Law of Agency - Study Guide
Team name registration rules
"Team name" means a name used by a group of one or more license holders sponsored by or associated with the same broker that performs real estate activities under an exclusive collective name other than the broker's licensed name or assumed business name. (1) A team name may not include any terms that could mislead the public to believe think that the team is offering brokerage services independent from its sponsoring broker. (2) A team name must end with the word "team" or "group". (3) Before an associated broker or a sales agent sponsored by a broker starts using a team name in an advertisement, the broker must register the name with the Commission on a form approved by the Commission. (4) A broker must notify the Commission in writing not later than the 10th day after the date the associated broker or a sales agent sponsored by the broker stops using a team name. Include Broker's Name A license holder's advertisement must clearly and conspicuously contain the broker's name (either a business entity or an individual license holder's advertisement). Assumed Names • A broker's assumed name is the broker's name, and the broker may use the assumed name to satisfy this requirement. A broker is required to register an assumed name with TREC (even if the assumed name is a sales agent's name; for example, a team name). If the broker's name or assumed name includes a sales agent's name, the advertisement must include another assumed name without the sales agent's name or include the designated agent's name. A broker must notify TREC within 30 days after the broker or the broker's sales agent starts or stops using an assumed name. Signage and other advertising media must contain the broker's name or assumed name in at least 50 percent of the size of the largest item of contact information on the advertisement.
Information About Brokerage Services - IABS - purpose and content
"The Texas Real Estate Commission has prepared the Information About Brokerage Services, so that buyers and sellers may be better informed about agency relationships. Texas law requires all real estate license holders to give the following information about brokerage services to prospective buyers, tenants, sellers and landlords. Content- -TYPES OF REAL ESTATE LICENSE HOLDERS: Broker v. sales agent -A BROKER'S MINIMUM DUTIES REQUIRED BY LAW (A client is the person or party that the broker represents -A LICENSE HOLDER CAN REPRESENT A PARTY IN A REAL ESTATE TRANSACTION: AS AGENT FOR OWNER (SELLER/LANDLORD; AS AGENT FOR BUYER/TENANT; AS AGENT FOR BOTH - INTERMEDIARY; AS SUBAGENT -TO AVOID DISPUTES, ALL AGREEMENTS BETWEEN YOU AND A BROKER SHOULD BE IN WRITING AND CLEARLY ESTABLISH: -LICENSE HOLDER CONTACT INFORMATION p.147
TREC - creation/purpose/authority
-The Texas Real Estate License Act (TRELA) was passed in 1939. *The Texas Real Estate Commission (TREC) was created to enforce and administer the act in 1949. The purpose of the act is to protect the public against unscrupulous brokers and sales agents -The main focus of the Commission is to protect the public, therefore, the rules and regulations are construed liberally, with a view toward their purpose. TREC rules always favor the consumer. -The Commission is not concerned with an agent's earnings, does not involve itself in brokerage fee disputes and refrains from becoming involved in disputes between brokers and sales agents. p.9-11
Broker roles - cooperating/cooperative brokers
A 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 an agency agreement; he or she is also known as the other broker. p.17
Types of deceptive or misleading advertisements or advertisement practices
A license holder may not place an advertisement that • implies a sales agent is responsible for the brokerage business, or • causes someone to believe a person not authorized to conduct brokerage is engaged in brokerage. Deceptive or misleading advertisements may include: • an advertisement that is inaccurate in any material way or misrepresents any property, terms, values, services, or policies; • advertising another broker's listing without permission and without disclosing the name of the listing broker; • failing to remove an advertisement about a listing within a reasonable time after it ends; • an advertisement that identifies a sales agent as a broker; or • an advertisement that creates confusion about the permitted use of a property. p.228
Stigmatized properties and conditions
A property is stigmatized when some adverse event occurs on-site, or some people believe that a past event or condition is affecting it. A property that is stigmatized psychologically or physically can be challenging to sell. -Psychological stigma would be the belief among some that a house is haunted. Events on a property such as murder, death, and infectious disease can also create psychological stigma. -Physical stigma occurs as a result of some environmental or natural conditions near or on the property. Previous flooding, foundation problems, nearby landfills, and nuclear power plants in the area are examples of physical stigma. When stigmatized properties do sell, they often do so with a deep discount on the sales price. A property can be stigmatized for a number of reasons: -Murder on the premises - a great many buyers object to living in a property where a murder has been committed. The impact on the desirability and value of the property is proportionate to the amount of time that has elapsed and the severity of the crime. -Death on the property - some buyers will pass on the opportunity to buy a property in which anybody has died for any reason. This may be problematic for homes that are quite old, as death at home was the norm prior to the early 20th century. -Suicide - suicide is in much the same category as death on the property. Some ascribe more importance to suicide as it is thought by some to "infect" the property with negative energy. -Infectious disease - some buyers will shy away from a property if it is known that it was occupied by somebody with an infectious disease. -Criminal activity - common criminal activity would include meth labs, drug distribution operations, gang activity, illicit gambling operations, and other undesirable business enterprises. Potential purchasers are concerned that the operators or patrons of the criminal activity might return to the property, not knowing that it has new occupants. -Property condition issues - damage to a property, including flood, foundation repair, fire, toxic waste, etc., even if cured, can result in the stigma that reduces the value of the property. Paranormal activity - a property that is believed to be haunted is avoided by most potential buyers. p.72
Buyer Agency Only and Seller Agency Only firms - advantages and disadvantages
ADVANTAGES OF BUYER AGENCY ONLY AND SELLER AGENCY ONLY (NO INTERMEDIARY) • Firms that practice Buyer Agency Only or Seller Agency Only 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 con- flicts of interest that may occur when representing both sides of a transaction. DISADVANTAGES OF BUYER AGENCY ONLY AND SELLER AGENCY ONLY • Many buyers do not want to sign a Buyer's Representation Agreement because they do not want to pay a commission to a Buyer's Agent. • Agents can only list properties for sellers, or have buyers sign Buyer's Representation Agree- ments, limiting the firm to either the selling side only or listing side only commission. p.148
Types of authority for agents
Agency by actual authority- exists when an individual grants express authority to the agent to perform some act. The authority granted may be in oral or written form. Actual, written authority is given to a broker when a seller signs a listing agreement. Ostensible agency- exists when actions lead another person to assume that one is an agent Agency by ratification- occurs when an agent acts without prior authorization, and the principal accepts it upon learning of the action. (This behavior on the part of an agent is extremely risky and unprofessional) Agency by estoppel- is created when a principal inadequately supervises an agent. The agent takes on powers that go beyond the scope of authority given by the principal. If this activity causes a third party to believe the agent has these powers, agency by estoppel has been created. Agency coupled with an interest- when a broker is the owner of a property that is being sold, or when a broker is interested in buying a property p.25
Termination of agency relationships
Agency relationships are terminated by any of the following: -When the purpose of the agency is completed (i.e., the property is sold). A buyer/tenant representation agreement is generally for the purchase of a single property. When the property has been purchased, the agreement is terminated. There is no presumption of an ongoing agency relationship between the broker and buyer. -Likewise, a listing agreement is terminated when the property is sold and closed. There is no presumption of an ongoing relationship with the seller after closing. -The expiration of the period stated in the listing contract. The License Act requires that listing agreements must have a definite termination date that is not subject to prior notice: Sec. 1101.652. Grounds for Suspension or Revocation of License. (a) The commission may suspend or revoke a license issued under this chapter or take other disciplinary action authorized by this chapter if the license holder: (12) fails to specify a definite termination date that is not subject to prior notice in a contract, other than a contract to perform property management services, in which the license holder agrees to perform services for which a license is required under this chapter; -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. *Note that, because the parties to an agency agreement are the client and broker, the death or incapacity of a sponsored license holder has no legal effect on the agreement. -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. If the broker's license is revoked, all agency agreements with buyers and sellers are terminated. -Abandonment by the agent. -Revocation of the agreement at any time by the principal. -Termination of the agreement at any time by the broker. Agency relationships are considered to be highly personal and require the continuing consent of both parties (broker and principal) to exist. When the principal revokes the agency agreement, that "continuing consent" is withdrawn, and the listing must be terminated. When the broker is given notice of termination, the broker must: Cease all marketing activities. Remove signs and lockboxes. Remove the listing from websites and other advertising media. Terminate the listing in the MLS. Note that a "Withdrawal" would not comply with this requirement. The listing must be terminated. In the MLS, a withdrawal removes the listing from the market but does not terminate the listing. While the principal always has the power to terminate (revoke) an agency relationship, early termination could expose them to contractual liability if the termination was done without just cause. Neither party has the ability to determine just cause, which is usually determined in the courts. After complying with the demand for termination, the broker must make a decision whether to seek damages from the seller in court or to drop the matter. A broker may stipulate an early termination fee in a listing agreement but must comply with the above upon termination whether the fee is paid or not. It would be a violation of the TRELA if the broker continued to market the property after notice of termination, or otherwise took action that limited the seller's ability to list the property with another broker or sell it themselves. Likewise, a broker has the power of termination that allows him or her to terminate an agency agreement early. Early termination by the broker, without cause, could expose the broker to contractual liability or a suit for damages. p.48-49
The concept of Agency and agency relationships
An agency relationship exists when one person, the agent, acts for or on behalf of another person, the principal, who is also known as the client. This relationship is a fiduciary relationship, meaning that it is a relationship based on trust. p.9
CMA's
Analysis based on properties that have re- cently sold that are most similar to the subject property The shared information is also used by agents to prepare a comparative market analysis (CMA). The agent uses sales information from the MLS data to show a seller the market value of the prop- erty. The agent bases this analysis on properties that have recently sold that are most similar to the seller's property. If possible, the agent should use data from sales that have closed within the last six months - the more recent the sales data, the better. The agent will also show on the CMA, prop- erties currently listed that are similar to the subject property. The listing agent will show expired properties like the subject property on the CMA as well if that data is available. A rule of thumb is three (3) each of, recently sold, recently listed, and recently expired properties that are similar to the subject property the agent desires to list. Appraisers also have access to MLS for their use in preparing appraisal reports. p.83
Stigmatized properties - conditions and disclosure requirements
As a rule, sellers should disclose any facts that could affect a purchaser's decision to buy. The purchaser of a home will quickly be made aware of any stigma attached to the property upon moving in. Megan's Law is a law that was first proposed and enacted in New Jersey in response to the murder of Megan Kanka, which occurred on July 29, 1994, in Hamilton Township, New Jersey. Over the years, all fifty states have adopted a variant of the law, which requires the registration of sex offenders. Death on the property is a particular concern for some buyers and a concern that raises issues for license holders. Both federal and state law place some limits on the seller's duty to disclose. The Canons of Professional Ethics stipulate that no inquiries and no disclosure may be made in this area. When faced with a stigmatized property, the license holder should carefully consider all of the facts before deciding on a disclosure strategy. Consider: • Is the stigma real or imagined? • What is the source of information? • Does the stigma amount to a material defect? • What are the legal requirements for disclosure or non-disclosure? • Should it be disclosed, or is disclosure a legal requirement? • How would the typical buyer in the marketplace respond to the stigma? -The issue should be discussed with the seller. Any stigma that relates to a material defect in the property must be disclosed. Psychological stigma, however, is more of a gray area. Consult your broker if in doubt. A word of caution: a license holder can have considerable liability for failure to disclose. However, a license holder can have considerable liability for over-disclosing. p.72-73
Buyer representation agreements
Buyers Rep CREATES buyers agency! The agreement that buyers sign, allowing a broker to represent them, is called a Buyer/Tenant Representation Agreement. Like the listing agreement with a seller, this should be in writing. Elements of a buyer representation file should include the following: • The Information About Brokerage Services (IABS) form, signed and dated • General characteristics of the property search (market area) • Buyer's and broker's obligations • Term 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 p.107
Setting commission rates - violations
Commission rates and any other means by which sellers and buyers compensate brokers are always negotiable between the parties. Any attempt by a group of brokers to set the commission rates in their area or between a group of brokerage firms would be considered illegal price-fixing. The federal laws that have the most significant impact in this area are the Sherman Anti-Trust Act and the Clayton Act. The Sherman Anti-Trust Act is very specific concerning this violation. 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. Any attempt to fix prices would be a violation of federal law. Any agreement to limit competition by assigning market areas would also be a violation. Likewise, boycotting of discount brokers is also a violation of federal law. p.108
Disclosure of representation vs disclosure of agency - when and how
DISCLOSURE OF REPRESENTATION Per Sec. 1101.558 (b) of TRELA, Representation Disclosure, a license holder who represents a party in a proposed real estate transaction shall disclose, orally or in writing, that representation at the time of the license holder's first contact with: • Another party to the transaction; or • Another license holder who represents another party to the transaction. Note that the disclosure is not needed if a prospective buyer calls or visits wanting general informa- tion about real estate in the area. If the buyer is not inquiring about a specific property, there is no specific representation to disclose. DISCLOSURE OF AGENCY/IABS = at first substantive discussion p.145
Defamation - definition/explanation/examples
Defamation is the act of harming the reputation of another person by making a false statement to a third party either by slander (spoken words) or libel (printed words). Usually, a defamation claim requires evidence of: • a false statement, • a statement made to someone other than the person who is allegedly defamed, and • the damage to the person allegedly defamed (either by intention or reckless disregard for the truth). Defamation, per se, occurs when a person publishes a false statement of such a significant matter that the law does not require proof of harm. A license holder who intends to use a statement that could potentially harm another should consult an attorney before publishing the statement in order to avoid allegations of defamation.
Disclosure requirements for the agent to customers and clients
Disclosure of all Material Facts — The license holder must disclose all facts that he or she knows or should reasonably be expected to know that materially affect the value of or desirability of the property. Facts include disclosure of agency, property condition, and environmental hazards. p.108
Dual Agency vs Intermediary
Dual agency: The practice that allows a real estate firm to represent both the buyer and seller with their written permission 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 Dual agency is a practice that allows a real estate firm to represent both sides of a transaction (buyer and seller, landlord and tenant) at the same time. In dual agency, the broker represents both parties with their written permission. While there are differences from one state to another, all dual agency laws deal with the conflict that is created when the broker has an agency duty to both sides of a transaction. A dual agency broker may appoint a designated agent to represent the buyer or the seller. Complying with the duties of representation is difficult in a dual-agency situation. The easiest duty of the dual agent is accounting. In all other areas, the parties are likely to have conflicting interests. In Texas, we must use Intermediary instead of Dual Agency. Intermediary is a process that makes it possible to bring client buyers and sellers together while at the same time representing their best interests. When this type of transaction occurs, the broker becomes the Intermediary. Since the broker has a personal duty to represent both sides, it is only appropriate that the broker remain neutral and avoid negotiating for either party. The broker cannot do anything that would give an advantage to one client at the expense of the other.
Trust accounts, commingling and conversion
If any funds are held for a client or a customer, these funds are said to be held in trust and must be placed in a separate account set up for this purpose. -Commingling is mixing clients' funds with the business, operating, or personal funds of a broker, and is prohibited by the License Act. -A more serious offense would be conversion. When a broker spends his or her client's funds without authorization, that broker is guilty of conversion. Both commingling and conversion are serious violations of TRELA. Sec. 1101.652(b) The commission may suspend or revoke a license issued under this chapter or take other disciplinary action authorized by this chapter if the license holder, while acting as a broker or sales agent: (10) commingles money that belongs to another person with the license holder's own money; TREC rules are specific about the proper handling of client funds: §535.146. Failure To Properly Account for Money; Commingling. (i) If trust funds are held by a license holder, they must be maintained in the broker's trust account. Placing such money in a license holder's operating account is prima facie evidence of commingling. (k) The balance of a broker's trust account shall at all times equal the total of the trust funds received for which the broker is accountable, provided, however, the broker may deposit and maintain a reasonable amount of funds in the trust account to cover bank service fees, including fees charged for insufficient funds. Detailed records must be kept for any funds deposited under this exception. Paying operating expenses or making withdrawals from a broker's trust account for any purpose other than proper disbursement of money held in trust is prima facie evidence of commingling money held in trust with the broker's own funds. When handling escrow deposits, the broker, or sales agent associated with the broker, is required to deposit the funds in an escrow account promptly. The License Act requires that this deposit be made in a "reasonable amount of time," and TREC has defined that time to be the end of the second business day after the date of receipt. The obligation does not begin until both parties have signed the sales contract. The signing triggers the need to deposit the funds. Most brokers do not use their own escrow accounts for earnest money deposits and prefer to use the services of a title company. In a typical sale, the title company, as escrow agent, will hold the funds until closing. If, for some reason, the transaction does not close, the money may be refunded to the appropriate party once all parties have agreed in writing. The title company will not release the funds without the written consent of all parties if all parties fail to agree in writing, Paragraph 18. C. of the TREC 1-4 Family Residential Contract (Resale) applies. Existing contracts, laws, and regulations protect title companies in their handling of escrow funds. This protection is not extended to brokers, which is one reason why few brokers are willing to hold escrow funds at all. p.32-33
Intermediary with and without appointments - requirements/scenarios
If we represent both the owner and the buyer, the transaction will be completed under intermediary rules. Depending on the circumstances, one agent of the broker will negotiate on behalf of the seller, and another agent of the broker will negotiate on behalf of the buyer. In some cases, a single agent will work with both buyer and seller and will not negotiate, but will remain neutral. NOTE: how intermediary is explained will be determined by the broker's policy. Possible policies include: No intermediary. The broker may represent buyers and/or sellers, but will not do so in the same transaction. Intermediary with appointments only: If a single agent in the firm is working with both buyer and seller, another agent in the firm needs to be brought into the transaction so appointments can be made. p.146
IRS Independent Contractor Status rules
In 1976, the IRS set guidelines to determine whether or not a sales agent would be classified as an independent contractor or an employee when sponsored by a real estate broker. The IRS uses the following list as a guideline for the determination. No single factor is greater than the whole. All of these factors are important for an overall view of the position governed by the independent contractor relationship: -Commissions must compensate the sales agents. There are to be no advances against their commissions. -There may be a policies and procedures manual provided but there may not be mandatory compliance with the policies. It is only a suggested procedure manual. -The sales agent shall pay his own business expenses. The sales agent cannot be made to attend sales meetings. The sales agent cannot be made to attend training seminars. -The sales agent cannot be made to work set hours. A broker can require that the agent be "full time," but cannot dictate set work hours. p.153
Seller's Disclosure Notice requirements
In Texas, most sellers prepare a Seller's Disclosure Notice, and the seller is responsible for its accuracy. The agent's role is to encourage honesty and full disclosure. While it is a broker's responsibility to discover and disclose that there may be problems on a property, that responsibility is limited to areas accessible for visual inspection. Errors & Omissions insurance can protect a broker if the seller misrepresents property condition, the broker is unaware of the misrepresentation, and could not have detected it by visual inspection. (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 by this section which contains, at a minimum, all of the items in the notice prescribed by this section. (c) A seller or seller's agent shall have no duty to make a disclosure or release information related to whether a death by natural causes, suicide, or accident unrelated to the condition of the prop- erty occurred on the property or whether a previous occupant had, may have had, has, or may have AIDS, HIV related illnesses, or HIV infection. Section 5.008 of the Texas Property Code requires that a seller of a residential property disclose all material facts relating to the condition of the Property Buyers should be made aware of any title issues, easements, and encroachments of which the seller or license holder has knowledge. P.67-68
Intermediary without appointments
In some instances, an agent will have the opportunity to sell his or her own listing. When this happens, it is known as Intermediary Without Appointments. Under Intermediary rules, Agent Sue can go ahead and complete the transaction, but can- not give advice and opinions to either party. This process is called intermediary without appointments. Much like the broker, Sue cannot negotiate forone client to the detriment of the other client.When the Intermediary process begins, the Intermediary Relationship Notice (TXR-1409) must be filled out by members of the NAR. In this case, there will be no appointments because there is only one agent in the transaction. Some brokers feel that intermediary without appointments carries with it a level of liability that is unacceptable. There is certainly the chance that someone could later claim that he or she was not treated equally, paid too much, or received too lit- tle in a transaction. Because of this liability, some brokers require that another agent in the firm be brought in so that appointments can be made. If this is done, the buyer is usually appointed to the other agent. p.125
How most real estate agents are paid
In the real estate brokerage business, most license holders are not employees of the broker. They are independent contractors engaged in a principal-agent relationship, which is the general agency relationship that exists between the broker and sponsored license holder Any payment received by Bill will be a direct result of his efforts. There is no salary, and the sponsoring broker will not deduct withholding from commission income. Agent Bill will receive a gross check, and, rather than receiving a W-2, he will receive a 1099-MISC form that will show the sum of the payments received from Broker Bob during the tax year. There is no master-servant relationship between a broker and an agent when the agent is an independent contractor. The division of commissions is at the discretion of the broker. Some brokers have one compensation plan for all agents, while others may vary. The broker is under no obligation to offer the same compensation plan to all agents. p.153
Intermediary - requirements
Intermediary is designed to address a specific issue: how can a broker bring together a buyer and seller, each being represented by the broker while protecting the interest of all parties? We have three simple guidelines used to determine if a transaction is to be done under Intermediary rules: The transaction must be an in-house sale. Both sides (buyer/seller or landlord/tenant) must be clients. The broker has the clients' written consent. p.125
Client vs customer - role of the agent
License holders should always be aware of their duties to the people with whom they are working. License holders have two levels of responsibility: Public responsibility: (These are the duties to customers) -Honesty -Disclosure of material facts -Handle all funds with care -Be responsible for written or oral statements Fiduciary responsibility: (These are the duties to a client.) -Put the interests of the client first -Give full disclosure to the client (advice and opinions in addition to disclosing all pertinent facts - both material and other) -Exhibit trust and honesty -Exercise good business judgment -Be loyal to the principal -Be competent p.18
TREC advertising rules and font requirements
License holders who advertise on their social media accounts must also adhere to the TREC Rules on advertising. Due to the constraints of some social media sites, TREC is more flexible with their requirements for social media advertising than for other more traditional forms of advertising in that they allow the information to be "one click away."2 Note that this does not mean a link to a link, but one link to the actual information. The license holder's name or team name and the broker's name in at least 1/2 the size of the largest contact information in the advertisement are still required, but they may be located on a separate page or the account or user's profile page if the separate page is: • readily accessible by a direct link from the social media or text advertisement • readily noticeable on the separate page or in the account user profile The broker's logo does not usually count as the broker's name unless the logo contains either the broker's licensed name or assumed business name (DBA) in full (not a shortened version of it) and the printed name is 1/2 the size of the largest contact information in the ad. It is important to make a distinction between the size of the logo and the size of the text. The size of the logo does not count. p.65
Fiduciary Duties
O - Obedience L - Loyalty D - Disclosure C - Confidentiality A - Accounting R - Reasonable care
Duties of an Agent p.30-33
Obedience: Loyalty: Disclosure: Confidentiality: Accounting: Reasonable care :
OLDCAR
Obedience: An agent is obligated to follow all of the lawful instructions of a client. Loyalty: Loyalty means putting the interests of a client first Disclosure: An agent has a duty of full disclosure of all information relating to the property and the other parties in the transaction Confidentiality: Any confidential information learned about a client must be kept confidential forever, and may not be disclosed without the written consent of the client Accounting: If any funds are held for a client or a customer, these funds are said to be held in trust and must be placed in a separate account set up for this purpose Reasonable Care: Reasonable care is a requirement that an agent exhibit competence and expertise, keep clients informed, and take proper care of their property
Who can legally earn a commission/sue for a commission/share a commission
Only a broker may earn a commission, and only a broker may sue to collect a commission. The broker may sue a seller who has defaulted on a listing agreement or a buyer who has defaulted on a buyer's representation agreement. If a broker seeks to enforce payment of a commission, the follow- ing requirements must be satisfied: The broker must have an employment agreement with a promise to pay a commission, signed by the party to be charged. (Usually, the seller) The broker must hold a valid real estate license. The broker must be the procuring cause of the sale. The broker must provide a ready, willing, and qualified buyer who agrees to the sale terms required by the seller. The buyer may not be under duress. The license holder must have informed the purchaser, in writing, to have the abstract exam- ined by an attorney or the buyer should be furnished with a title policy. p.108
Disclosure of representation - how and when
Regardless of representation, all buyers should be provided with an oral or written disclosure of representation at first contact. That disclosure is normally done orally when the buyer first calls or visits the office. Whatever the method of contact, personal visit, phone, fax, or e-mail, the notice of representation should be given. When the agent and the buyer have a substantive discussion about real estate, the buyer must be provided the Information About Brokerage Services. If the buyer is interested in a property that is owned by the listing broker, agent, parent, child, or spouse, that relationship must also be disclosed. Likewise, if the buyer is an agent, parent, child, or spouse of the agent, that relationship must be disclosed as well. p.107
Sherman Anti-Trust Act and commission rates
Sherman Anti-Trust Act - 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 "stan- dard" or "going rate' for commissions in a given market area could be evidence of violation and restraint of trade. Any attempt to boycott a discount real estate broker is a violation. Attempts to limit competition by allocating markets or customers is also a violation. Any attempt by a group of brokers or brokerage firms to set the commission rates in their area would be considered illegal price-fixing. p.181
Types of agent - general vs. special
Special agency: The special agency relationship is the most limited of all the agency relationships. Sometimes, it is even called "limited agency." In a special agency relationship, 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 simply follow the instructions of the principal. General agency: As a general agent, an individual has the right to represent his or her principal in a particular type of transaction or business. The general agency relationship in real estate is the relationship between a broker and his or her associates. A license holder sponsored by a broker will act as the general agent of that broker. A general agent may bind the principal, meaning that the agent may sign certain contracts and agreements in the name of the principal. Universal agency: The universal agent has a broad range of authority to act for a principal. This agency relationship comes with a significant amount of responsibility. As a universal agent, an individual has the power to act for the principal in all transactions
Types of listings and commissions owed under each
States that the seller can list his or her property with multiple competing brokers The open listing gives the seller the right to list the property with multiple competing brokers and to sell the property personally without liability for payment of a commission. Some sellers believe that an open listing best serves their interest - that listing with several brokers produces more prospects than does a single listing company. Real estate brokers recommend against open listings for several reasons. First, the owner may be subject to commission claims by more than one broker. It is not always possible to easily determine who was responsible for the sale, and controversy over this point may lead to expensive litigation. Secondly, brokers are concerned that because the commission is paid to the broker who first finds the buyer, an open listing does not protect the broker who diligently advertises the property. In fact, who was the procuring cause of the sale? The open listing has resulted in many lawsuits between brokers, each claiming commission. These actions are known as procuring cause lawsuits. Because of the possibility the property may be sold without notice by others, brokers are unwilling to spend time and effort on a property for which they have no commission protection. Lastly, some argue that under an open listing, brokers have an incentive to close the sale quickly and at a lower than market price. If this occurs, a broker could be accused of failing to protect the client's (seller's) best interests. Therefore, agent loyalty is a significant issue when listing property using an open listing The seller lists the property with only one broker, but can sell it him or herself without paying a commission In an exclusive agency listing, the 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 pay- ment of a commission. Perhaps the biggest risk to the broker in an exclusive agency listing is that the seller will not fully cooperate with the efforts of the broker if the seller thinks that he or she has a prospect to sell to and avoid paying a fee. The Texas REALTORS® does not have an exclusive agency listing agreement in full, and such an agreement is not preferred by most brokers. Instead, Texas REALTORS® makes available an addendum that, when completed and attached to an exclusive right to sell agreement, makes that agreement exclusive agency, allowing the seller to sell the property himself or herself and avoid pay- ing any sales commission to the broker. Exclusive agency agreements are often used with builders who list their properties with a broker, primarily to expose their properties through the multiple listing service. Builders still maintain the right to sell the property themselves without paying the broker a fee. The broker is only entitled to a fee if the buyer comes from the efforts of the broker or cooperating broker. Real estate brokers recommend this listing, which grants an exclusive right to sell the property dur- ing the listing term. A commission is paid even if the property is sold by the owner. It is worth noting that the listing agreement most brokers prefer is the exclusive right to sell listing agreement, as it affords the broker the greatest degree of protection in earning a commission dur- ing the listing term, and provided the broker performs as promised, from executing a sales contract through to closing and funding. Under an exclusive right to sell, brokers are more willing to spend advertising dollars and their sales efforts to secure a buyer. If the property is listed at market value, this type of listing probably serves the interest of both parties. Under this plan, the broker has sufficient time to test the market, design an advertising sales campaign, and market the property under the best possible terms. Another benefit of the exclusive right to sell listing agreement is that it helps to avoid the problem of procuring cause lawsuits because the listing broker is the only one with the right to sell the property. -The real estate broker's commission is the dif- ference between the minimum net established by the seller and the actual seller's net -Under a net listing, the seller establishes a minimum net amount for his/her 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. The seller could receive less than he/she would normally receive. Depending on the details of the transaction, the broker could earn more than the seller or, perhaps, nothing at all. Because of potential ethical and legal issues, these types of listings are outlawed in many states. In states where the practice is still legal, net listings are discouraged and subject to considerable scrutiny. While net listings are legal in Texas, TREC has recognized the potential for abuse and has passed two specific rules regarding this type of listing: A broker should take net listings only when the principal insists upon a net listing and when the principal appears to be familiar with the current market values of real property. When a broker accepts a listing, the broker enters into a fiduciary relationship with the broker's principal, whereby the broker is obligated to make diligent efforts to obtain the best price possible for the principal. The use of a net listing places an upper limit on the principal's expectancy. It places the broker's interest above the principal's interest with reference to obtaining the best possible price. Net listings should be qualified to assure the principal of not less than his or her desired price and to limit the broker to a specified maximum commission. A real estate license holder is obligated to advise a property owner as to the license holder's opinion of the market value of a property when negotiating a listing or offering to purchase the property for the license holder's own account as a result of contact made while acting as a real estate agent. p.82-83
Subagency
Subagency is defined as "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. Many brokers currently, as a part of their policy, will not allow their sponsored agents to work in subagency relationships. Such agency relationships are legal, like intermediary without appoint- ments, but come with a higher degree of exposure for the broker and consumer. Such exposure can often lead to unwanted litigation.
TREC rules for advertising and signs
TREC rules provide that an advertisement must contain the name of the broker (either the individual name or the entity's name). If the broker uses an assumed name, the use of the assumed name in the advertisement meets this requirement (provided the broker has registered the assumed name with TREC). Additionally, if the assumed name or the corporate name of the broker contains the name of a sales agent, the advertisement should also include the name of the broker or another assumed name of the broker that does not contain the sales agent's name, or name of the designated officer if the sponsoring broker is a corporation. p.227
DTPA
The Deceptive Trade Practices Act (DTPA) is 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. p.199
The IABS - when and how it is used
The Information About Brokerage Services (IABS) is to be provided when the first substantive discussion of a real estate transaction takes place. The license holder should determine when a discussion is turning "substantive." At that point, the IABS should be presented. The license holder should take care to provide this information before doing a listing presentation for a seller and before discussing properties, needs, and wants with a potential buyer
Duties of an agent
The NAR®'s Accredited Buyer Representative (ABR®) designation is an excellent designation to obtain. The ABR® designation takes the fundamentals of agency law and looks deeper. The duties we know as OLDCAR apply in all states, and understanding these duties on the highest level estab- lishes the agent's creditability and competitive standing in the marketplace. The ABR designation course material recommends that an agent conduct a counseling session prior to engaging in the process of assisting a buyer in finding a home. This counseling process speaks to the importance of getting the buyer pre-approved, which is in the interest of all parties to a transaction. The buyer- counseling session gives the agent the opportunity to discuss the importance of representation, the difference between a client and a customer, the duties of OLDCAR, and much more. An agent's commitment to mastering the ability to conduct such a counseling session proves highly effective in fulfilling all agency disclosures from a compliance perspective, and it positions the agent to establish good creditability as buyer representative specialist. p.105
DTPA - steps for an agent to help avoid lawsuits
The State of Texas requires that most sellers of residential property provide a Seller's Disclosure Notice to a potential buyer. -A license holder should always disclose any defects or information that a prospective buyer would want to know about the property. -Use the Seller's Disclosure Notice form, either from the Texas REALTORS® or TREC. Give the seller-completed form to the buyer prior to placing an offer to buy. -Recommend that an inspection be done on the property. The Texas Real Estate Commission licenses inspectors in Texas. Inspectors must use TREC-promulgated forms for residential inspections. -Give a list of at least 3 inspectors to the buyer and have the buyer choose the inspector. Have the inspector talk directly to the buyer about the outcome of the property inspection. The agent should not be the middleman interpreter of an inspection report. -Have the buyer reinspect the property to conclude that repairs were done properly. -If the buyer is not willing to have an inspection, then have the buyer initial next to a written statement that you, the agent, highly recommend that an inspection be performed on the property, but the buyer declined. -Stay clear of giving your personal opinion on the condition of the property. -Keep copious notes on all aspects of the transaction from the first face-to-face meeting through closing and funding of the sale. Remember that you are always building a paper trail in the event that you need one. p.206-207
Canons of Professional Ethics
The Texas Real Estate Commission has included the Canons of Professional Ethics and Conduct for real estate license holders in the Rules of the Commission. ARTICLE 1. FIDELITY A real estate broker or sales agent, while acting as an agent for another, is a fiduciary. Special obliga- tions are imposed when such fiduciary relationships are created ARTICLE 2. INTEGRITY A real estate broker or sales agent has a special obligation to exercise integrity in the discharge of his or her responsibilities, including employment of prudence and caution so as to avoid misrepresenta- tion, in any way, by acts of commission or omission. ARTICLE 3. COMPETENCY It is the obligation of a real estate agent to be knowledgeable as a real estate brokerage practitioner. ARTICLE 4. CONSUMER INFORMATION Each real estate inspector or active real estate broker licensed by the Texas Real Estate Commission shall display Consumer Protection Notice CN 1-2 in a prominent location in each place of business the broker maintains ARTICLE 5. DISCRIMINATO- RY PRACTICESNo real estate license holder shall inquire about, respond to or facilitate inquiries about, or make a disclosure which indi- cates or is intended to indicate any preference, limitation or discrimination based on the following: race, color, religion, sex, national origin, ancestry, familial status, or handicap of an owner, previous or current occupant, potential purchaser, lessor, or potential lessee of real Property P.182-183
Five sources of ethical standards and what each includes
The Utilitarian Approach - Ethical action produces the greatest balance of good over harm to those who are affected. 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. The Fairness or Justice Approach - Ethical action is equal for all, or if not, then fair for some, based on some defensible standard. The Common Good Approach - Ethical standards and actions embrace common conditions that are important to the welfare (common good) of all. 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. p.179
Appointed associates under Intermediary and the role of the broker
The appointed associates will give advice and opin- ions (which means negotiate) to their respective parties. The broker must make the appointments, most likely by using the Intermediary Relationship Notice. Moving from intermediary without appointmentsto intermediary with appointments can reduce liability and possibly make clients more comfortable with the transaction. To appoint or not is at the discretion of the broker. p.125-126
Team names - requirements - acceptable and unacceptable words
The broker is responsible for registering the assumed business names and team names that operate under the brokerage. A license holder is responsible for registering any alternate name he/ she uses in advertising. Team names must end in the word "team" or "group." In Texas, teams operate within the brokerage; they do not offer brokerage services that are independent of the sponsoring broker. Therefore, a team name must not contain any words to that effect. MUST USE: -team -group MAY USE: -Realty (followed by team or group) DO NOT USE/MISLEADING: -Company -Brokerage -Associates For example, Team ABC would not be acceptable because, though it begins with the word "team," it does not end in "team." Therefore, Team ABC Group would be acceptable. TREC Rules are very specific in that "team" or "group" must be the last word in a team name. Rule §535.155 lists the requirements that license holders must follow for all advertising materials. Certain pieces of identifying information must be included in all advertisements: The name of the license holder or brokerage team placing the advertisement The sponsoring broker's name. TREC requires that the broker's name be at least 1/2 the size of the largest contact information on the advertisement. p.59
TREC website requirements for links to the IABS form
The contact information is required to be filled in at all times. It is a violation to provide a blank IABS without the contact information. License holders must provide a link to the IABS form in a readily noticeable place on the homepage of their business website, in at least 10-point font, and labeled "Texas Real Estate Commission Information About Brokerage Services." A sales agent or broker must also provide the form at the first substantive communication with a prospective client by one of the following four methods: (1) by personal delivery; (2) by first class mail or overnight com- mon carrier delivery service; (3) in the body of an email; or (4) as an attachment to an email, or a link within the body of an email, with a specific reference to the IABS Form in the body of the email. NOTE: A link to the IABS in the signature line or footnote of an email does not satisfy this requirement. p.145
Duties of the agent and expiration of those duties
The duties of the agent do not end with the termination or expiration of an agency relationship. The duty of confidentiality extends forever into the future. The client is reasonable in expecting that confidential information will be kept confidential. The duty of confidentiality lasts forever unless the broker is required by law or a court order to disclose the information. p.49
Types of listings and characteristics of types of listings
The four major types of listing agreements are: -Open listing -Exclusive agency -Exclusive right to sell -Net listing p.81
Details in a valid listing
The listing agreement is an employment contract used by sellers to employ a real estate broker or brokerage firm, to find a buyer for their property. Brokers agree to use their best efforts and abilities to find a purchaser. While some states, including Texas, allow oral listings, good business practices would require that listings should be in writing. A listing is a contract and must conform to all of the requirements of contract law. To avoid misunderstanding, listing agreements have provi- sions that describe the rights and duties of the agent and the principal. The parties to the listing agreement are the seller and the broker. A sponsored license holder of the broker may sign the agreement but does so on behalf of the broker. The broker actually owns the listing even if the agent procured it. All listings are taken in the name of the broker and become the broker's property. If a sales agent leaves his/her sponsoring broker, he/she also leaves (or loses) any listing agreements procured under that broker. Requirements of a valid listing agreement include: The signatures of all of the owners and the listing agent A legal description of the property, including the street address The list price of the property as set by the seller A definite starting (commencement) and ending (termination) date The agreement to pay a stated commission (compensation) to the broker, usually a percentage of the sales price A complete listing package helps to avoid misunderstanding between buyer, seller, and agents regarding the critical elements of a transaction. p.81
What is an ethical dilemma
The term "ethical dilemma" is defined as a situation in which individuals may find themselves when they: • do not know the right course of action • have difficulty doing what they consider to be right • find the wrong choice very tempting p.179
REALTOR© - the meaning of the term and how/when it is used
The term REALTOR® is a registered collective membership mark, identifying a real estate profes- sional as a member of the National Association of REALTORS® who subscribes to its strict Code of Ethics. The Code of Ethics is so highly regarded as a model for ethical conduct, that it became the basis for real estate license laws in many cases. In addition to the Code of Ethics, members may take advantage of tools such as marketing materi- als, forms, and educational materials. Membership is voluntary; therefore, not all license holders are REALTORS® p.186
Requirements for Independent Contractor Status
Under the Tax Equity and Fiscal Responsibility Act, there are three tests for specifying that a sales agent is an independent contractor: 1. The sales agent must hold a real estate license. 2. The sales agent must be paid on a commission basis. 3. The sales agent must have a written contract with the broker specifying the sales agent is not an employee. p.154
Unlicensed assistants and permitted activities
Unlicensed Assistants May: • Manage an office 1. Answer phone calls 2. Register prospects 3. Greet prospects and give general information about the area 4. Type correspondence 5. Schedule appointments for a license holder to show property 6. Telemarket if not soliciting for listings or buyers • Accompany a license holder on showings and to open houses • Train and motivate license holders • Act as an on-site apartment manager (on-site means that the office is located on the prop- erty); the manager does not have to live on site • Assist in arranging financing at the direction of a license holder in an administrative way - assist a buyer in obtaining forms or information to apply and qualify for a loan • Place for sale signs on property, accompany an inspector, place advertisements as directed by the license holder **Acts pertaining to administrative matters only - nothing that a license is required to do p.157
Results of broker death and the effect on sponsored agents
What happens when the sponsoring broker for all the sales agents in a brokerage firm or the desig- nated broker for a licensed business entity under which the sales agents licenses are held passes away or otherwise becomes incapacitated due to sudden illness? Too often, the Commission gets phone calls from the brokerage firm asking what to do. It may be prudent for the sponsoring broker or bro- kerage firm to have a written policy that addresses the sudden cessation or break of sponsorship due to illness or death. Under the TREC Rules, a business entity broker license is automatically placed on inactive status upon the death of the designated broker. p.226
Agency coupled with an interest
When a broker is the owner of a property that is being sold, or when a broker is interested in buying a property, we have agency coupled with an interest. A real estate license holder is obligated to advise a property owner as to the license hold- er's opinion of the market value of a property when negotiating a listing or offering to purchase the property for the license holder's own account as a result of contact made while acting as a real estate agent.
Ostensible agency
exists when actions lead another person to assume that one is an agent. For example, a license holder might falsely make public statements that he or she is representing a com- mercial property owner as a leasing agent or property manager. If the property owner learned of the misrepresentation and made no effort to correct it, ostensible agency may be created because it is reasonable for others to believe the license holder.
Agency by actual authority
exists when an individual grants express authority to the agent to per- form some act. The authority granted may be in oral or written form. Actual, written authority is given to a broker when a seller signs a listing agreement. An example of actual oral authority is when a buyer and agent enter into an unwritten buyer representation agreement. Actual, oral authority is often granted to the agent after the client enters into a written agreement. A common example would be a seller asking that the agent hold an open house.
Agency by Estoppel
is created when a principal inade- quately supervises an agent. The agent takes on powers that go beyond the scope of authority given by the principal. If this activity causes a third party to believe the agent has these powers, agency by estoppel has been created.
Agency by ratification
occurs when an agent acts without prior authorization, and the principal accepts it upon learning of the action. For example, a seller, relocating to another state, has left the house vacant and listed with a local real estate agent. The agent has found a buyer, and the seller accepts the offer. At closing, the seller is surprised to learn that he will receive one week's rent in addition to the sales price. Although the agent had no authority to do it, the seller's agent authorized the buyers to move in one week before closing. This behavior on the part of the agent was extremely risky and unprofessional. The seller accepts this action on the part of the agent and receives rental income in addition to the sales price. By accepting the rent payment, this seller has ratified the unau- thorized action of the agent.
Defamation of character - written or spoken
slander = spoken words libel = printed words
Duties of the principal
• C - Compensation • R - Reimbursement • I - Indemnification • P - Performance
Duties of the principal and the definitions of those duties
• Compensation: refers to the fact that the agent should be paid on the completion of the agency. I.e. the seller (principal) owes a commission (compensation) to the broker (agent). • Reimbursement: refers to the fact that the agent should be reimbursed by the principal for expenses incurred on behalf of the principal, above and beyond the expenses related to the sale itself. The prudent agent gets all authorizations in writing from the client. • Indemnification: means that the principal will protect the agent from suffering a loss due to the agent's reliance on information received from the principal • Performance: means the principal is expected to perform as promised in the agency agreement. If, for example, you have listed a property, it is reasonable to expect the property to be available to be shown. The principal must cooperate with the agent to help meet their goals. p.19
Types of authority and the definitions
• Express Authority: Authority that comes from specific instructions, either oral or written • Implied Authority: Agency authority, or rights, may also be a result of "the norm," or what is considered customary in the business (ie. making appointments to show property) p.26
Benefits of sellers agency
• Marketing is the most obvious benefit of seller agency. Buyers know that the vast majority of real estate for sale is offered through licensed real estate brokers. Modern Multiple List- ing Service (MLS) systems have given local real estate markets a truly global reach. Property owners can list a property with a good agent and know that it is getting far better exposure than if the owner attempted to sell without the assistance of a broker. • Negotiations are easier when a property is listed with an agent. Many buyers are reluctant to contact and negotiate a purchase with a seller. Likewise, sellers benefit because the agent stands between the potential buyer and seller. The seller can consider a negotiating strategy with input from the agent, without the pressure that comes from direct negotiation with a buyer. Legal and financial details of the transaction are better facilitated when using a trained real estate professional. Sellers are generally not well versed in the ins and outs of mortgage quali- fying and the completion of contracts. The seller's agent ensures that (as much as possible) the buyer has the intent and the financial means to complete the purchase. Time is a valuable commodity. Sellers must deal with "lookers" who are not qualified and who waste the seller's time. Many sellers have listed their properties after dealing with no-shows at appointments and buyers who are not qualified to purchase. Safety is another major consideration.
