Law of Agency - Exam 1 Study Guide

TREC rules for Advertising and Signs

- Advertising must contain name of broker or assumed name, name of designated officer if sponsoring broker is corporation. - Team names must end in TEAM or GROUP, broker's name must be the last ford in a team name.

Unlicensed Assistants & Permitted Activities

- Answer phone calls - Register Prospects - Greet Prospects & give general info about the area - Schedule appointments - Be a closing or transaction coordinator - Tele-market - Manage an office (phones, register prospects, greet, give general info, type correspondence, scheduling, telemarketing if not soliciting for listings or buyers) - Accompany a license holder on showings and listings - Train and motivate license holders - Act as an on-site apartment manager - Assist in arranging financing - Place for sale signs on a property, accompany an inspector, place advertisements as directed by licensed holder

Duties & Definition of the Principal

- Compensation - Reimbursement - Indemnification - Performance. (CRIP)

Dual Agency vs Intermediary

- Dual Agency; allows real estate firm to represent both sides of a transaction at the same time. Broker represents both parties with their written permission. broker may appoint designated agent to represent buyer or seller. - Intermediary; makes it possible to bring buyers and sellers together while representing their best interest. Broker remains neutral

Types & Definitions of Authority

- Express Authority: authority that comes from specific instructions, either oral or written - Implied Authority: customary to business; the normal or standard

Details in a Valid Listing

- Paragraph 1. Parties - Paragraph 2. Property - 2A. Land - 2B. Improvements - 2C. Accessories - 2D. Excluions - 2E. Owners' Association - Paragraph 3. Listing Price - Paragraph 4. Term - Paragraph 5. Broker's Compensation - 5A. Broker's Fee - 5B. Earned - 5C. Payable - 5D. Other Compensation - 5E. Protection Period (1, 2 & 3) - Paragraph 6. Listing Services - 6A. Filing - Paragraph 7. Access to The Property - 7A. Authorizing Access - 7B. Scheduling Companies - 7C. Keybox - Paragraph 8. Cooperation with other Brokers - 8A. MLS Participants - Paragraph 9. Intermediary Status OR not - 9A. Intermediary Status - 9B. No Intermediary Status - Paragraph 10. Confidential Information - Paragraph 11. Broker's Authority - Paragraph 12. Seller's Representations - Paragraph 13. Seller's Additional Promises - 14. Limitation of Liability - 15. Special Provisions - 16. Default - 17. Mediation - 18. Attorney's Fees - 19. Addenda and other Documents - 20. Agreement of Parties - 21. Additional Notices

IRS Independent Contractor Status rules

- Receives a gross check and a 1099-NEC - Commission must compensate sales agents. - Sales agent shall pay own business expenses - Sales agent cannot be made to attend sales meetings. - Sales agent cannot be made to attend sales seminars. - Sales agent cannot be made to work set hours. - Sales agent should not be offered participation in broker's insurance or retirement program.

Elements of a Valid Listing Agreement

- Signatures of all of the owners & listing agent - Legal Description of the property, including street address - Listing Price of the property as set by the Seller - Definite Starting and End date ( Commencement to Termination) - Agreement to Pay a Stated Commission to the Broker (usually a percentage of the sales price)

Stigmatized Properties and Conditions

- Stigmatized Property: property regarded as undesirable because of events that occurred there; also called a psychologically or physically impacted property. - Psychological Stigma Examples: haunted house, murder, death, suicide, criminal activity & infectious disease - Physical Stigma Examples: previous flooding, foundation problems, nearby landfill, proximity to a nuclear plant

Stigmatized Properties - conditions and disclosure requirements

- Stigmatized Property: property regarded as undesirable because of events that occurred there; also called a psychologically or physically impacted property. - Psychological Stigma Examples: haunted house, murder, death, suicide, criminal activity & infectious disease - Physical Stigma Examples: previous flooding, foundation problems, nearby landfill, proximity to a nuclear plant * Material Facts that should be questioned and disclosed include: - land/soil conditions - pest infestation, toxic mold & other interior environmental hazards - structural issues (roof, doors, foundation, windows) - condition of electrical and plumbing systems & fixtures - location within Natural Hazard or Specially Regulated areas ( nuclear power plant, landfill, flood plains, wetlands, endangered species, etc.) - potentially uninsurable property - known alterations and additions - public controls, statutes & public utilities to be disclosed include: zoning & planning guidelines, school districts, utility districts, tax districts, flight paths, HOA membership - latent or hidden defects (encroachments, zoning or deed restrictions)

Team Names - Requirements - Acceptable and Unacceptable Words

- Team names must end in TEAM or GROUP, broker's name must be the last word in a team name. - Can use: Realty (followed by team or group) - Must use: Team, Group - Do NOT use: Company, Brokerage, Associates

Seller Agency Only

- The firm will only represent sellers. No intermediary practice is allowed. - benefit of marketing - benefit of negotiations - benefit of better facilitation regarding legal and financial details of the transaction - benefit of having agent use their time instead of principal or client - benefit of safety

Trust Accounts, Commingling & Conversion

- Trust Accounts: Funds that are held for a client or customer are held in trust and must be placed in a separate account. - Commingling: is mixing client's funds with the business or personal funds. - Conversion: is when a broker spends client's funds without authorization. Commingling and Conversion are serious violations of TRELA

Termination of Agency Relationships

- When the purpose of the agency is completed (the property is sold) Likewise, the listing agreement ends when the property is sold and closed. - The expiration of the period stated in the listing contract. - At any time by mutual agreement. The parties are certainly free to terminate the agreement. - Death or incapacity of either party. If the broker or client dies or is determined to be insane, the agency agreement is terminated. - Condemnation or destruction of the property. Condemnation or destruction of the property would make its sale impossible, resulting in termination. - Bankruptcy of either party - Operation of law. - Revocation of the broker's license. - Abandonment by the agent. - Revocation of the agreement at any time by the principal. - Termination of the agreement at any time by the broker.

DTPA - steps for an agent to help avoid lawsuits

- a broker should NOT let his or her license of any sponsored sales agents' licenses lapse - should analyze any new factual situation according to the riles to determine the extent - contact the Commission for an informal opinion based in a particular fact situation - attorney - avoid misrepresentation in any way - avoid discriminatory practices - follow OLD CAR

REALTOR; meaning of term and how/when its used.

- a registered collective membership mark, identifying a real estate professional as a member of the National Association of REALTORS - use of Texas REALTORS Form vs those that are not REALTORS who use the TREC Form

Client vs customer - role of the agent

- agent's role must always be for the benefit of the principal 1. Duties to Clients: - put the interests of the client first - give full disclosure of all material facts as we all advice, opinion, other - exhibit trust and honesty - exercise good business judgement - be loyal - be competent 2. Duties to Customers - honesty - disclosure of material facts - handle all funds with care - be responsible for written or oral statements - Client a person who engages the professional advice or services of another, and whose interests are protected by the specific duties and loyalties of an agency relationship. - Customer a person who receives limited brokerage services without establishing an agency relationship

Disclosure of representation vs disclosure of agency - when and how

- all buyers should be provided with an oral or written disclosure of representation at first contact with: 1. another party to the transaction 2. another license holder who represents another party to the transaction - required by TRELA - required when agent and buyer have a substantive discussion about real estate, the buyer must be provided the Information About Brokers Services.

Appointed associates under intermediary and the role of the broker

- associates will give advice and opinions to their respective parties. broker makes the appointments likely using Intermediary Relationship Notice. - transaction must be in-house sale - both sides must be clients - broker has clients written consent.

TREC website requirements for links to the IABS form

- must be readily noticeable on the home page and labeled correctly - at least 10 point font - labeled " TEXAS REAL ESTATE COMMISSION INFORMATION ABOUT BROKERAGE SERVICES"

Requirements for Independent Contractor Status

- receives a gross check and a 1099-NEC - most license holders are not the employees of the broker and are independent contractors engaged in a principal-agent relationship, which is the general agency relationship that exists between the broker and sponsored license holders - quarterly filing to IRS

Types of listings and commissions owed under each

-open listing; gives seller right to list property with multiple brokers and sell property personally without liability for payment of a commission. - exclusive agency; seller agrees to list property with ONLY ONE broker, seller can sell property personally without payment of a commission - exclusive right to sell; gives broker greatest protection, lists property with one broker, commission is paid even if property is sold by owner. - net listing; seller establishes minimum net amount for proceeds at closing, brokers commission is difference between minimum net established by seller.

Types of Listings & Characteristics of Types of Listings

1. Open Listing - states that the seller can list his or her property with multiple competing brokers, without liability for payment of a commission 2. Exclusive Agency - 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 owing a commission 3. Exclusive Right to Sell - real estate brokers recommend this listing, which grants an exclusive right to sell the property during the listing term. Broker receives commission even if the owner sells the property 4. Net Listing - seller establishes a minimum net amount for his proceeds at closing. The real estate broker's commission is the difference between the minimum net established by the seller and the actual seller's net

Five sources of ethical standards and what each includes

1. t he utilitarian approach - ethical action produces the greatest balance of good over harm to those who are affected 2. the rights approach - individuals have the right to have their moral rights protected and respected, and the right to be told the truth, and not to be injured 3. the fairness or justice approach - ethical action is equal for all, or if not then, then fair for some, based on some defensible standard 4. the common good approach - ethical standards and actions embrace common conditions that are important to the welfare (common good) of all 5. the virtue approach - ethics are habits that enable us to act accordingly as persons who are truthful, honest, courageous, compassionate, generous, tolerant, and possess integrity, fairness, self-control and prudence

Disclosure of Representation

A mandatory disclosure by licensees representing a party - must be made to all other parties or licensees at first contact

Duties of Principal

A principal owes his agent compensation, reimbursement, indemnification and performance

Disclosure Requirements for the Agent to Customers and Clients

Agent's Duties to Customers & Clients: - Honest Dealing - Reasonable Care & Skill in Performance - Disclosure of all Material Facts (disclosure of agency, property condition and environmental hazards)

Buyer Representation Agreement

Agreement that buyers signs, allowing a broker to represent them, "employment contract" - IABS - general characteristics of property search - buyer's and brokers obligations -terms of the agreement - broker's duties to clients and customers - compensation agreement - intermediary consent - consent for the broker to represent other buyers - fair-housing language - signatures of the parties.

The Concept of Agency & Agency Relationships

An agency relationship exists when one person (agent) acts for or on behalf of another person (client/principal) - This relationship is a fiduciary relationship, meaning that is is based on trust. The agent must always remain loyal to the client/principal. *Two key points: 1. The principal will count on the agent for the specific professional advice. The agent is the "expert". 2. The relationship almost always involves money or property. The agent must work in his or her client's best financial interests at all times. The duty is defined as a fiduciary duty - one based on trust.

Duties of an Agent

An agent owes his client: obedience loyalty disclosure confidentiality accounting reasonable care (old car). *Client's interests first. Give full disclosure. Trust. Exercise good business judgement. Be loyal. Be competent.

Team name registration rules

Broker is required to register assumed name with TREC - broker must notify TREC within 30 days after broker or sales agent starts or stops using assumed name. - Team names must end in TEAM or GROUP, broker's name must be the last ford in a team name.

Buyer Agency Only

Buyer Agency Only - - benefits include: 1. Access to market data 2. Investment analysis 3. Assistance in "culling out" unsuitable properties 4. Assistance in obtaining financing 5. Assistance with negotiations 6. Assistance in preparing offers and negotiating strategies 7. Assistance with surveys, inspections, repairs, and many of the details that must be taken care of in order to close a sale Firm will only represent buyers - no worry about unintentional dual representation. - brokers do not act as intermediaries - agents are responsible for giving advice and opinions to buyer only. -disadvantage ; buyers don't want to sign Sellers representation agreement, agents can only list properties for sellers, limiting firm to either the selling side only or listing side only commission. - Deceptive advertising

Termination of Agency Relationship

By agreement. By agent's resignation. By principal's action. Completion of purpose. Predefined event occurs. Death or incapacitation of party. Impossibility or frustration of purpose. Bankruptcy.

CMA'S

Comparative Market Analysis - Analysis based on properties that have recently sold that are most similar to the subject property; comparing properties for current market value

Duties of the Agent and Expiration of Those Duties

Confidentiality extends forever into the future. Expiration of duties comes with the termination of the listing agreement. - Obedience - Loyalty - Disclosure - Confidentiality - Accounting - Reasonable care OLD CAR

Broker Roles - Cooperating or Cooperative Brokers

Cooperative Broker - 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 and agency agreement; also known as the other broker. Cooperating Broker - The cooperating broker will be regarded as the procuring cause of a sale if her efforts are the foundation on which the negotiations resulting in a sale are begun. There must be a successful transaction (closing of a sale or execution of a lease) for the cooperating broker to be the procuring cause.

DTPA

Deceptive Trade Practices Act - allows consumer to sue a seller of goods for damages - lists over 30 practices that are considered unlawful under the act in order to protect the consumer from unethical and unfair sales practices - a Texas law that applies to trade and commerce that was passed in 1973. Part of the Texas Business and Commerce Code, it allows an aggrieved consumer to sue a seller of goods for damages. The act by the seller of the goods has to be deceptive or unfair for the consumer to sue for monetary damages successfully. * Trade and Commerce include: - advertising - selling - leasing - distributing - a good defense tool against a DTPA lawsuit is the Seller's Disclosure

Types of deceptive or misleading advertisements or advertisement practices

Deceptive or misleading advertisements may include: 1. one that is inaccurate in any material way or misrepresents ay property, terms, values, services or policies 2. one that advertises another broker's listing without permission and without disclosing the name of the listing broker 3. failing to remove ad about listing within reasonable time 4. an advertisement that identifies a sales agent as a broker 5. one that creates confusion about the permitted use of a property - license holder can not place advertisement that implies sales agent is responsible fo brokerage business or causes someone to believe a person not authorized to conduct brokerage is engaged in brokerage. examples) - claiming something is new when it is second-hand - puffing instead of using real facts - representing client in unfamiliar territory - giving legal advice

Defamation - Written or Spoken

Defamation: Harming the reputation of another person making a false statement to a third party - Slander (spoken words) - Libel (printed words)

Defamation - definition/explanation/examples

Defamation: Harming the reputation of another person making a false statement to a third party - Slander (spoken words) - Libel (printed words)

What is an ethical dilemma?

Defined as a situation in which individuals may find themselves when they are: 1. do not know the right course of action 2. have difficulty doing what they consider to be right 3. find the wrong choice very tempting - a situation in which you have to decide whether to pursue a course of action that may benefit you or your organization but that is unethical or even illegal

Types of Authority for Agents

Express Authority; comes from specific instructions, either oral or written, (listing agreement or buyer representation agreement signed) Implied Authority ; customary to business (the norm)

Sherman Anti-Trust Act & Commission Rates

Federal legislation that specifically deals with illegal fixing of commission rates - Prevents any combination in restraint of trade. Commission rates must always be a matter of negotiation between the broker and the client. Any hint that there is a "standard" or "going rate' for commissions in a given market area could be evidence of violation and restraint of trade. - All commissions are negotiable between the broker and his or her client and are not set by any Board of REALTORS® or between competitors, or by TREC.

Duties of Agent

Fiduciary Duties (OLD CAR) - Obedience - Loyalty - Disclosure - Confidentiality - Accounting - Reasonable care

General Agent vs. Special Agent

General Agent: The right to represent the principal in a particular type of transaction or business. Special Agent: Also known as limited agency, and is the most limited agency of all the relationships (special, general, universal) - the agent may perform only limited duties for the principal. The special 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 special agent must only follow the instructions of the principal.

IABS

Information About Brokerage Services - To be provided when the first substantive discussion of a real estate transaction takes place. The TREC prescribed agency information form that must be given to a customer when a substantive discussion occurs

Intermediary with and without appointments

Intermediary without Appointments - occurs when an agent sells his or her broker's own listing, but cannot give advice or negotiate for either party Intermediary with Appointments - occurs when a broker appoints associates within a brokerage firm to represent the listing and selling side of a transaction

Intermediary - appointed associates - duties and requirements

Intermediary: a broker who negotiates a real estate transaction between two parties when a broker, or a sales agent sponsored by the broker, has obtained written consent from the parties to represent both the buy and seller. A broker acting as an intermediary can make appointments in some circumstances. Appointed Associates (Intermediary with Appointments): can give advice & opinions (negotiate) to their respective parties. The broker must make the appointments, most likely using the "intermediary relationship notice".

How most real estate agents are paid

Most license holders are independent contractors engaged in a principal-agent relationship. (general agency between broker and sponsored license holder) 1099-MISC

Intermediary with appointments

Occurs when a broker appoints associates within a brokerage firm to represent the listing and selling side of a transaction

Intermediary without appointments

Occurs when an agent sells his or her own listing, but cannot give advice or negotiate for either party

Who Can Legally Earn a Commission/Sue for Commission/Share Commission?

Only a broker can earn a commission, and only a broker may sue to collect a commission.

Canons of Professional Ethics

Outlines a broad range of agent duties and obligations to others. Fidelity - the real estate agent should place no personal interests above that of his or her client. Integrity - the real estate agent should employ prudence and caution so as to avoid misrepresentation in any way. Competency - the real estate agent should be informed on market conditions affecting the real estate business Discriminatory Practices - a real estate agent must not respond to or facilitate inquiries about or make disclosure which indicates any racial, or religious preference

TREC advertising rules and font requirements

Require sales agents to include the broker's name, the brokerage name or the broker's assumed name in at least 50% of the largest contact information font on all forms of advertising. it is important to make a distinction between the size of the logo and the size of the text. 12 Point Font

Seller's Disclosure Notice Requirements

Requirements: 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 Facts - - Seller must indicate whether the property has any defects or malfunctions with any of the listed items - Seller must disclose any knowledge of previous flooding and whether they filed an insurance claim for flood damage to the property (including receipt of assistance from FEMA or the SBA if applicable) - Seller required to disclose whether the property is located wholly or partially in a 100-year floodplain, 500-year floodplain, floodway, flood pool or in a reservoir * Must be kept current - Seller signs & Buyer signs this form acknowledging receipt

TREC & TRELA - creation/purpose/authority

TREC (The Texas Real Estate Commission): enforces the provisions of TRELA. TRELA (The Texas Real Estate License Act): the legislation that governs the licensing of Texas real estate license holders. Creation: Passed in 1939 - TREC was created to enforce and administer the act in 1949. Purpose: Protect the public against unscrupulous brokers and sales agents. Authority: TRELA grants TREC the authority to establish standards and ethics for persons licensed under the act. (What is considered lawful or unlawful).

The IABS - when and how it is used

The information about broker services should be provided to a seller prior to a listing presentation and should be provided to a buyer prior to a discussion of a possible purchase

Subagency

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.

Results of broker death and the effect on sponsored agents

When the designated broker of a business entity dies, the licenses of agents sponsored by the business entity are placed on inactive status.

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. The most important obligations a fiduciary owes to a principal can be remembered by using the "OLD CAR" memory device: (1) obedience, (2) loyalty, (3) disclosure, (4) confidentiality, (5) accounting, and (6) reasonable care and diligence.

Setting commission rates - violations

rates are always negotiable - attempt by a group of brokers to set commission rates in their area or between a group of brokerage firms is ILLEGAL (price- fixing) Sherman-Anti-Trust Act and Clayton Act have the most impact in this area. All commissions are negotiable between the broker and his client and are not set by any of Board of Realtors, or between competitors, or by TREC

Benefits of Seller Agency

the firm will only represent sellers. no intermediary practice is allowed - Firms do not have to worry about unintentional dual representation - Brokers do not have to act as intermediaries or make appointments - Agents are only responsible for giving advice and opinion to the buyer or seller, avoiding conflicts of interest