Law of Agency study guide
Duties of an agent
*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 par- ties 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.
Buyer representation agreements
-Exclusive buyer agency agreement -Exclusive-agency buyer agency agreement -Open buyer agency agreement
Canons of Professional Ethics
1. Fidelity equates to a relationship of trust. 2. Integrity is taking responsibility and avoid misrepresentation. 3. Competency is determined by TREC as the agent's ability to pass the state exam.
Types of listings and commissions owed under each
1. OPEN LISTING An open listing is almost like a "for sale by owner" listing. A home seller offers pay a sales commission, to one or more real estate agents, to the first one who brings an acceptable purchase agreement. However, no commission is owed if the seller finds a buyer on his own, without any agent's help. 2. EXCLUSIVE AGENCY LISTING An exclusive agency listing contracts one agent to sell the home. If that agent, or any other licensed cooperating agent finds an acceptable buyer, the seller must pay a sales commission. Again, as with a open listing, no sales commission is owed if the home seller finds a buyer on his own. 3. EXCLUSIVE RIGHT TO SELL LISTING Probably 99 percent of real estate listings are this type, where the listing agent has 100 percent control of the transaction. Whether the seller, the listing agent or a cooperating selling agent finds an acceptable buyer, the listing agent will earn the sales commission. If another cooperating agent is involved, the commission is typically split between the agents. In most markets, a 90 or 120-day exclusive right to sell gives the experienced agent time to effectively market the home. 4. MULTIPLE LISTING An important marketing tool for listing agents is the multiple listing service (MLS). The MLS distributes listing information and photos via the computer to members who are working with appropriate buyers. 5. NET LISTINGThe net listing can be a dangerous and is illegal in some states. Under this agreement, the seller tells their agent the net price they want for their home. The listing agent can then add the desired commission onto this net price when presenting it to buyers. If the agent obtains a purchase offer far above the seller's net listing price, the seller may feel cheated and accuse the listing agent of not disclosing the home's true market value.
Team name registration rules
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).
Client vs customer - role of the agent
A client has a contractual relationship with an agent, and an agent represents a client in a legal transaction. There is no agency agreement between a customer and a salesperson or broker. A customer becomes a client when a relationship is documented in an agreement.
Fiduciaries and the fiduciary relationship
A fiduciary is a person or organization that acts on behalf of another person or persons, putting their clients' interest ahead of their own, with a duty to preserve good faith and trust. Being a fiduciary thus requires being bound both legally and ethically to act in the other's best interests
Duties of Principal
A principal owes his agent compensation, reimbursement, indemnification and performance (CRIP) answered in depth on #7
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.
TREC rules for advertising and signs
All license holders' advertisements must include the license holder's name or team name. It also must include the broker's name in at least half the size of the largest contact information for any sales agent, associated broker, or team name contained in the advertisement.
Duties of an Agent
An agent owes his client obedience, loyalty, disclosure, confidentiality, accounting and reasonable care (old car)
Setting commission rates - violations
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.
CMA's
CMA A comparative market analysis is a tool that real estate agents use to estimate the value of a specific property by evaluating similar ones that have recently sold in the same area.
TREC - creation/purpose/authority
CREATION The Texas Real Estate License Act (TRELA) was passed in 1939. The Texas Real Estate Commission was created to enforce and administer the act in 1949. PURPOSE The purpose of the act is to protect the public against unscrupulous brokers and sales agents. AUTHORITY The Texas Real Estate License Act is the legislation that governs the licensing of Texas real estate license holders. The Texas Real Estate Commission (TREC), on the other hand, enforces the provisions of TRELA. The Texas legislature created TREC in 1949 (10 years after the creation of TRELA) for that purpose.
Broker roles - cooperating or cooperative brokers
Cooperative Broker 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 buy- ers under an agency agreement; he or she is also known as the other broker.
Defamation - definition/explanation/examples
DEFINITION 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). EXPLANATION 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 EXAMPLES • 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).
Types of deceptive or misleading advertisements or advertisement practices
Deceptive Advertising 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;
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.
Dual Agency vs Intermediary
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. 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.
Types of agent - general vs. special
Essentially, a special agent is really what's called a limited agent, meaning that they're not able to act for you in a contractual basis and legally commit you to something in a contract. A general agent is somebody who actually has more of a power of attorney, and can lock you in legally to a contract.
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 CONVERSATION. 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.
Types of authority and the definitions
Implied authority an authority that is not express or written into a contract, but it is authority an agent is assumed to have in order to transact the business for a principal. ... For example, in real estate, express authority means the agent has been given the authority to act on behalf of the principal. Express authority occurs when an agent is working on behalf of his or her company to act on behalf of a principal. For example, a life insurance agent may have express authority under their company. Apparent authority is a power to act on another person's behalf so long as certain elements exist. Apparent authority can only occur when the third party (or you, in our example) reasonably infers by the actor's conduct that he had the power to act on behalf of the other person.
Stigmatized properties and conditions
In real estate, stigmatized property is property that buyers or tenants may shun for reasons that are unrelated to its physical condition or features. These can include death of an occupant, murder, suicide, and belief that a house is haunted.
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 holders. There is no salary, and the sponsoring broker will not deduct withholding from commission income.
Requirements for Independent Contractor Status
Independent contractors are paid a gross check without deductions for taxes. The IRS requires that independent contractors pay a deposit for the agent's estimated tax liability quarterly. The agent should be diligent in filing quarterly because it is the law, and to avoid the problem of owing a whole year's worth of taxes on April 15 and not having the funds to cover it.
Intermediary with and without appointments
Intermediary without appointments Occurs when an agent sells his or her 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
The concept of Agency and agency relationships
Is any relationship between two parties in which one, the agent, represents the other, the principal, in day-to-day transactions. The principal or principals have hired the agent to perform a service on their behalf. Principals delegate decision-making authority to agents. In an agency relationship, the principal is accountable for the actions of his agents if the agents are acting within the scope of the authority bestowed by the agency relationship.
Results of broker death and the effect on sponsored agents
Likewise, an individual broker's death immediately causes all of her sponsored sales agents to become inactive
Stigmatized properties - conditions and disclosure requirements
Murder on the premises Death on the property Suicide Infectious disease Criminal activity Property condition issues Paranormal activity As a rule, sellers should disclose any facts that could affect a purchaser's decision to buy. The pur- chaser of a home will quickly be made aware of any stigma attached to the property upon moving in.
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.
Team names - requirements - acceptable and unacceptable words
REQUIREMENTS §535.154 states the requirements for registering and using names that are used in advertisements. Rule §535.154 clearly defines the terms alternate name, associated broker, team name, and assumed business name. These names must be registered with TREC before they can be used in an adver- tisement. 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.
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.
Disclosure of representation vs disclosure of agency - when and how
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. agency disclosure a written explanation, to be signed by a prospective buyer or seller of real estate, explaining to the client the role that the broker plays in the transaction.
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.
Subagency
Sub-agency is one type of brokerage relationship. A sub-agent is a real estate licensee who provides real estate services to a buyer while actually representing the seller in a real estate transaction.
DTPA
Texas Deceptive Trade Practices Consumer Protection Act protect consumers against false, misleading, and deceptive business practices, unconscionable actions, and breaches of warranty and to provide efficient and economical procedures to secure such protection.
Seller's Disclosure Notice requirements
Texas law requires Sellers of residential properties to disclose certain conditions that exist on the property. The form of the Seller's Disclosure Notice is mandated by statue. Sec. 5.008. SELLER'S DISCLOSURE OF PROPERTY CONDITION. (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.
Information About Brokerage Services - IABS - purpose and content
The IABS is a way to start a dialogue with the buyer about why it is important for the buyer to be represented. It is the LAW that you cover this information with the buyer. AS AGENT FOR OWNER (SELLER/LANDLORD): The broker becomes the property owner's agent through an agreement with the owner, usually in a written listing to sell or property management agreement. AS AGENT FOR BUYER/TENANT: The broker becomes the buyer/tenant's agent by agreeing to represent the buyer, usually through a written representation agreement. AS AGENT FOR BOTH - INTERMEDIARY: To act as an intermediary between the parties the broker must first obtain the written agreement of each party to the transaction. AS SUBAGENT: A license holder acts as a subagent when aiding a buyer in a transaction without an agreement to represent the buyer.
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.
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 confi- dential information will be kept confidential. you also have the on-going duty of confidentiality to the seller because of the former listing agreement. The duty of confidentiality lasts forever unless the broker is required by law or a court order to disclose the information.
IRS Independent Contractor Status rules
The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. The earnings of a person who is working as an independent contractor are subject to Self-Employment Tax.
TREC advertising rules and font requirements
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.
Elements of a valid listing agreement
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
Details in a valid listing
The start date and end date of when the property will be posted in the listing The price at which the home is going to be offered up for sale (i.e., the "list price") How the sales broker will be compensated-whether through flat fees or percentages of the sale (i.e., broker's commission) Terms regarding brokerages fees paid by the selling party The broker's scope of authority regarding co-agreements with other brokers The broker's scope of authority regarding the existence of previous offers
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
REALTOR© - the meaning of the term and how/when it is used
The term REALTOR® has one, and only one, meaning: REALTOR® is a federally registered collective membership mark which identifies a real estate professional who is member of the NATIONAL ASSOCIATION OF REALTORS® and subscribes to its strict Code of Ethics.
Unlicensed assistants and permitted activities
Unlicensed Assistants May: Answer phone calls Register prospects Greet prospects and give general information about the area Type correspondence Schedule appointments Be a closing or transaction coordinator Telemarket, if not soliciting for listings or buyers
Duties of the principal and the definitions of those duties
When a buyer, seller, landlord, or tenant enters into an agency relationship with a broker, he or she becomes a principal. A principal has certain duties or responsibilities to an agent. These include: • Compensation• Reimbursement • Indemnification • Performance (CRIP) Compensation refers to the fact that the agent should be paid on the completion of the agency. 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. 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. For example, if a seller gave a broker false information, which the broker passed on to a prospective buyer, the broker would be justified in expecting indemnification from the seller Performance means the principal is expected to perform as promised in the agency agreement.
Termination of agency relationships
When the purpose of the agency is completed (i.e., the property is sold) 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 At any time by mutual agreement. The parties are certainly free to terminate the agreement. Death or incapacity of either party. Condemnation or destruction of the property. Bankruptcy of either party. Operation of law. Revocation of the broker's license. Abandonment by the agent. Revocation of the agreement at any time by the principal. Termination of the agreement at any time by the broker.
Types of listings and characteristics of types of listings
answered in question #20
Intermediary with and without appointments - requirements/scenarios
answered on #24
Defamation of character - written or spoken
answered question on #19
TREC website requirements for links to the IABS form
each broker and sales agent must provide a link on its homepage to the IABS Form labeled "Texas Real Estate Commission Information About Brokerage Services". The link must be in at least a 10 point font and in a readily noticeable place on the homepage of the business website of the broker and sales agent. The link can also be "TREC Information About Brokerage Services," in at least 12 point font.
Types of authority for agents
implied authority express authority apparent authority
Termination of agency relationships
same question on #4. already answered
