Unit 4: Real Estate Brokerage and Law of Agency

Fiduciary Duties

"OLD CAR": Obedience (obey law), Loyalty (subordinate buyers interest), Disclosure (need to know all material facts), Confidentiality, Accountability, Reasonable Care.

The Real Estate License Act lists three requirements for compensation

(1) the person held a valid real estate broker's license, (2) the agreement to pay was in writing and signed by the party to be charged (3) the broker advised the buyer to obtain title insurance or have an abstract examined by an attorney of the buyer's choice NOT REQUIRED: ensure that the transaction closes.

A broker who represents a party in a real estate transaction may NOT

1) must inform the client of material information related to a transaction, including the receipt of an offer, (2) must answer the client's questions and present any offer to or from the client (3) may not instruct another broker to negotiate directly with the client.

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

50%

Employee - broker relationship

A broker has greater control over the actions of an employee. Specifically: --a broker can impose a sales methodology. In addition, a broker can enforce all office policies, including hours, meeting attendance, and telephone coverage. --a broker must withhold income taxes and pay unemployment compensation tax on behalf of an employee --an employee may receive the benefits enjoyed by the broker's non- selling employees

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

listing agreement

A contract between an owner (as Principal) and a real estate broker (as agent) by which the broker is employed as agent to find a buyer for the owner's real estate on the owner's terms, for which service the owner agrees to pay a commission

Substantive Dialogue

A face to face meeting with a substantial discussion of real estate or any mailing with a substantial amount of information about a particular property

A listing broker or a subagent who assists the buyer in any way automatically becomes

A listing broker or subagent can assist the buyer but does not represent the buyer and must place the interests of the owner first. The broker becomes the owner's agent by entering into an agreement with the owner A broker becomes the buyer's agent by entering into an agreement to represent the buy. Absent a buyer representation agreement, the agent showing property to a buyer is a subagent and represents the seller.

fiduciary relationship

A relationship of trust and confidence, as between trustee and beneficiary, attorney and client, or principal and agent.

Can a sponsoring broker monitor a licensed employee's progress in continuing education and instruct that employee when to take classes and what classes to take?

A sponsoring broker has the authority to instruct an employee when to take classes and which classes to take.

Allocation of customers or markets

An agreement among real estate companies to divide their markets and refrain from competing for each other's business. This is Illegal under antitrust laws.

Independent Contractor

Assumes responsibility for paying own income tax and Social Security tax Cannot receive any "employee benefits" from broker Must have a written contract Must be compensated on production

Why is understanding and being able to explain "agency" an important element in a license holder's professional life?

Because unhappy real estate clients and customers often contend they did not understand the legal relationship between themselves and "their agent"

Are violations of antitrust laws considered civil violations or criminal violations?

Both Antitrust violations not only can result in $1 million in civil fines against an individual but also up to 10 years in prison on the criminal side. Corporations that engage in antitrust actions can be fined up to $100 million.

Whose responsibility is it to disclose how long a property has been listed?

Buyer's agent

Principal's Responsibilities to Agent

Compensation: comp the broker Information: information requested by the broker Indemnification: agrees to reimburse broker if the broker suffers financial injury while performing duties as broker. Availability: available at reasonable times

Suicide on the property requires disclosure by a seller under which scenario?

Death on the property by natural causes, suicide, or accident unrelated to property condition does not require disclosure. Stigmatized property (property that has been the scene of a crime or other undesirable event) needs to be disclosed.

agency relationship may be terminated at any time by

Death or incapacity of either party (notice of death is not necessary) Destruction or condemnation of the property Expiration of the term of the agency Mutual agreement to terminate the agency (must be written) Renunciation by the broker or revocation by the owner Bankruptcy of the owner if title transferred to receiver Completion or fulfillment of the purpose for which the agency was created

Who is the principal in a typical real estate transaction?

Either the buyer or the seller of the property

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

Failure of the owner's spouse to sign the deed; failure (without fault) (1) failure of the agent to give the required title notice to the buyer (2) failure to have a written listing agreement signed by the seller(s) (3) failure to be licensed (4) failure to state an amount of percentage rate of commission in a listing contract because commissions are negotiable in every case (5) failure (without fault) on the part of the seller to deliver an abstract or title insurance policy to the buyer. The refusal of the owner's spouse to sign the deed or the owner changing his mind and refusing to sell are among the circumstances under which a broker usually would still be entitled to a commission if the transaction does not close.

A property manager would be what kind of agent?

General

An agency can be terminated by which without liability for breach of contract?

Mutual agreement

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

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

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

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

Is a real estate consumer, a seller, for instance, allowed to withhold the payment of a commission if the home "sells too quickly," suggesting "the agent priced it too low"?

No, listing agents do not "set the price" on a home, but only consult with sellers who make the final decision.

If an independent contractor announces her "farm" will henceforth be the country club crowd, can the sponsoring broker redirect her if someone else in the office already is working the country club scene?

No, the broker may discuss the difficulties of breaking into the other agent's farm but could not otherwise order the agent to work elsewhere.

If a large vicious dog is in residence next to a property listed for sale, should the sellers list the presence of the dog as a property defect?

No, the dog does not relate to the condition of the property.

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

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

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

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

If a large vicious dog is in residence next to a property listed for sale and an agent acting as a subagent for the seller advises a buyer-customer about the presence of the dog, causing the deal to collapse, is the subagent liable to the seller?

No, the subagent has a duty of honesty to the buyer.

The subject of real estate comes up at a community social event and an individual begins asking a license holder specific questions (price, condition, square footage) about a neighborhood home for sale. Would that conversation trigger a disclosure?

Probably not, but if the conversation led to a follow-up phone call, email or personal conversation, a disclosure would be appropriate.

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

Residential

Express Agency

Specific Agreement when a principal and an agent expressly agree to enter into an agency agreement with each other

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

Texas law is silent on the issue.

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

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

Procuring Cause

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

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

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

In the supervising broker relationship with an independent contractor sales agent, who is responsible for setting aside funds for income tax purposes?

The independent contractor sales agent

Texas Deceptive Trade Practices—Consumer Protection Act (DTPA)

This act declares, among other things, that "false, misleading or deceptive acts or practices" in the advertising, offering for sale, selling, or leasing of any real or personal property are unlawful. As set forth in the act, false, misleading, or deceptive acts or practices are included in a "laundry list" of 27 items; some of them are as follows: Representing that something is new or original when it is not or that it is of a particular quality when it is not Advertising property with no intention of selling the property as advertised Making false statements of fact concerning the reasons for a price reduction Misrepresenting the authority of an agent to negotiate the final terms of a sales contract Representing that a warranty guarantees or confers rights or remedies not included Representing that work has been done on real or personal property when the work has not been done

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

Title

Because licensed associates (sales agents) are agents of the broker, they should have which with the broker?

Written agreement

Clients who have signed listing agreements may "fire" their broker. Is a broker permitted to fire a client?

Yes, a broker may fire a client.

Are real estate fees and commissions negotiable?

Yes, a broker's commission is negotiable, although a broker has no obligation to negotiate.

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

Yes, brokers may learn "the business of brokerage."

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

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

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

Yes, independent contractors set their own hours.

a broker

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

A broker who lists the property for sale or lease represents the owner as

a seller's agent.

A seller employs a broker to list his home for sale. The broker is classified as

a special agent.

Broker Y is cooperating with a listing broker by showing that broker's listing to a prospective purchaser/customer. She is, therefore, working as

a subagent.

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

an agency by ratification.

Implied Agency

an agency that occurs when a principal and an agent do not expressly create an agency, but it is inferred from the conduct of the parties

A listing agreement between the seller and the broker creates

an express agency.

Under the Fraud in Real Estate and Stock Transactions statute,

any person who stands to gain financially from a transaction and has knowledge of a misrepresentation and fails to reveal it may be liable.

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

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

special agent

authorized to represent the principal in one specific act or business transaction, under detailed instructions. A real estate broker is usually a special agent.

A real estate agent tells a seller during a listing presentation that the firm's commission is in line with those of other real estate firms in the area. The broker may

be guilty of price-fixing. Hinting in any way to prospective clients that there is a "going rate" of commission or fee implies that rates are in fact standardized. A broker must clarify to clients that the rate stated is only what that firm charges.

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

boycotting the competition.

The business of bringing buyers and sellers together in the marketplace is

brokerage

caveat emptor

buyer beware

A broker-buyer agency relationship is created by

buyer representation agreement

law of agency

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

The primary ingredients in creation of agency are

delegation of authority by the principal, acceptance of such by the agent, reliance on the agent by the principal, and control of the agent by the principal.

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

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

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

economic plus mental anguish damages.

A broker who represents a seller knows that the house has structural defects that will need expensive repairs but does NOT tell prospective buyers. This is an example of

fraud

Puffing

greatly exaggerated sales talk

Agency by Ratification

is an agency relationship that is created because the principal approved of an agents unauthorized action after the action occurred. "After the Fact"

Intermediary broker

is employed to negotiate a transaction between both parties

antitrust laws

laws that prevent monopolies and promote competition and fairness

The license holder is required to furnish a written statement providing general information concerning agency positions under which of the following cases?

license holder has a substantive dialogue with a buyer

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

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

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

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

market allocation

occurs when competing businesses divide a market amongst themselves

principal or client

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

general agent

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

Subagent

represents the owner with cooperation of listing broker

price fixing

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

A seller hires a broker, who has several licensed associates, to sell his house. In this transaction the broker is

the agent.

A broker who acts as a subagent represents

the seller.

A sales agent working for a buyer collects a commission from

the selling broker under whom the sales agent is licensed.

The purpose of antitrust laws is

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

"false, misleading or deceptive acts or practices" is NOT defined in general terms in the DPTA but in "laundry list" of 27 items

true

A consumer in a real estate transaction is NOT required to have broker representation.

true

A license holder who represents a party in a proposed real estate transaction must disclose that representation at the time of the license holder's first contact with either another party to the transaction or another license holder representing another party to the transaction. The disclosure may take place either orally or in writing.

true

According to common law, a selling broker must be able to show that he was the procuring cause of a sale

true

Agency is created at the broker, not the sales agent, level.

true

As the agent of the principal, the broker is in a fiduciary relationship with that principal.

true

Each broker is required to maintain written policies and procedures and to advise a sponsored sales agent regarding the scope of the sales agent's authorized activities.

true

If the broker finds someone who will buy on the seller's terms, but the seller changes his mind and refuses to sell, the broker is generally entitled to a commission.

true

It is illegal in Texas for a broker to share a commission with someone who does NOT have a real estate license.

true

License holders are NOT required to furnish the written Information About Brokerage Services form concerning agency positions if they meet with a party who is represented by another license holder

true

The agent for the seller must disclose (1) the agent's opinion of the market value of the property; (2) all offers received unless the seller has specifically instructed the listing broker in writing to do otherwise; (3) the identity of prospective purchasers, including any relationship the agent has with them; (4) the ability of the purchaser to complete the sale or offer a higher price; (5) any interest the broker has in the buyer (such as the buyer's asking the broker to manage the property after the purchase); or (6) the buyer's intention to resell the property at a profit.

true

The difference between a general and a special agent is based on the authority delegated, not licensing. The authorized activity of an agent is as simple or as complex as the principal dictates and the agent consents to.

true

With the exception of residential property, the DTPA does NOT apply to transactions that exceed $100,000 where there is a written contract and the consumer is represented by legal counsel.

true

boycotting the competition.

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

It is customary to make the commission payable

when the seller delivers the deed.

A broker may act as an intermediary

with the written consent of each party to the transaction.