Chapter 4

The laundry list

- 27 acts that would constitute a deceptive trade practice - Many of these provisions go hand in hand with sections of the Real Estate License Act.

Licenses Act requirements

- A person may not file a lawsuit for the collection of compensation for performance without alleging and proving that the person is a duly licensed real estate broker or sales agent. - An action may not be brought in a court of this state for recovery of a commission unless the promise for such commission is in writing and signed by the party to be charged, or by a person lawfully authorized to sign the commission agreement. - An agreement to share compensation between license holders can be verbal. - The license holder shall advise the purchaser, in writing, that the purchaser should have the abstract examined by an attorney they select, or that the purchaser should be furnished with or obtain a policy of title insurance. - The Act allows brokers to sue each other for commissions, even if nothing is in writing.

Establishing the agent's authority

- A written agreement is the preferred method of creating an agency. - Agency authority may also arise from custom in the industry, common usage, and conduct of the parties involved. - Agents have implied authority to advertise any place they wish. - Ostensible authority is conferred when a principal gives a third party reason to believe that another person is his agent. - An agency by ratification is one established after the fact. - All methods of establishing an agent's authority work for the buyer's agent as well as the seller's agent.

Abandonment

- Agency can be terminated by improper performance or abandonment by the agent. • if a broker acts counter to the principal's best financial interests • if a broker accepts an employment opportunity and then does nothing to promote it - Agency is automatically terminated: • by the death of either the principal or the agent; or • if either the principal or the agent is judged legally incompetent by virtue of insanity. - Agency might be terminated if the principal becomes bankrupt.

Broker's obligations to third parties

- State law demands that the broker deals with third parties on behalf of the principal with honesty, integrity, and fairness. - Disclosure of misconduct usually results in a broker losing the right to a commission, possible loss of license, and a lawsuit by any party to the transaction who suffered financial loss.

Unconscionable acts

- Such acts are defined as "taking advantage of a consumer's lack of knowledge to a grossly unfair degree, thus, requires a showing of intent, knowledge or conscious indifference" at the time the misrepresentation was made. - What may be mere puffing to a broker could be understood as absolute fact by an ignorant, unthinking, or credulous purchaser or seller.

Disclosure to Third Parties License Act Requirements

- Texas law requires real estate license holders to • disclose any interest in the real estate held by the license holder; • disclose any additional commissions received from someone other than the principal; and • advise the purchaser, in writing, to obtain title insurance or have an abstract examined.

Texas disclosure forms

- The Property Code requires the seller of residential real property to give the purchaser of the property a written notice on a form. - The notice is to be completed with the best of the seller's knowledge and belief. - The Property Code does not apply to any transfers. - The seller must deliver the notice to the purchaser on or before the effective date of an executory contract.

Protecting the owner's interest

- When seeking a buyer or negotiating a sale, the broker must continue to protect the owner's financial interests, putting the principal's interest above that of the agent. - includes keeping the principal informed of changes in market conditions during the listing period

DTPA breach of warranties

- criteria for the breach appear to be circumstances existing where the knowledge of the seller, in conjunction with the buyer's relative ignorance, operates to make the slightest divergence from mere praise into representations of fact - taking unfair advantage of a "consumer"

Reasonable Care

- implies competence and expertise on the part of the broker - The broker must not become a party to any fraud or misrepresentation. - avoid legal interpretations - requires agents to take proper care of property entrusted to them by principals ©

Nondisclosures

- no duty to inquire about, make a disclosure related to, or release information related to whether a previous or current occupant had, may have had, or has or may have AIDS or an HIV related illness - no duty to inquire about, make disclosure related to, or release information related to whether a death occurred on a property by: • natural causes • suicide • accident unrelated to the condition of the property - no duty to disclose information about registered sex offenders

Buyer Representation

A form of single representation in which the brokerage represents the buyer as a client.

Intermediaries

Businesses involved in selling the goods and services of producers to consumers and other businesses.

Conversion

Conversion property means real estate on which is located a building that at any time within two years before creation of the common interest community was occupied for residential use wholly or partially by persons other than purchasers and persons who occupy with the consent of purchasers.

Reading, Willing, and Able Buyer

Describes a buyer who is ready to buy, willing to buy, and financially able to pay the asking price.

Owner disclosure statement

Detail disclosure of property defects. Seller required to disclose if they have knowledge of a latent defect. Never filled out by the real estate agent!

Commingling

Illegally mixing deposits or monies, collected from a client, with one's personal or business account. Taking money out too soon or putting it into escrow too late (10 banking days).

Causes of action

In a complaint, a legal basis on which a claim is predicated. The legal basis can be a Constitutional law, a statute, a regulation, or a prior judicial decision that creates a precedent to be followed

Terminating the employment contract

In most employment contracts, the agency terminates because the objective of the contract has been completed. - If the agent's employment is terminated for cause, the principal can terminate without paying compensation. - If a buyer's agent finds the product that meets the buyer's criteria and the buyer refuses to purchase, the broker is entitled to be compensated.

Agency by Ratification

Principal either by act or by agreement ratifies conduct of a person who is not in fact an agent

Remedies

Remedies: statutory damages are recoverable under the DTPA - the amount of economic damages found by the trier of fact - an order enjoining such acts or failure to act - orders necessary to restore to any part of the suit any money or property real or personal that may have been acquired in violation of this subchapter - any other relief that the court deems proper

Dual agency

Representing both parties to a transaction. This is unethical unless both parties agree to it, and it is illegal in many states

Ostensible Authority

That authority which a third person reasonably believes an agent possesses because of the acts or omissions of the principal.

procedure

The Real Estate License Act created three "window periods" that a license holder will go through to create intermediary status. - To limit liability, keep the second window period as narrow as possible. To create intermediary status, follow this checklist: • Provide the required written information to any party you are working with. • The listing broker should be sure that the possibility for intermediary status is disclosed and authorized by the principal. • Inform everyone in the transaction whom you represent. • If the real estate firm authorizes an intermediary relationship: - the agent should remind parties that the firm will act as an intermediary; - the firm should choose whether to make appointments of its associated license holders; and - if appointments are made, written notice should be provided to the parties.

Procuring Cause

The actions by a broker which result in the owner being able to make a sale.

Fiduciary Duties

The legal duty of a fiduciary to act in the best interests of the beneficiary. One common duty includes confidentiality.

Listing brokers

To assist in the selling of his or her property for which the owner agrees to pay certain identified compensation

discount broker

a broker with low overhead who charges low commissions and offers little or no services to investors

intermediary

a negotiator who acts as a link between parties

agent

a wholesaler who represents buyers or sellers on a relatively permanent basis, performs only a few functions, and does not take title to goods

Agency Relationship

agency relationship exists when one person (the agent) acts for or on behalf of another person (the principal). The principal is also known as the client. This relationship is a fiduciary relationship, which means that it is a relationship based on trust. While treating all others honestly, the agent places the interests of the principal or client first; the agent must always remain loyal to the principal.

Accounting for funds received

broker cannot deposit funds received as earnest money into a personal account, as these funds must be placed in a trust account of some variety. Spot inspections by state officials monitor this behavior.

Loyalty to principal

ex. Out of town property owner wishes to sell. She is not aware that the property is worth $50,000, and offers to list it with the agent for $30,000. If the agent accepts this listing and sells the property, knowing that it is worth more than $30,000, then he is not being loyal to the principal

Puffing

greatly exaggerated sales talk

Mutual agreement

situation in which all parties agree to the terms of the contract

Faithful performance (obedience)

the agent is to obey all legal instructions given by the principal, and to apply best efforts and diligence to carry out the objectives of the agency

block busting

the illegal practice of inducing panic selling in a neighborhood for financial gain

Texas Deceptive Trade Practices Consumer Protection Act

• The Deceptive Trade Practices Consumer Protection Act (DTPA) originally passed in 1973 and was made specifically applicable to real estate in 1975. • Anybody who receives "goods" or "services" can sue the provider if the consumer has been deceived or if the producer of those goods or services has engaged in false, misleading, or deceptive acts or practices. • The Act is liberally construed in favor of the consumer.

Bargain Brokers

•Flat-Fee Broker •Discount Broker •Variable Rate