management contracts and all documents that go with the contract appraisals and market analyses - every listing and sale should have had a market analysis performed sponsorship agreements - the agreement between the broker and the license holders

Policies and procedures

Brokers must maintain written policies and procedures to ensure that each sponsored sales agent is advised of the scope of authorized activities and is competent maintains his/her license in active status receives any compensation only through the written consent of the sponsoring broker is provided notice of any legal changes receives additional education complies with advertising rules is aware that all trust accounts are maintained only by the broker maintains records properly; the broker is responsible for all brokerage records

Seller's and broker's duties

Common law imposes a duty upon sellers to disclose facts that materially affect the value or desirability of the property are known or accessible only to the seller the seller knows are not accessible or obvious to a buyer It is a real estate broker's duty to conduct a reasonably competent and diligent visual inspection of a property offered for sale and to disclose to prospective purchasers all facts materially affecting the desirability of the property. The "reasonable person" theory dictates that if a reasonable person would have known about the material fact, the licensee should have known about the fact as well. For example, if a reasonable person would have noticed a large crack in the wall in the living room, then the licensee should have noticed and pointed it out to the customer. Such disclosures must go through the client. If the client is a seller who refuses to make the disclosures, the broker may have to terminate the listing agreement.

It is legal and normal for licensees to share or split fees with other parties. Which of the following would be a license law violation in that context?

Compensating an unlicensed party who is performing licensed activities

Which of the following is an unlicensed activity not requiring a license?

Confirming a listing address with a walk-in buyer prospect

Which of the following is NOT an acceptable, brokerage relationship in Texas?

Dual agency

Dual agency and intermediaries

Dual agency occurs when the same brokerage represents both the seller and the buyer under a written agreement. Dual agency changes the type of representation the broker and any agents in that company can provide. The Texas Real Estate Commission no longer allows Texas real estate license holders to act as common law dual agents. Brokers are required to act as intermediaries when representing more than one party.

Which of the following would be defined as a licensed activity for a sponsored broker?

Establishing a general negotiating strategy for sponsored licensees

Which of the following statements is true regarding the "Seller's Disclosure of Property Condition" document?

It must be completed prior to execution of the sales contract

Failure to disclose agency relationship

Licensees who fail to disclose their agency relationship properly and in a timely fashion are in violation of the Texas Real Estate License Act and subject to sanctions, including suspension and/or revocation other penalties as appropriate

Misrepresentation

Misleading the public by the giving of false or misleading information is a violation of license law, as well as of the Texas Deceptive Trade Practices Act Real estate practitioners can reduce the chance of inadvertently committing fraud and misrepresentation by making all required disclosures refraining from answering questions where they lack the necessary knowledge or expertise to answer License holders should disclose all required material facts and nothing but facts. When the facts are not known, they should seek out the information from an expert or advise customers and clients to seek the information for themselves.

Lotteries

The Texas Real Estate Commission may take disciplinary action against a license holder who offers to sell real property improperly by means of a lottery. All lotteries in the state of Texas must go through the Lottery Commission. The law considers the elements of a lottery to be the award of a prize by chance the payment of a consideration for the opportunity to win the prize An example of a lottery would be selling tickets for $100.00 for a chance to win a new home.

Misrepresentation

Misrepresentation lawsuits are by far the most common type of lawsuits brought against real estate brokers. Misrepresentation relates to making an erroneous statement regarding some material feature of the property or failure to disclose an important feature. There are three types of misrepresentations: innocent - occurs when a license holder had reasonable grounds for believing that his/her false statement was true negligent - includes failure to disclose significant property flaws out of lack of knowledge fraudulent - purposefully hiding a flaw to close the deal Listing agents, as suggested earlier, can help eliminate innocent misrepresentation by making sure the seller understands the importance of disclosing potential structural defects of the property for sale. They can avoid negligent liability issues by seeking out experts to evaluate problems such as asbestos, lead-based paint, radon, and groundwater contamination. Agents should not offer opinions on technical issues that can be misinterpreted by a buyer as facts and should document the actual source of information provided. Agents can avoid fraud by being honest and trustworthy.

Procuring cause

Procuring cause is legally defined as the starting of an uninterrupted chain of events that leads to a sale. The procuring cause is generally the first agent to show the property to a ready, willing, and able buyer, if that buyer buys the said property. When a buyer in a real estate transaction desires representation and contracts with a buyer's broker, procuring cause generally becomes a legal non-issue because the representation agreement clearly spells out the relationship.

Written agreement

Regardless of who will be responsible for payment of commission to the broker, commission agreements must be in writing. A broker has no legal recourse against a seller or buyer who refuses to pay a commission unless the agreement is written. Brokers should also use written agreements concerning fee splits between cooperating brokers. Most Multiple Listing Service (MLS) requirements have the listing broker disclose all fee arrangements to other brokers when the property is published by the MLS. The "Broker Information and Ratification of Fee" section in the TREC-promulgated contract forms details the conditions and the amounts of any compensation to be paid from the listing broker to the broker bringing the buyer. Use of the written compensation agreement helps avoid problems arising from disputes over procuring cause.

Seller's Disclosure Notice

Section 5.008 of the Texas Property Code requires sellers to provide a written "Seller's Property Condition Disclosure" notice to buyers: A seller of residential real property comprising not more than one dwelling unit located in Texas must give to the property purchaser a written notice about the property's condition as prescribed by this section. Note: The seller may use a written notice substantially similar to the notice prescribed by this section as long as it contains all of the items required. TREC has a version of the seller's disclosure notice, and the Texas Association of REALTORS® also has a seller's disclosure form. The broker will decide which form his or her office will use. You may find the TREC notice, OP-H: Seller's Disclosure of Property Condition. his disclosure notice documents what the seller knows about the property's condition and other facts about the property as of the date of signing the notice. If the information required by the notice is unknown to the seller, the seller must indicate that fact on the notice. The TREC or other notice must be provided prior to the effective date of any contract or offer to purchase. If the seller fails to deliver the notice, the buyer has the right to terminate and reclaim the earnest money, up to the day of closing. Even if the notice is delivered within the proper time frame, the buyer can terminate the contract for any reason within seven days after receiving the notice and reclaim the earnest money. To guard against any possibility of liability for misrepresentation, a license holder should not help a seller fill in the Seller's Disclosure Notice. It must be completed and signed solely by the seller. A Seller's Property Condition Disclosure notice is not required for the following transfers: court-ordered or foreclosure sale by a trustee in a bankruptcy to a mortgagee by a mortgagor, or to a beneficiary of a deed of trust by a mortgagee or a beneficiary under a deed of trust who has acquired the real property through a court-ordered foreclosure or a deed in lieu of foreclosure acquired through a will or trust from one co-owner to another co-owner made to a spouse or to a person or persons in the lineal line of consanguinity of one or more of the transferors between spouses resulting from a divorce or separation to or from any governmental entity sale of a new residence where the value of any dwelling does not exceed five percent of the value of the property

Which of the following is true regarding office regulations for brokers?

Sponsored brokers must maintain a fixed office location

Sponsoring brokers have numerous responsibilities in managing the office as well as compliance with TRELA. In that context, which of the following is a true statement?

Sponsoring brokers may assign TRELA compliance duties to a subordinate license holder in the office.

Subagency

Subagency is practiced between brokerage firms where "cooperating" license holders of competing firms are subagents of the listing broker. Subagency is legal in Texas.

DISCLOSURE OF TITLE ADVICE

TREC believes that buyers should be aware of potential title issues in properties they are considering buying. TREC therefore requires brokers to advise any buyer to obtain an abstract of title covering the property, or a title policy The broker should advise that, if a title policy is furnished, an attorney of the buyer's choice should promptly review the commitment of title in view of the time limitations on the buyer's right to object. An abstract of title is a "history" of title. Because of the difficulty of interpreting an abstract, buyers should be advised to consult an attorney to review the abstract. Review of an abstract is seldom used in Texas because it leaves the buyer with all the liability for defects in the property's title after closing. Virtually all buyers in Texas receive a title policy from a title company. The title company examines the title and then insures it for claims against the title that occurred in the past. Title insurance relieves the burden of liability for the buyer. If any title issue is discovered after closing, the title company protects the buyer. The Texas Real Estate Commission (TREC) requires that a broker has performed the following three things to be able to sue for a commission must have a current broker's license must have a written agreement from the person obligated to pay the commission must have advised the buyer to have an abstract of title reviewed by an attorney or to obtain a policy of title insurance The delivery of the advice for title protection is so important to TREC that the Commission has made it a precondition for a licensee's ability to sue for a commission.

Material facts

Texas law requires both seller and listing broker to disclose material facts. A material fact is information that would be useful for a reasonable person to know when making a purchase decision, as opposed to an insignificant, trivial, or unimportant detail. Material facts include information about property condition as well as legal status. A cracked window would most likely be an insignificant issue regarding an offer to purchase; however, a broken heating system would be considered material. Examples of material facts include flooding basement problems with HVAC systems square footage of the home environmental hazards like mold, lead paint, asbestos, and radon future developments that might impact the property such as planned highway presence of wood-destroying insects existing easements and encroachments boundary disputes

Disclosure requirements

Texas law requires that seller agents provide a "written statement" that explains in general terms the positions of seller representation, sub-agency, buyer representation, and the intermediary position to a party to a real estate transaction at the time of the first substantive dialogue. This statement does not require any signatures or dates but the contact information for the license holders must be filled out. A license holder who represents a party in a proposed real estate transaction must disclose, orally or in writing, the type of representation being exercised at the time of the license holder's first contact with that party or a license holder who represents that party.

Intermediary agents

Texas licensees must disclose their agency relationships. If an agent initially represents a buyer, the disclosure to the seller must occur at first contact. If the agent initially represents a seller, the disclosure to the buyer must occur upon first substantive dialogue. In intermediary agency, both parties must give written consent prior to or at the time of execution of a transaction-related document. The parties at this point have provided informed, written consent and may move forward with the intermediary agency representation.

Disclosure of AIDS

The Fair Housing Act includes people diagnosed with AIDS as a class protected against discrimination under the handicap designation. Since 1988, people with handicaps have been a protected class, along with race, color, religion, sex, national origin, and familial status. According to the Department of Housing and Urban Development (HUD), the enforcement agency for the Fair Housing Act, it is a violation for professionals (including real estate license holders) to make any disclosure that a current or former occupant of the property has AIDS. If a buyer directly asks a real estate license holder about this issue, the agent should not affirm or deny. Instead, something like the following would be a suitable answer: "It is the policy of our brokerage company not to answer inquiries of this nature one way or the other since the company believes that this information is not material to the transaction. In addition, any type of response by me or other license holders of our company may be a violation of the federal fair housing laws. If you believe that this information is relevant to your decision to buy the property, you must pursue this investigation on your own." A real estate license holder is wise to steer clear of answering such direct inquires because of the potential danger of a HUD investigation for a Federal Fair Housing violation.

Coastal property disclosure

The TREC-promulgated "Addendum for Coastal Area Property" contains the required notice to purchaser or grantee of coastal area property and is used when the property adjoins and shares a common boundary with the tidally-influenced, submerged lands of the state. This addendum provides a warning that the boundaries of the property may change due to tidal forces. By law, coastal areas which are submerged due to tides belong to the state of Texas. No structures of any kind are allowed in such areas. In some cases the state may issue a permit that allows such a structure.

Homeowners' association disclosure

The TREC-promulgated "Addendum for Property Subject to Mandatory Membership in a Property Owners' Association" is used when there is a required membership in a property owners' association tied to the property. It allows the buyer to elect to receive or not to receive information concerning the details of an owners' association. It is not for use with condominiums. A buyer may request the seller to provide subdivision information such as restrictions, rules of the association and bylaws of the association. When a buyer requests delivery of such information within a specified number of days and the seller fails to comply, the buyer may terminate the contract and reclaim the earnest money. The seller's failure to provide these documents creates a voidable contract. If the seller becomes aware of any changes in the subdivision information, the seller is required to inform the buyer immediately. The buyer may terminate the contract if the subdivision information is found to be untrue or if any material adverse change occurs before closing. Earnest money will be refunded to the buyer. The addendum also addresses the association transfer fee and how repairs are handled if the association is responsible for them.

Compensation defined

The Texas Real Estate Commission (TREC) defines compensation as a commission, fee or other valuable consideration for real estate brokerage services provided by a license holder under the Act.

Which of the following duties is a broker required to follow?

The broker must disclose all known material information regarding the property to the buyer.

Which of the following is true regarding offers?

The broker must present all offers regardless of the listing price.

Supervision

The broker's license authorizes a broker to sponsor licensed agents to work under the broker's supervision. All real estate agents must work under a designated broker to be allowed to practice in the real estate industry. Among other supervisory responsibilities, a broker is required to notify a sponsored sales agent in writing of the scope of the sales agent's authorized activities under the Act. A broker is responsible for all real estate actions of sponsored license holders unless the broker limits those actions. Most residential brokers limit their sponsored license holders to the sale of residential properties to minimize liability. The limits must be in the Policy and Procedures manual and each license holder should sign an agreement stating that they have read, understood and will follow the policies and procedures.

A license holder delivers the seller's completed 'Seller's Property Condition Disclosure' to the buyer after the deadline has passes. What is the consequence?

The buyer may cancel the contract.

Duties of an intermediary

The duties of a license holder acting as an intermediary supersede the duties of a license holder established under any other law, including common law. An intermediary must act fairly and impartially to all parties.

Disclosure of deceased persons

The fact that a death has occurred on a property can create a difficult situation for a real estate professional. Sellers often fear that disclosure might lower the property value in the eyes of potential buyers. Buyers want to know every detail about the property before buying. The Texas Property Code (TPC) declares there is no duty to disclose a death occurring on a property if the death was due to natural causes suicide an accident unrelated to the property condition The TPC does not forbid disclosure. The broker must establish Policies and Procedures for sponsored license holders. Generally, it is the best policy to disclose with the owner's permission.

Two buyer prospects walk into an open house and start talking to the agent about pricing and representation for other houses in the neighborhood. What is the host's responsibility in this scenario with regard to agency?

The host must give the parties the Information About Brokerage Services brochure

Information About Brokerage Services form

The license holder must use the Commission's "Information About Brokerage Services" (IABS) form for this type of disclosure. The IABS fulfills all of the legal requirements. Each active real estate broker and sales agent must provide a link to the IABS Form labeled "Texas Real Estate Commission Information About Brokerage Services," in at least a 10 point font, in a readily noticeable place on the homepage of the business website of the broker and sales agent. The IABS Form can be provided by personal delivery by the broker or sales agent first class mail or overnight common carrier delivery service by email by an attachment to an email, or a link within the body of an email, with a specific reference to the IABS Form in the body of the email; providing a link to the IABS Form in a footnote or signature block in an email does not satisfy the requirements License holders may reproduce the IABS Form published by the Commission, provided that the text of the IABS Form is copied verbatim and the spacing, borders and placement of text on the page appear to be identical to that in the published version of the IABS Form, except that the Broker Contact Information section may be prefilled.

A homeowner lives in a subdivision managed by a homeowner's association. What does the owner have to do whenever he or she decides to sell?

The owner must disclose the existence of the HOA as well as the members' obligations

Nature of the relationship

The relationship between broker and sales agent is created by an independent contractor agreement under the auspices of the real estate brokerage owned or managed by the broker. The broker and sales agent (sponsored license holder) have a general agency relationship. General agency allows the license holder to solicit real estate business on behalf of the broker and to conduct the authorized real estate business of the brokerage, including listing properties showing properties performing marketing and advertising activities on the firm's behalf entering into agreements to represent buyers preparing offers to purchase property presenting and negotiating offers to purchase initiating activities needed for a closing preparing documents needed for a closing maintaining transaction files for all completed or terminated transactions Texas law holds brokers accountable for the actions of their licensees while the licensees are acting under the authority of the general agency relationship their contractor agreements created.

SELLER DISCLOSURES

The seller in a real estate transaction has the duty to make certain disclosures. These disclosures relate to property condition, legal issues facing the property, potential property hazards and a number of other issues that may arise in certain situations. Real estate license holders must ensure that their seller-clients comply with disclosure requirements.

Substantive dialog defined

The term "substantive dialogue" means a meeting or written communication that involves a substantive discussion relating to specific real property. The term does not include: a meeting that occurs at a property that is held open for any prospective buyer or tenant (open house) a meeting or written communication that occurs after the parties to a real estate transaction have signed a contract to sell, buy, or lease the real property concerned

Fraud

There must be an action or a statement to claim a fraud. The action may be one of commission or omission, and the statement may be verbal or written. When a person has a duty to speak, the failure to do so will support a claim of fraud. For a statement to be fraudulent, the following elements must be present: the statement concerns a material fact the statement is untrue the buyer believed and relied on the statement the maker of the statement believes the statement to be untrue the statement was made for the purpose of inducing the buyer to act the action resulted in damage to the buyer

What is one of the primary functions of an appointed intermediary?

To carry out specific instructions from the party the appointed intermediary is appointed to

Which of the following is a duty of an intermediary?

To treat parties fairly

Prohibited activities

Unlicensed administrative assistants can perform a variety of activities to assist real estate licensees in transactions. However, they may not perform any activity which requires a real estate license. Recall that it is unlawful for a broker to employ or compensate any unlicensed person for performing licensed acts. Therefore, it is imperative that the activities of unlicensed assistants be properly monitored. Among other acts requiring a license, an unlicensed assistant is not legally permitted to discuss substantive issues with consumers interpret information on any real estate contract explain contract addenda negotiate commissions discuss real estate business with clients prospect.

Permitted activities

Unlicensed assistants are allowed to perform activities that are strictly administrative and secretarial, such as directing phone calls filing documents preparing certain non-legal documents creating newsletters maintaining a client database Assistants may also be licensed, in which case they can perform almost any task an agent requests of them, including such activities as conducting open houses independently, discussing properties with prospective buyers and sellers, communicating with clients, and coordinating escrow.

When should a buyer broker disclose her agency relationship to a seller?

Upon initial contact

All listings must

be in the broker's name.

Agency-related terms

brokerage agreement - a written or oral agreement for brokerage services in exchange for compensation fiduciary relationship - a relationship in which one party places special trust, confidence, and reliance in another intermediary - a broker licensee who works for both the seller and the buyer in the same transaction (an agency alternative allowed in Texas) ministerial acts - acts performed by an agent for a customer that are informative or clerical client - a person represented by an agent consumer - a person requesting or receiving licensed services (agency is not determined) customer - a person not represented by an agent agent - the person who is authorized to represent and act on the behalf of another person sales agent - a person who is sponsored by a licensed broker for the purpose of performing an act described by the Texas Real Estate License Act salesperson licensee - a sales agent license holder - a broker or sales agent licensed under the act licensee - a license holder seller's agent - a license holder who represents the seller in a transaction listing agent - a seller's agent buyer's agent - a license holder who represents the buyer in a transaction selling agent - a license holder who effects the sale of a property (agency position is unknown) cooperating agent - a selling agent other agent - a selling agent broker licensee - a person who is licensed as a broker in Texas sponsoring broker - a broker who has responsibility for any sponsored licensed holders employing broker - a sponsoring broker designated broker - a broker who has responsibility for any sponsored licensed holders associate broker - a broker that is responsible for his/her actions but working under another broker subagent - a licensee who is not affiliated with the client's broker, but who represents the client as a cooperating broker dual agent - a license holder who is representing both sides to a transaction facilitator - a license holder who is representing neither side to a transaction When a licensee holder first meets a person, that person is called a customer, and there is no agency relationship with the license holder. When an agency relationship is established, the customer becomes a client, and the license holder now has the task of getting the client the best possible transaction.

In a given agency relationship, a broker is obligated to disclose all material information about the property known to the agent. This is an example of

buyer and seller agency

A homeowner's residence is on a tidal wetland. To properly convey this property, the owner must

disclose that the property's boundaries can fluctuate due to tidal effects.

TREC requires sponsored brokers to retain transaction files for

four years.

When a salesperson represents both sides of a transaction, he or she is obligated to

fulfill the duties of an intermediary.