Chapter 2 PF

What does the Broker-Lawyer Committee do?

Drafts contracts

Which of the following concerns lead to the Texas Real Estate License Act prohibiting license holders from practicing law?

License holders giving counsel regarding the validity or an instrument that addresses real property rights

An offer to purchase by a potential buyer is considered accepted when the

buyer is notified that the seller has accepted the offer.

What can a license holder add to a promulgated form?

Factual Statements.

Who promulgates contracts for mandatory use by license holders?

Texas Real Estate Commission

How is the sale of real estate currently regulated in Texas?

Texas Real Estate License Act (TRELA)

Presenting Offers and Multiple Offers

All offers received must be presented to the seller by the listing agent. While offers are best submitted in writing on TREC promulgated contract forms, offers could be made verbally and those must be presented as well. However, as a word of caution, verbal offers do not always include all negotiable terms in the promulgated forms, so a seller should proceed with caution when considering a verbal offer. As part of an agent's fiduciary duties, withholding an offer for any reason, other than a reason instructed by the seller, would be a violation of TREC rules and could result in suspension or loss of license. It could also result in a lawsuit brought against the salesperson. If a seller instructs an agent to not present certain offers, such as a contingency offer, then the instructions by the seller should be in writing.

What is the make-up of the Broker-Lawyer Committee?

Six brokers, six lawyers, and one member of the general public

TREC IABS and Consumer Protection Notice

The IABS and Consumer Protection Notice are forms of information that are required use by licensees when assisting consumers in real estate transactions. The purpose of the information is to inform consumers how brokers and agents represent them and where to find help when they need it.

Unauthorized Practice of Law and Examples of Common Mistakes

The Texas Real Estate Licensing Act clearly prohibits a salesperson from participating in any act that could be considered the unauthorized practice of law. License holders are to advise customers and/or clients to seek the advice of a competent real estate attorney. The license holder may explain to principals the meaning of factual statements or business details contained in contracts as long as he/she is not giving legal advice or interpreting legal verbiage contained in the contract.

If no standard form has been promulgated by the Texas Real Estate Commission, a real estate broker or salesperson may do any of the following EXCEPT

draft an instrument that transfers an interest in real property.

Once presented an offer from a prospective buyer, the seller can do any of the following EXCEPT

accept it after making a counteroffer.

A license holder who drafts a contract for the sale of her client's property is

taking part in the unauthorized practice of law.

Exceptions to using TREC promulgated forms are:

• The license holder is a principal to the transaction. • The principal instructs the licensee to use a form they provided. • A government agency requires the use of a different form. • No form exists for its purpose.

How many resale certificate forms are promulgated by TREC?

2

Which of the following addenda are promulgated by TREC?

All of these.

Which of the following is a TREC promulgated form?

All of these.

If the offer is acceptable to the seller, the offer is signed and dated and returned to the buyer. It is now a contract for sale. If the offer is rejected, the offer is returned to the buyer marked

"rejected."

§537.11 Use of Standard Contract Forms

(a) When negotiating contracts binding the sale, exchange, option, lease or rental of any interest in real property, a real estate license holder shall use only those contract forms approved for mandatory use by the Texas Real Estate Commission (the Commission) for that type of transaction with the following exceptions: 1) transactions in which the license holder is functioning solely as a principal, not as an agent; 2) transactions in which an agency of the United States government requires a different form to be used; 3) transactions for which a contract form, or addendum to a contract form, has been prepared by a property owner or prepared by a lawyer and required by a property owner; or 4) transactions for which no mandatory contract form or addendum has been approved by the Commission, and the license holder uses a form: A. prepared by a lawyer licensed by this state, or a trade association in consultation with one or more lawyers licensed by this state, for the particular type of transactions involved that contains: i. the name of the lawyer or trade association who prepared the form; ii. the name of the broker or trade association for whom the form was prepared; iii. the type of transaction for which the lawyer or trade association has approved the use of the form; iv. any restrictions on the use of the form; and v. if it is an addendum that changes the rights, obligations or remedies of a party under a contract or addendum form approved by the Commission for mandatory use, the form must also include: I. a statement about how the addendum changes the rights, obligations or remedies of a party, with a reference to the relevant paragraph number in th e mandatory use form; II. a statement that the form is not a mandatory Texas Real Estate Commission form; and III. a statement that Commission rules prohibit real estate license holders from giving legal advice; or B. prepared by the Texas Real Estate Broker-Lawyer Committee (the committee) and approved by the Commission for voluntary use by license holders. (b) A license holder may not: • practice law; • directly or indirectly offer, give or attempt to give legal advice; • give advice or opinions as to the legal effect of any contracts or other such instruments which may affect the title to real estate; • give opinions concerning the status or validity of title to real estate; • draft language defining or affecting the rights, obligations or remedies of the principals of a real estate transaction, including escalation, appraisal or other contingency clauses; • add factual statements or business details to a form approved by the Commission if the Commission has approved a form or addendum for mandatory use for that purpose; • attempt to prevent or in any manner whatsoever discourage any principal to a real estate transaction from employing a lawyer; or • employ or pay for the services of a lawyer, directly or indirectly, to represent a principal to a real estate transaction in which the license holder is acting as an agent. c) This section does not limit a license holder's fiduciary obligation to disclose to the license holder's principals all pertinent facts that are within the knowledge of the license holder, including such facts which might affect the status of or title to real estate. (d) It is not the practice of law for a license holder to fill in the blanks in a contract form authorized for use by this section. A license holder shall only add factual statements and business details or shall strike text as directed in writing by the principals. (e) This section does not prevent the license holder from explaining to the principals the meaning of the alternative choices, factual statements and business details contained in an instrument so long as the license holder does not offer or give legal advice. (f) When a transaction involves unusual matters that should be reviewed by a lawyer before an instrument is executed, or if the instrument must be acknowledged and filed of record, the license holder shall advise the principals that each should consult a lawyer of the principal's choice before executing the instrument. (g) A license holder may employ and pay for the services of a lawyer to represent only the license holder in a real estate transaction. (h) A license holder shall advise the principals that the instrument they are about to execute is binding on them. (i) Forms approved by the Commission may be reproduced only from the following sources: a. electronically reproduced from the files available on the Commission's website; b. printed copies made from copies obtained from the Commission; c. legible photocopies made from such copies; or d. computer-driven printers following these guidelines: i. The computer file or program containing the form text must not allow the end user direct access to the text of the form and may only permit the user to insert language in blanks in the forms. Blanks may be scalable to accommodate the inserted language. The Commission may approve the use of a computer file or program that permits a principal of a license holder to strike through language of the form text. The program must be: 1. limited to use only by a principal of a transaction; and 2. in a format and authenticated in manner acceptable to the Commission. ii. Typefaces or fonts must appear to be identical to those used by the Commission in printed copies of the particular form. iii. The text and order of the text must be identical to that used by the Commission in printed copies of the particular form. iv. The name and address of the person or firm responsible for developing the software program must be legibly printed below the border at the bottom of each page in no less than six point type and in no larger than 10 point type. (j) Forms approved or promulgated by the Commission must be reproduced on the same size of paper used by the Commission with the following changes or additions only: 1) The business name or logo of a broker, organization or printer may appear at the top of a form outside the border. 2) The broker's name may be inserted in any blank provided for that purpose. (k) Standard Contract Forms adopted by the Commission are published by and available from the Commission at P.O. Box 12188, Austin, Texas 78711-2188 or www.trec.texas.gov.

How many members are on the Broker-Lawyer Committee?

13

Presenting Offers

If at all possible, it is best to present offers to the seller in person. Offers should be presented as soon as possible. The agent should take great care to go over all details of the offer and make certain that the seller fully understands the terms of the contract.

Offers that are presented to a seller can result in one of several responses:

Ignore the offer. The seller is under no obligation to respond to the buyer's offer. While the listing agent can advise the seller to issue a rejection response, the agent must follow the instructions of the seller. • Accept the offer. The most favorable response would be an acceptance of all terms, providing that it is in the best interest of the seller. A listing agent should never encourage a seller to accept an offer that is not in the seller's best interest. • Reject the offer - If the terms of the offer are unacceptable to the seller to the extent that negotiations could not result in a contract, the seller can reject the offer entirely. This might happen if the price offered on the property is so far from the list price that a seller will not even consider negotiating with the buyer. In this case, the listing agent might have the seller write "rejected" on the front page of the offer and initial as proof that the offer was presented to the seller. It might be appropriate to invite the buyer to submit a new offer, either with or without suggestions for more favorable consideration. The Texas Association of REALTORS® has a wonderful form (TAR-1926) that can be used by its members to solicit a new offer from a buyer. • Counter the offer. The more common of the four responses is the counteroffer. Generally, if a reasonable offer is presented, there will be some terms that the seller will favor and others that the seller will want changed. For example, the seller may agree to most of the terms but has an objection to the closing date. The seller could in this case instruct the agent to inform the buyer that all terms are acceptable except the closing date and offer to close on a different date. In this case, the original offer is terminated and a new offer, in the form of a counteroffer, has been created. Negotiations can continue until all terms have been agreed upon, or it could eventually conclude with a withdrawn or rejected offer.

Use of Promulgated Forms

In the state of Texas, only lawyers are allowed to write law and that includes contracts. Licensees are not allowed to write law and may sometimes unwittingly actually do just that. Striking through paragraphs or words in TREC promulgated forms, adding language (especially in Special Provisions), and including forms written by the licensee is not allowed unless specifically instructed by the principal in the transaction. Even then it is best to have the principal write the information in themselves. To reduce the danger of a licensee inadvertently practicing law, TREC has promulgated standard contract forms for use by licensees. While it is acceptable for a licensee to explain the meaning of contract terms, the licensee must still refrain from giving legal advice when presenting the promulgated forms. Best practice is to advise a principal to seek

Common Mistakes

Perhaps the greatest number of mistakes takes place in the use of the Special Provisions paragraph of the promulgated contract forms. Inserting rights and remedies statements can constitute the unauthorized practice of law. Any statement that changes parties' legal rights can also be indicative of unauthorized practice of law. Another common mistake in the use of the Special Provisions paragraph is inserting facts related to issues that are already addressed in the contract, or for which a promulgated addendum already exists. Another common mistake is for the license holder to advise a principal regarding title issues. The license holder is not proficient in title commitment issues, types of deeds to be issued, or the best way to resolve boundary disputes that could appear on a survey. These issues should be directed to the appropriate person who has the expertise to properly guide and advise the principal.

Texas Real Estate Commission Forms

Promulgated Contracts: • Unimproved Property Contract • One to Four Family Residential Contract (Resale) • New Home Contract (Incomplete Construction) • New Home Contract (Completed Construction) • Farm and Ranch Contract • Residential Condominium Contract (Resale) Promulgated Addenda: • Addendum Concerning Right to Terminate Due to Lender's Appraisal • Addendum for Authorizing Hydrostatic Testing • Addendum for Back-Up Contract • Addendum for Coastal Area Property • Addendum for Property in a Propane Gas System Service Area • Addendum for Property Located Seaward of the Gulf Intracoastal Waterway • Addendum for Property Subject to Mandatory Membership in an Owners Association • Addendum for Release of Liability on Assumed Loan and/or Restoration of Seller's VA Entitlement • Addendum for Reservation of Oil, Gas and Other Minerals • Addendum for Sale of Other Property by Buyer • Addendum for Seller's Disclosure of Information on Lead-Based Paint and Lead-Based Paint Hazards as Required by Federal Law • Addendum Regarding Fixture Leases • Addendum Regarding Residential Leases • Buyer's Temporary Residential Lease • Environmental Assessment, Threatened or Endangered Species, and Wetlands Addendum • Loan Assumption Addendum • Non-Realty Items Addendum • Seller Financing Addendum • Seller's Temporary Residential Lease • Short Sale Addendum • Third Party Financing Addendum Promulgated Amendment: • Amendment to Contract Promulgated Resale Certificates: • Condominium Resale Certificate • Subdivision Information, Including Resale Certificate for Property Subject to Mandatory Membership in an Owners' Association Promulgated Notices: • Notice of Buyer's Termination of Contract • Notice of Seller's Termination of Contract • Consumer Protection Notice • Texas Real Estate Consumer Notice Concerning Hazards of Deficiencies • Notice Concerning Easements and Rights-of-Way • Notice to Prospective Buyer • Seller's Disclosure Notice Promulgated Consumer Disclosures: • Disclosure of Relationship with Residential Service Company • Information About Brokerage Services TREC promulgated forms can undergo changes frequently as new issues arise in the sale of real estate. As forms are updated, licensees are required to use the most recent form without exception. Current versions of the forms can be found on the TREC website. The date found on the form indicates when it was last updated for use.

Multiple Offers

Receiving multiple offers on your listing can at first glance seem like a good problem to have. And when compared to no offers at all, it is a good problem to have. But it can also become complicated if there are several offers to consider and the buyer's agents are pressuring the seller for a response. The agent is required to present all offers to the seller. Regardless of when the offers are received, and no matter how many offers there are, no preference should be given to one over the other by the listing agent. Assume that the seller has received an offer at 10:00 a.m. on Monday morning, and the agent has presented the offer to the seller. While the seller is looking over the offer, another offer comes in. As long as the seller has not accepted the first offer, the agent is to submit the second offer to the seller even if it is not as good as the first offer. This will continue as offers come in until the seller has accepted an offer. Let's assume that it's Thursday morning and 5 offers have been received on a seller's property. The terms of the offers vary from very good to unacceptable. In this case, the listing agent, after presenting all offers to the seller, might suggest that they notify all of the agents representing buyers, that there is a "multiple offer situation" and that all buyers are invited to submit a new offer that same day by 5:00 p.m., at which time the seller will review the offers. Several outcomes can occur. • The original offers have all been rejected. • Offers submitted by 5:00 p.m. are new offers. • Some buyers may choose to not submit a new offer and they are no longer obligated by the offer they previously submitted. • Some buyers who previously submitted an offer may instruct the seller that the original offer is also their new offer. In other words, the buyer still wants their original offer to be considered. • Some buyers may choose to improve the terms of the original offer and submit a new offer that will be more favorable to the seller. • The seller may choose one of the new offers to counter. The seller cannot counter two different offers since buyer's acceptance of a counteroffer would result in a contract and a seller cannot be under contract to two different buyers. • The seller may choose one of the new offers to accept as submitted. During negotiations in a multiple offer situation, the agent is not to divulge the details of any of the offers to a buyer's agent unless specifically instructed by the seller in writing. Working multiple offers should be done as quickly as possible since some buyers will lose interest and withdraw the offer.

TEXAS OCCUPATIONS CODE, TITLE 7, SUBTITLE A, CHAPTER 1101 SUBCHAPTER D. COMMISSION POWERS AND DUTIES

Sec. 1101.155. RULES RELATING TO CONTRACT FORMS. (a) The commission may adopt rules in the public's best interest that require license holders to use contract forms prepared by the Texas Real Estate Broker-Lawyer Committee and adopted by the commission. (b) The commission may not prohibit a license holder from using for the sale, exchange, option, or lease of an interest in real property a contract form that is: (1) prepared by the property owner; or (2) prepared by an attorney and required by the property owner. (c) A listing contract form adopted by the commission that relates to the contractual obligations between a seller of real estate and a license holder acting as an agent for the seller must include: (1) a provision informing the parties to the contract that real estate commissions are negotiable; and (2) a provision explaining the availability of Texas coastal natural hazards information important to coastal residents, if that information is appropriate.

TEXAS OCCUPATIONS CODE, TITLE 7, SUBTITLE A, CHAPTER 1101 SUBCHAPTER F. TEXAS REAL ESTATE BROKER-LAWYER COMMITTEE

Sec. 1101.251. DEFINITION OF COMMITTEE. In this subchapter, "committee" means the Texas Real Estate Broker-Lawyer Committee. Sec. 1101.252. COMMITTEE MEMBERSHIP. (a) The Texas Real Estate Broker-Lawyer Committee consists of 13 members appointed as follows: (1) six members appointed by the commission; (2) six members of the State Bar of Texas appointed by the president of the state bar; and (3) one public member appointed by the governor. (b) Appointments to the committee shall be made without regard to the race, creed, sex, religion, or national origin of the appointee. Sec. 1101.253. TERMS; VACANCIES. (a) Committee members serve staggered six-year terms, with the terms of two commission appointees and two State Bar of Texas appointees expiring every two years and the term of the public member expiring every six years. (b) A committee member shall hold office until the member's successor is appointed. (c) If a vacancy occurs during a member's term, the entity making the original appointment shall appoint a person to fill the unexpired term. Sec. 1101.254. POWERS AND DUTIES. (a) In addition to other delegated powers and duties, the committee shall draft and revise contract forms that are capable of being standardized to expedite real estate transactions and minimize controversy. (b) The contract forms must contain safeguards adequate to protect the principals in the transaction.

TEXAS OCCUPATIONS CODE, TITLE 7, SUBTITLE A, CHAPTER 1101 SUBCHAPTER N. PROHIBITED PRACTICES AND DISCIPLINARY PROCEEDINGS

Sec. 1101.654. SUSPENSION OR REVOCATION OF LICENSE OR CERTIFICATE FOR UNAUTHORIZED PRACTICE OF LAW. (a) The commission shall suspend or revoke the license or certificate of registration of a license or certificate holder who is not a licensed attorney in this state and who, for consideration, a reward, or a pecuniary benefit, present or anticipated, direct or indirect, or in connection with the person's employment, agency, or fiduciary relationship as a license or certificate holder: (1) drafts an instrument, other than a form described by Section 1101.155, that transfers or otherwise affects an interest in real property; or (2) advises a person regarding the validity or legal sufficiency of an instrument or the validity of title to real property. (b) Notwithstanding any other law, a license or certificate holder who completes a contract form for the sale, exchange, option, or lease of an interest in real property incidental to acting as a broker is not engaged in the unauthorized or illegal practice of law in this state if the form was: (1) adopted by the commission for the type of transaction for which the form is used; (2) prepared by an attorney licensed in this state and approved by the attorney for the type of transaction for which the form is used; or (3) prepared by the property owner or by an attorney and required by the property owner.

Which of the following is TRUE?

The Broker-Lawyer Committee develops forms and recommends their adoption, but it is the TREC that promulgates the forms for mandatory use.

The Broker-Lawyer Committee

The Broker-Lawyer Committee drafts and revises contract forms for use by real estate license holders. The committee develops forms and recommends their adoption, but it is the TREC that promulgates the forms for mandatory use by license holders.

Consumer Protection Notice

The Consumer Protection Notice is required to be posted at your place of business AND on your website. This includes a business Facebook page. • The Consumer Protection Notice cannot be altered in any way. Do not change the font or add your logo to the notice. • The link to the Consumer Notice must read, "Texas Real Estate Commission Consumer Protection Notice", and be in at least 10 point font in a readily noticeable place on your homepage.

Texas Real Estate License Act

The first law to regulate brokerage in Texas was the Texas Real Estate Dealers Act, which was passed in 1939. The Texas Real Estate License Act (TRELA), passed by the Texas Legislature in 1949, currently regulates real estate in Texas and is administered by the Texas Real Estate Commission (TREC). The purpose of TRELA is to protect the public against agents and brokers who are incompetent or unethical. The details can be found in Chapter 1101 of the Texas Occupations Code. The Texas Real Estate License Act can be found in its entirety at www.trec.state.tx.us. The Texas Real Estate Commission is made up of nine members appointed by the Governor with the advice and consent of two-thirds of the senate. Six of the nine members must be licensed real estate brokers that have had real estate brokerage as their primary occupation for the five years preceding their appointment to the commission. The remaining three members are of the general public who do not hold a real estate license and do not have a financial interest in a real estate brokerage or a relationship with anyone having such an interest.

When Does the Offer Become a Contract?

The offer becomes a contract when both parties have agreed on all of the terms and all parties have been notified of acceptance. To be enforceable: • The contract must be in writing; • Signed by all parties; • The last party to sign must have notified the other parties; and • The contract must have been executed. A good business practice is for the broker/agent who represents the principal who signs the paperwork last, to notify the other broker/agent both verbally and in writing. Until the other party is notified that the contract has been accepted and signed, that other party can withdraw the offer. Let's look at an example. Agent Sue represents the seller and Agent Bob represents the buyer. The buyer and seller have agreed on terms to a sales contract. The buyer has signed the offer and Bob has sent it to Sue to have the seller sign. The seller signs the paperwork on Monday evening with the intention of sending the signed documents to Sue on Tuesday morning when he gets to the office. Late Monday evening, the buyer has a change of mind and emails Bob to cancel the offer. Bob sends Sue an email Monday evening at 11:00 p.m. informing her that the offer has been withdrawn. There is no contract. Had the seller notified Sue on Monday evening that the paperwork was signed, and had Sue notified Bob before 11:00 p.m. that the paperwork was signed and that he would receive a copy the next morning, there would have been a contract. It's important to remember that until the offer has become an enforceable contract, the property remains for sale. The agent should exercise care in the receiving of offers until a contract does in fact exist.

Which of the following is an exception to the TREC rules on contract use?

When the buyer requires another form to be used

An offer is not considered accepted until the person making the offer has been notified of the other party's

acceptance.

The offer becomes a contract when

all parties have agreed to all terms of the offer and have signed the contract.

Real estate brokers who are members of the Broker-Lawyer Committee become members by being

appointed by the Texas Real Estate Commission.

When should an offer be presented?

immediately

How many promulgated contracts does TREC issue?

six.

TREC may NOT prohibit a license holder from using a contract form

that is prepared by the property owner.

Information About Brokerage Services (IABS)

• Should be filled out completely when linked to a licensee's website and when provided during the first substantive communication with a customer or potential client. • Business logos are not to be added to the form. • Business website is any website used for the purpose of attracting or conducting real estate brokerage activity, including social media sites. • The link to the IABS must read, "Texas Real Estate Commission Information About Brokerage Services" and be in at least 10 point font in a readily noticeable place on your homepage. • The IABS form linked to a broker's business homepage only needs to contain information about the broker, including designated broker if an entity. If it is on the sales agent's or associate's homepage then the form should be filled out with the agent's or associate's information as well. If some contact information blanks do not apply, simply fill in "N/A." • If you are providing the IABS through a link in an email, the link and a specific reference to the IABS must be in the body of the email and look like the rest of the text in the body of the email (not smaller or a lighter color).