Texas Pre-License - Law of Agency 1 Level 1-5

Fiduciary Duties

"OLD CAR": Obedience (if legal) Loyalty (100%) Disclosure (full) Confidentiality (forever) Accounting (forever) Reasonable care

Ostensible Agency, Agency by Ratification, and Agency by Estoppel

"Seller sees what's happening and does nothing to stop it." = Ostensible Agency "Seller sells the house to buyer." = Agency by Ratification "Seller had the responsibility to correct the misunderstanding in the moment it was occurring." = Agency by Estoppel

Special Agency Relationship

(Broker-Client) A form of agency relationship in which agents are limited in scope and are only authorized to perform acts permitted by their principal

General Agency

(Broker-Sales Agent) A form of agency relationship in which the principal is responsible for the acts of their agent as long as the agent is acting within the scope of their duties

Buying agency Act

(Buyer's or Selling Agent)

Universal Agency

(Child-Parent) A form of agency relationship in which agents have a very broad and general scope of power to act on behalf of the principal — agents have the general power of attorney

Verbal Agreements are...

(Hard for Agents to Enforce)It is very difficult for agents' to protect their commission in court over verbal agreement, but clients can argue that an agency relationship was established through verbal agreement.

Property Management agency act

(Landlord's Agent)

Leasing agency act

(Leasing Agent)

Listing agency act

(Listing or Seller's Agent)

Three exceptions listed in TRELA for which the written statement is not required to be given.

1. a residential lease for not more than one year and a sale is not being considered; or 2. who the license holder knows is represented by another license holder. 3. communication occurs at an open house and the communication is about that specific property The IABS Notice does not need to be given for transactions for a lease not more than one year or when a party is represented by another license holder.

Two Disclosure Requirements

1.License holders must disclose representation of agency upon first contact. 2.License holders must provide the Information About Brokerage Services (IABS) Notice upon "substantive" discussion

Licensing Requirements

18 or older/be a citizen of the United States or a lawfully admitted alien; and be a resident of this state/Integrity:Satisfy to the commission (TREC) that the candidate meets and exceeds their character standards (honesty, trustworthiness, and integrity)./Competence: Demonstrate competence by passing the licensing exam. Complete Pre-License Courses

License Holder

A broker or a sales agent licensed by TREC

Two types of agents

A broker representing a client (seller, buyer, landlord, or tenant) A sales agent representing their sponsoring broker.

Listing Agent

A broker representing a seller in a real estate transaction, a.k.a. seller's agent, seller's broker, or listing broker

Client and Customer Comparison

A broker works FOR a client. A broker works with a customer. Sales agents work for clients, and they work with customers. The client has their best interests represented by the agent.

Who is the client?

A client is an individual who has signed an agency agreement with you or your broker to represent them in a real estate transaction.

Who is the customer?

A customer is a person on the other side of the transaction with whom the license holder does not have an agency relationship.If you are the listing agent, the buyer is a customer to you. If you are the buyer's agent, the seller is a customer to you. If you are the landlord's agent, the tenant is a customer to you. If you are the tenant's agent, the landlord is a customer to you.

Information About Brokerage Services (IABS)

A form designed by TREC serves to establish a broker's minimum duties required by law and disclose the types of representation available to the parties right up front.

Ostensible Agency

A form of implied agency relationship created by the actions of the parties involved rather than by written agreement or document. When a principal allows a license holder to act in such a way as to cause a third party to believe that license holder is the principal's agent

REALTOR®

A licensed sales agent who is a member of the National Association of REALTORS®

Financing Assistance

A listing agent can help a buyer with the process of obtaining financing. Why? Well, because doing so furthers the client's interest of selling their home or property. The selling agent would NOT, however, give any advice to the buyer on price negotiation.

Broker and seller

A listing agreement is a contract establishing an agency relationship between:

Who is the principal?

A major party who is a part of a real estate transaction (buyer, seller, landlord, tenant). and A client.

Duty to Disclose Material Facts

A material fact in a real estate transaction is any fact that is significant or essential to the transaction - that is, any piece of information that could reasonably be expected to influence a prudent individual's decisions regarding the transaction.

License holder fails to disclose a known material fact.

A material fact is any fact that may cause a buyer or seller to make a different decision in a real estate transaction. If you know of a significant fact about the property (such as a foundation issue), ensure that the buyer is aware of the condition.

Who is the third party?

A third party is ANY person involved in a real estate transaction with you who is not your client. third parties = all non-clients in a transaction.

Title Insurance Agent

A title insurance agent works for, well, a title insurance company. Title insurance is something that license holders must recommend to all parties and protects buyers from financial loss from defects in the titles to real property.

a license holder is not required to inquire about, disclose or release information relating to whether:

AIDS, HIV-related illness, or an HIV infection death occurred on a property by natural causes, suicide, or accident unrelated to the condition of the property.

License Required When Performing for Another Person

According to TRELA's definition of a "broker," in order to perform the acts associated with real estate (such as leasing, purchasing, or selling) for another person, the State of Texas requires that person to be licensed by TREC.And that's the key — "for another person."

client and agent

Agency relationships require the consent of both parties which can be demonstrated by one of three methods: Written agreement ✏️ Oral agreement 🗣 Action 💃To prevent miscommunication and other problems (and to protect their commissions!), license holders should always form their agency relationships in writing.

The Four Major Components of an Agency Relationship

Agent Principal Mutual agreement Fiduciary obligation

These are the four components required to form an agency relationship:

Agent Principal Mutual agreement Fiduciary obligation

Agency Agreements: Written Agreement Examples

Agent and Seller — listing agreement Agent and Buyer — buyer/tenant representation agreement Agent and Landlord — property management agreement Agent and Tenant — buyer/tenant representation agreement

Customer and Third Party Comparison

All Customers Are Third Parties. All customers (principals) on the other side) are third parties. Not all third parties (all non-clients involved in a transaction) are customers.

Third Parties and Customers

All customers are third parties, but not all third parties are customers. 1. A customer is a party on the "other side" of a transaction. 2. A third party is any party involved a transaction who is not your client.

Client duties versus customer duties 2 of 2

Am I actively misleading the customer? Not telling a customer that your client will accept less than the asking price is not misleading the customer; it's protecting your client's best interests and confidentiality. On the other hand, not disclosing who you are representing in a transaction or failing to disclose that the foundation is split in two actively misleads a customer and is illegal.

agency coupled with an interest

An agency relationship in which the agent is given an estate or interest in the subject of the agency (the property).

Escrow Officer

An escrow agent is the neutral middleman in a real estate transaction. After a buyer's offer is accepted, they will hold in escrow the buyer's option and escrow money — if the buyer or the seller disagree during the closing process, the escrow agent will then determine according to the details of the contract to whom the option or escrow money returns.

Sales Agent

An individual holding a sales agent license from TREC who is sponsored by a broker

Broker

An individual licensed by TREC to perform brokerage duties

Another's Client

Any individual who is represented by another license holder is a third party (customer) in relation to that license holder. Pro Tip: Remember, all customers are third parties but not all third parties are customers.

What is arbitration?

Arbitration is a forum where parties and counsel present their positions before an impartial third party who renders a specific award.

Seller's Agent Helping the Buyer

As long as these actions ultimately benefit the seller, there is NO breach of loyalty or conflict of interest. On the other hand, giving advice to the buyer during negotiation would violate the seller's agent's duty of loyalty to the seller.

Implied authority

Authority that is not expressed or written into the contract, but which the agent is assumed to have in order to transact the business of insurance for the principal.is when agent takes actions that are considered customary for the profession in order to represent their agent's interests without having explicit consent to perform the action.

*Why buyer's agent is also called "selling agent"?

Because they are assisting the listing agent in selling the property by representing a buyer.

All customers are third parties

But not all third parties are customers.

Listing agents must be careful to only disclose things they personally know about the property

Cite the Source Always disclose the source of your information when you are relying on the words of a third party. One area that has caused litigation in more than one situation is square footage — license holders should refrain from measuring a property themselves as it can be prone to errors. Instead, use other sources and disclose the source of the information. Most brokers use the square footage "as per the tax rolls" or "per appraisal."

Client and Principal Comparison:

Client = Your Principal. Client is a more specific term used to describe principals with whom you have an agency relationship.

Seller's Disclosure forms are NOT addenda and are not a part of the contract

Do not attach them to the sales contract or list them within the sales contract.

Express authority

Express authority can be given both verbally or through a written agreement.

Customer's Duties

Fairness and honesty but they do not owe them the fiduciary duties they owe to their clients. license holders must maintain high standards of integrity with all parties.

Third Party Examples

Home inspector, loan officer, appraiser, insurance agent, real estate attorney, escrow officer, title agent, buyer represented by another license holder, seller represented by another seller.

Duties Owed to Third Parties

Honesty Fairness Full disclosure of the condition of the property

Listings

If a sales agent switches brokerages, their clients remain with their previously sponsoring broker as their agency relationships were with their sponsoring broker.

Discuss with the Seller

If an agent representing a seller feels strongly that an issue needs to be disclosed, the agent should

Selling the Seller on the Disclosure Form

If known defects are not disclosed, the seller can be sued under the Texas Deceptive Trade Practices Act. The broker can be sued if fraud (intentional omission) or misrepresentation (unintentional omission) are involved.

Third parties can also be vendors.

If the agent works within the scope of their authority and the vendor knows who the owner is, the agent is normally not liable for the debt. Get the power in writing.

Legal Obedience

If the seller is telling the agent to not disclose something that is a mandatory disclosure, the agent cannot agree. The duty of obedience does not include doing anything illegal. If the agent cannot educate the seller that this is a mandatory disclosure, the agent may want to terminate the listing.

what information should NOT be disclosing:

If they ask about the schools in the area, encourage them to research the school district. (Remember that it's not your job as an agent to give this information.) If they have questions about the crime rate in the area, direct them to local authorities for that information. (Again, you are not qualified to give this information as an agent.)

before you ever agree to post your client's listing on the MLS (Multiple Listing Service), you should always ask them to sign - Seller's Disclosure Notice (SDN)

If you accept an offer from a buyer, they'll immediately want to look at your seller's Seller Disclosure Notice, which specifies the condition of the real estate property. By having the seller fill this out before the property is listed on the MLS, you ensure that you are prepared for all offers and that no offers fall through for your seller. There's nothing worse than losing an offer because your seller takes too long to fill out their SDN!

before you ever agree to post your client's listing on the MLS (Multiple Listing Service), you should always ask them to sign-A Listing Agreement

In this written agreement, your client authorizes you to act as their agent and to perform specified brokerage acts on their behalf. It also spells out the commission the client agrees to pay you and the buyer's agent.

The Three Most Common Types of Misrepresentation

Innocent: License holder makes a statement they believe is true (but it's not) Negligent: License holder fails to disclose a known material fact Fraudulent: License holder purposefully attempts to prevent a buyer from finding out about a material fact

client duties versus customer duties 1 of 2

Is my client asking me to do something illegal? If your client asks you to do something illegal (like lie on the Seller's Disclosure Notice), then you should leave that agency relationship to protect yourself. You will also be protecting your client from potentially doing something illegal.

NOT FILL OUT THIS FORM FOR YOUR SELLER.

It is extremely important to note that a Seller's Disclosure Notice cannot in any way be handled or filled out by the agent. This means that you MUST send your seller the form and they must complete it themselves. Not in any way. You cannot ask your seller each question, fill it out, and have them sign it. This would create a liability for you and your broker if anything is misrepresented. At all times, do not accept liability that is better left to the proper party. must not complete, add to or edit this document

What is TRELA?

It is the law that establishes the duties of a real estate licensee.

Fraudulent Misrepresentation

License holder purposefully attempts to prevent a buyer from finding out about a material fact. If you ever have a client who wants you to obstruct a buyer from knowing a material fact, end that agency relationship for your protection.

Four Major Types of Agency Acts

Listing Buying Leasing Property Management

DISCLOSE

Make (secret or new information) known Allow (something) to be seen, especially by uncovering it Synonyms: reveal, make known, divulge, tell, impart, communicate, pass on

Am I required to have a link to the IABS Notice in every email I send out?

No, that is not a requirement and should not be confused with the requirement to have a link to the IABS Notice on your business website. . However, some license holders like to include a link to the IABS Notice in every email as good business practice so they do not have to determine what constitutes a first substantive communication about a property when they send an email. Keep in mind that the link must be in the body of the email (above the signature line) and identified as the IABS Notice.

Disclosure of Sex Offenders

Not required. Texas law also says that neither the seller nor the agent has any duty to disclose registered sex offenders. the disclosure of sex offenders is not prohibited, it is just not required.

Material Facts:

Not to Be Hidden from Third Parties

Fiduciary Duties are?

O-Obedience​. Follow lawful instructions. L-Loyalty​. Act in best interest of client. Client interest placed first. D-Disclosure​. Share all material information with client. C-Confidentiality​. Withhold certain information from others, for instance the lowest price a seller would accept. A-Accountability​. Secure and account for all R-Reasonable care and diligence​.funds.

The Listing Agent's Obligations

Obligation 1: The broker, as the listing agent, has an obligation to use their best efforts and diligence to market the property according to the client's instructions. Obligation 2: The broker has the obligation to obtain the best price available for the principal.

Permitted Disclosures

Permitted disclosures are those disclosures that are not required, but also not forbidden. Permitted means exactly that — you are permitted to disclose the information (in that it is not illegal) but are not required to disclose.

Four Ways to Share the IABS Notice

Personal delivery 👯 First class mail or overnight common carrier delivery service 💌 In the body of an email 💻 As an attachment to an email or link within the body of an email, with a specific reference to the IABS Notice in the body of an email 📎

If the seller does not give the notice as required before signing the contract

Property Code section 5.008(f) allows the buyer to terminate the contract for any reason within seven days after receiving the notice or before closing, whichever is earlier. And if the notice is not provided at all, the buyer may terminate the contract at any time before closing and the earnest money will be returned.

Stigmatized Properties

Property regarded as undesirable because of events that occurred there; also called psychologically impacted property. Some conditions that typically stigmatize a property are murder, crime, death, and even the alleged presence of ghosts.

Who TREC Regulates?

Real estate inspectors 🔎 Easement/right-of-way agents 🛣 Education providers for real estate & inspection courses 📚 Developers of timeshares ⛱ Residential service companies 🏠 Real estate brokers and sales agents 🕵️

Third Party Examples: Real Estate Attorney

Remember this nugget in Chapter 2? "License holders must advise all parties to have the abstract examined by a lawyer and to obtain a title insurance policy."

Home Disclosure

Required Disclosures Permitted Disclosures Unlawful Disclosure

Murder Disclosure

Required. The law does not cover murder disclosure and murder disclosure is required.

this document needs to be completed in time for the property's first day on the market

SND

sales agent

Sales Agents = Sponsored by Brokers Sales agents represent their broker in all transactions in real estate dealings and transactions.

All commission must be given to the broker.

Sales agents must receive all money from their broker. TRELA prohibits agents from receiving compensation from sources outside of their broker.

Sellers (and hence, the license holders who represent them) are required to use a

Seller's Disclosure Notice (SDN) form when selling a home. The notice shall be completed to the best of the seller's belief and knowledge as of the date the notice is completed and signed by the seller. If the information required by the notice is unknown to the seller, the seller shall indicate that fact on the notice, and by that act is in compliance with this section.

The Texas Property Code requires the seller to provide the buyer with a

Seller's Disclosure Notice if the property is a single family unit (residential home, condo, or townhouse). This is an approved (not promulgated) form by TREC that discloses all items the Texas Property Code requires to be disclosed.

License holders party to a transaction must disclose if they are acting on behalf of a:

Spouse Parent Child Business (in which the license holder owns more than 10 percent) 📈 Trust (for which the license holder acts as a trustee or for which the license holder, spouse, parent, or child is a beneficiary)💰💰

Vendor Protection. Being liable for the payment of vendors?

Step 1: Always ensure you are acting within your scope of authority. In writing, get the owner whose property you are managing to affirm which brokerage acts you can perform. Step 2: Disclose the Owner. Disclose (in writing) whom you represent. By disclosing your agency relationship, the third party (vendor) is clear of your role; you are representing the owner as a property manager. You are not the owner. Step 3: Communicate who the owner is.If the owner does not want to be named, just always refer to the owner as "the owner."

SND

TAR Form 1406: Seller's Disclosure Notice, which is lovingly referred to by real estate professionals

Disclosure and Misrepresentation Problems

TREC Rules require that the license holder disclose all known information that may affect the buyer's decision to accept or reject offers and keep the buyer informed of all significant information.

What is TREC?

TREC is a government agency created by the Texas Legislature to enforce TRELA. TREC's main function is to enforce TRELA and NOT to regulate the real estate industry.

With whom must you disclose representation?

TRELA: (1) another party to the transaction; (ex: a prospective buyer for the house you listed) or (2) another license holder who represents another party to the transaction. (ex: a license holder representing the prospective buyer)

TREC

Texas Real Estate Commission passed in 1949

TAR Seller's Disclosure Form

The Texas Association of REALTORS® (TAR) has a copy of a seller's disclosure form, for their members, that includes all of the items required by the Property Code and many others that the TAR attorneys felt would protect sellers and real estate license holders from a future accusation that they failed to disclose anything important.

TRELA

The Texas Real Estate License Act- passed by legislation to protect the public passed in 1939

Buyer's Agent

The broker who represents a client buying a home is most often called. less commonly used term is "selling agent."*This relationship is formed in writing when the agent and principal sign a TAR Residential Buyer/Tenant Representation Agreement

Landlord's Agent

The broker who represents a client renting a home is most often a

Tenant's Agent

The broker who represents a client wanting to lease a residence is most often

Who decides the sales price of a transaction?

The buyer and seller.

Who decides the amount of earnest money in the sale of a residential home?

The buyer and the seller. Agents advise their clients, but they ultimately obey their clients — with one exception: the duty of obedience does not apply if the principal's instructions are illegal or unethical in any way.

Commission

The commission rate is negotiated between the principal and the broker

disclose

The good, the bad, the ugly. disclose, disclose, disclose.

Brokerage

The joining of two people for the purpose of an exchange of products or services

Agency by actual authority

The principal has authorized the agent to complete these actions.

What does a real estate attorney do?

They can help out with all closing matters, including preparing all closing documents. They can also assist with inspecting title records as well as assisting in legal disputes on real estate.

Under Texas Property Code, sellers are required to disclose the condition of their property.

This is done for the purpose of buyers being aware of the condition of the property they are purchasing. 5.008(a) A seller of residential real property comprising not more than one dwelling unit located in this state shall give to the purchaser of the property a written notice as prescribed by this section or a written notice substantially similar to the notice prescribed in this section which contains, at a minimum, all of the items in the notice prescribed in this section.

Landlord Agent relationship is form?

This relationship is formed in writing when the agent and principal sign a Property Management Agreement.

Tenant's Agent relationship

This relationship is formed in writing when the agent and principal sign a buyer/tenant representation agreement.

Agency by estoppel is created to address any of the following issues of liability:

To hold the agent accountable to the principal for their actions To hold the principal accountable to a third party for the actions of the agent

TRELA disclosure representation requirements:

Upon first contact ✔️ With another party to the transaction or the license holder that represents them ✔️ Orally or in writing (orally during phone conversation and in writing afterwards since you discussed a specific real property) ✔️

agent and principal will mutually agree to an agency relationship. This agreement can be made:

Verbally In writing (contract) By action

Some questions you can't legally answer, nor should you.

What kind of neighborhood is this? To answer this question, you can state factual things (it's less than a mile from the elementary school), but be careful not to discuss protected classes. Race, sex, color, religion, national origin, familial status, or disabilities are protected by the Fair Housing Act and should not be discussed or you will face the potential of losing your license. If the client is adamant that you provide them with information about the makeup of protected classes in a neighborhood, you need to remind them that it would be illegal for you to do so.

Agency Agreements: By Action

When a party accepts the actions of another party that insinuates they are in an agency relationship, they are agreeing to an agency relationship with the other party.

How much is the seller willing to negotiate on the price?

When asked questions like this, let the third party know that you are accepting all offers but that the asking price is ____. If you were to inform this customer (third party) that your seller was willing to accept $10,000 less than the asking price, you would be violating your client's confidentiality and not representing their best interests.

Listing Agreement

Which agreement is used to form an agency relationship between a seller and a listing agent?

TRELA Sec. 1101.556

While not prohibited in TRELA, AIDS and HIV illnesses are included in the handicapped laws of the Federal Fair Housing Act. For this reason (Federal Fair Housing Act) having AIDS or an HIV illness is a protected class. Disclosure of protected classes is not permitted. Even though real estate agents are not required to disclose the death on a property from natural causes, suicide, or accident unrelated to the property, it is not prohibited.

The IABS Notice is not for personal customization.

You can't add your logo, nor can you change the font size or color. The only change allowed to the IABS Notice is that you may pre-fill the Contact Information section.

How must I disclose representation?

You may disclose your representation orally or in writing.

Substantive dialogue means

a meeting or written communication that involves a serious discussion relating to a specific property.

Broker's Responsibilities

an individual licensed by the Texas Real Estate Commission (TREC) to perform brokerage acts. responsible for fulfilling fiduciary duties to their clients. may also sponsor and supervise sales agents, and are liable for all sponsored actions committed by their sales agent

Principal

an individual who has authorized an agent to represent their interests as a client. Agents represent, and they represent... their principal/clients!

Unlawful Disclosures

are disclosures that you are legally forbidden from making. In order to comply with federal and state fair housing laws, neither the seller nor the license holder may ever disclose any information in regard to the Fair Housing protected classes including race, color, religion, sex, familial status, disability (including HIV/AIDS status), or national origin.

legal requirement for license holders to disclose who they are representing?

at the first substantive dialogue.

Upon first contact with another party to the transaction or a license holder who is representing another party to the transaction, the license holder must

disclose who they are representing in the transaction.

Two types of actual authority

express and implied

Agency relationships are

fiduciary relationships. The client's interest must always come first. Fiduciary Duties Owed to Principal.

General Agency: Broker Responsible for Sales Agent Actions:

general agency: Gives agents more power AND Holds the principal (broker) responsible for actions performed by their agent

Fiduciary

held in trust; confidential An individual whose principal has trusted them to represent their interests — it denotes a high level of trust

All parties in a transaction are owed

honesty and fair dealing

Agency by estoppel

imposed by law when it is determined that ostensible agency existed. It is typically created after the actions of the agent have already occurred and it is used to create legal accountability for the agent or the principal on whose behalf the agent acted.

defect

is an item that was installed or is attached to the home and has an imperfection

malfunction

is when something is designed or built to perform a certain function and no longer does so.

What must license holders disclose?

license holders (brokers and agents) must disclose to parties who they are representing.

Broker's Seller Disclosure Form

many brokers choose to have a seller's disclosure form prepared by their own attorney and want their associates to use theirs. As long as the list required by the Texas Property Code is included in their form, that is acceptable.

Ostensible Agency

occurs when a principal allows a license holder to act in such a way as to cause a third party to believe that a license holder is that principal's agent.

Agency by estoppel

occurs when the courts "estop" (bar or prevent) the principal from contesting the existence of the agency after the fact — agency which was initially created in that environment of ostensible agency AND which caused the third party to take an action they might not have taken otherwise.

Agency

refers to agency relationships where agents advocate on behalf of their principals. In the practice of real estate brokerage, real estate brokers act as agents and advocate on behalf of their clients.* *Remember, your client = your principal.

major difference between basic disclosure of representation and the IABS Notice

the IABS Notice is a written statement that must be given at the first substantive communication about a specific property.

Who Gets Paid When a transaction is completed?

the commission is paid to the broker. Then the broker splits that commission with the sales agent.

Special agency

the most limited type of agency relationship. For this reason, some refer to special agency as limited agency instead agents are unable to make decisions that may bind or obligate their principals.

The SDN is one of the few forms that is completed in its entirety by

the sellers of the home being listed for sale. (Remember, license holders may not complete this form.) no SDN can replace a proper home inspection. 18 of 68

Sellers

will employ the services of a licensed agent to represent their fiduciary interests in the sale of their real estate. This relationship is formed in writing when the agent and client sign a listing agreement.