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Page 2 of 950 Texas Law of Agency Table of Content Lesson One: Agency Concepts Disclosure of Agency—Relationship between Principle and Agent ............................................................................................................................................... 6 Introduction ................................................................................................................................. 7 What is Agency ........................................................................................................................... 7 What is Agency? ....................................................................................................................... 17 License Act Statute and Rules................................................................................................... 22 Why Study Agency? ................................................................................................................. 82 Relationship Between the Principal and the License Holder .................................................... 86 Lesson Summary ....................................................................................................................... 87 Lesson Two: Basic Agency Relationships, Disclosures and Duties to the Client ......................... 89 Agency Defined ........................................................................................................................ 94 Authority of Agent in Agency Relationships ............................................................................ 95 Classification of Agency Fiduciary Duties and Responsibilities ............................................ 124 Lesson Summary ..................................................................................................................... 180 Lesson Three: Duties and Disclosures to Third Parties .............................................................. 184 General Duties of Honesty and Fairness ................................................................................. 185 Definition of and Obligations to Non-Principals and Third Parties ....................................... 220 Avoiding Disclosure and Misrepresentation Problems ........................................................... 220 Section 5.008 of the Texas Property Code .............................................................................. 231 Stigmatized Property ............................................................................................................... 242 Lesson Summary ..................................................................................................................... 251 Lesson Four: Seller Agency ........................................................................................................ 253 Introduction ............................................................................................................................. 253 Texas Statue of Frauds ............................................................................................................ 254 Preparing to Take a Listing ..................................................................................................... 256 Listing Agreements ................................................................................................................. 261 Exclusive Seller Agency ......................................................................................................... 327 Benefits of Seller Agency Relationships ................................................................................. 331 Sub-Agency............................................................................................................................. 332 Disclosure Issues ..................................................................................................................... 333 Lesson Summary ..................................................................................................................... 348 Lesson Five: Buyer Agency ........................................................................................................ 351 Introduction ............................................................................................................................. 352 Page 3 of 950 Texas Law of Agency Buyer Representation Agreement ........................................................................................... 397 Deciding to Represent the Buyer ............................................................................................ 423 The Creation of Buyer Agency ............................................................................................... 444 Benefits of Buyer Agency Relationships ................................................................................ 445 Written Notification of Compensation to Broker ................................................................... 447 Buyer’s License Holder Disclosures ....................................................................................... 448 Lesson Summary ..................................................................................................................... 452 Lesson Six: Representing More Than One Party in a Transaction Intermediary Brokerage ...... 454 History of Dual Agency and Intermediary .............................................................................. 454 The Path from Dual Agency to Intermediary Brokerage ........................................................ 486 Representing More than One Party in a Transaction .............................................................. 502 Intermediary Brokerage .......................................................................................................... 538 Specialized Intermediary Applications ................................................................................... 547 Intentional vs Unintentional Dual Representation .................................................................. 547 Lesson Summary ..................................................................................................................... 553 Lesson Seven: Creation and Termination of Agency .................................................................. 556 Rules of the Texas Real Estate Commission ........................................................................... 556 How Agency is Terminated ..................................................................................................... 579 Duties of Agency that Survive Termination ............................................................................ 591 Lesson Summary ..................................................................................................................... 596 Lesson Eight: Clarifying Agency Relationships ......................................................................... 599 Agency Relationships ............................................................................................................. 599 Disclosure Policy .................................................................................................................... 609 Understanding the Broker’s Office Policy .............................................................................. 612 Lesson Summary ..................................................................................................................... 616 Lesson Nine: Employment Issues ............................................................................................... 617 Employment Law .................................................................................................................... 617 Employment Relationship Between Brokers and Principals .................................................. 671 Independent Contractor Agreements ....................................................................................... 672 Statement of Understanding .................................................................................................... 683 Employment and Compensation of Personal Assistants ......................................................... 684 Relationships Between Brokers and Agents ........................................................................... 685 Compensation Issues ............................................................................................................... 686 Lesson Summary ..................................................................................................................... 688 Page 4 of 950 Texas Law of Agency Lesson Ten: Agency, Ethics and the Law ................................................................................... 691 Distinction between State Law, Professional Ethics, and Personal Morals ............................ 691 Minimum Ethical Standards ................................................................................................... 788 Lesson Summary ..................................................................................................................... 789 Lesson Eleven: Deceptive Trade Practices and Consumer Protection ........................................ 792 Fraud vs Misrepresentation ..................................................................................................... 792 Deceptive Trade Practices and Consumer Protection Act ....................................................... 824 Damages .................................................................................................................................. 840 Defenses .................................................................................................................................. 841 Ethical and Legal Concerns .................................................................................................... 843 Lesson Summary ..................................................................................................................... 866 Lesson Twelve: Implementation and Presentation...................................................................... 869 The Broker Working for/with the Seller ................................................................................. 869 The Broker Working for and with the Buyer .......................................................................... 877 A Practical Guide to Everyday Practice .................................................................................. 883 Other Considerations .............................................................................................................. 885 Risk Management ................................................................................................................... 886 Lesson Summary ..................................................................................................................... 949 Page 5 of 950 Texas Law of Agency Lesson One: Agency Concepts Disclosure of Agency—Relationship between Principle and Agent Lesson Topics This lesson focuses on the following topics:  Introduction  What is Agency?  License Act Statute and Rules  Roles People Play in Agency Relationships – Client or Customer  Why Study Agency?  Relationship Between the Principal and the Agent Lesson Learning Objectives At the conclusions of this lesson you will be able to:  Explain applicable agency terminology  Explain how an agency relationship is formed.  Identify the different types of agency  Explain how common agency practiced in real estate  Describe your role in agency  Understand how to determine type of agency to practice  Recognize how historical aspects have influenced the current agency practice  Describe agency in every day real estate practice.  Identify who the principals and license holders are in an agency relationship.  Explain what role your broker plays in agency  Describe what role your client plays in agency  Describe what your role is in agency  List the types of agency license holders practice Page 6 of 950 Texas Law of Agency Introduction Agency relationships make up the foundation of the real estate industry. It was one of the reasons the National Association of REALTORS® (NAR) and the Texas Real Estate Commission was formed. To enhance the professionalism of license holders by recognizing an agency relationship between the broker and his or her client and to educate all parties about the duties imposed in the relationship. Given the current evolution of differing agency practices, there is a crucial need for clarification of agency concepts and assumptions for all parties, the license holder, seller, buyer, tenant and landlord. A license holder who is confused about her role, or loyalty, or understanding of their duties, inevitably sends signals about that confusion to the consumer. Such confusion breeds mistrust and frustration among the public and results in increased litigation, liability and regulation for the license holder. The license holder needs to be educated in various types of agency relationships today and the duties involved in each type of relationship. All brokers in Texas do not practice the same type of agency. What is Agency An agency relationship is the fiduciary relationship resulting when one person, called the agent, represents the interests of another person, called the principal, in dealings with others. What does this mean? One person—broker or sales agent Another person—broker, seller, buyer, tenant or landlord Dealings with others—customer, other broker or sales agent In a real estate transaction, an agency relationship is formed by mutual consent, between the broker, all sponsored sales agents, and with the client in writing. Page 7 of 950 Texas Law of Agency How Are Agency Relationships Created? An agency relationship is created by mutual consent by the client and license holder delegating authority to the broker to consent to act on his or her behalf. Both parties must consent for the agency relationship to be legal. A good business practice is to get the consent in writing. An agency relationship does not need to be a contract with the elements of offer, acceptance, and consideration. An agency relationship can be established by words, deeds, or acts of either party. Commissions agreements paid by one party to another does not necessarily create or confirm an agency agreement. Agency—A relationship created when one person, the principal, delegates to another, the agent, the right to act on his or her behalf in business transactions and to exercise some degree of discretion while so acting. An agency gives rise to a fiduciary or statutory relationship and imposes on the agent, as the representative of the principal, certain duties, obligations and high standards of good faith and loyalty. (The Language of Real Estate, sixth edition) Agency Terminology The first hurdle to understanding agency relationships is the vocabulary used when discussing these relationships.  Broker  Sales Agent  Sub-Agent  Customer  Other Broker  Seller Representation  Seller  Client  Buyer Representation  Buyer  Principal  Fiduciary  Third Party Page 8 of 950 Texas Law of Agency  Tenant Representation  Landlord Representation Broker—An individual licensed by the Texas Real Estate Commission to act independently in running a real estate brokerage business. A broker can also sponsor sales agents who have met the educational requirements by the Texas Real Estate Commission. A broker is licensed to sell, buy, lease or exchange real property for others and to charge a fee for services rendered. A broker is a special agent for clients and has a general agency with his or her sponsored sales agents. Sales Agent—Is licensed by the Texas Real Estate Commission and has met their educational requirements to become licensed. They have a general agency relationship with their sponsoring broker. A sales agent works on behalf of the sponsoring broker by taking listings, buyer agreements, leases and property managements in the name of the sponsoring broker. Sub-agent—A licensee sponsored by another broker who represents the listing broker and the listing broker’s client with specific common law duties. This takes place when the sub-agent does not represent the customer (buyer) when selling the listing broker’s listing. Buyer needs to be fully informed and agree they do not want representation by the sub-agent in writing. Customer—A consumer who has not signed any representation agreement with any licensee in Texas. They want to buy, sell, rent or manage a rental without a license holder representing them. There are still duties that must take place when working with them by both license holders: Honesty, Fairness, Disclosure, Good Faith and Competency. Other Broker (also known as the cooperating broker)—A licensed holder who wants to sell your listing. Seller Representative—License holder who has a written agreement signed by both parties to represent a property owner in the marketing and sale of their property. Fiduciary duties take place and you have a special agency relationship with them. Seller—a consumer who owns real estate by title. Page 9 of 950 Texas Law of Agency Client—Known as the principal, seller, buyer, tenant or landlord. The person who hires a broker to represent them in a transaction. Buyer Broker—A broker who represents the buyer in a fiduciary capacity to purchase a property. Buyer—A consumer who wants to buy real estate. Principal—One of the main parties to a transaction. They are in a fiduciary relationship, the person who hires a real estate license holder to represent him or her in a specific transaction. Fiduciary—A relationship that implies a position of trust and confidence wherein one person is usually entrusted to sell, lease or manage for another. The fiduciary describes the faithful relationship owed by the license holder with the duties of Obedience, Loyalty, Disclosure, Confidentiality, Accountability and Reasonable Care. Third Party—A person who is not party to a contract but who may be affected by the contract. One who is not a principal to the transaction. Tenant Representation—A license holder who represents a consumer in leasing property of any type. Landlord Representation—A broker who represents an owner of rental property. Fiduciary duties apply with many specific authorities of what the license holder can and cannot do with the monies of the broker, repairs, zoning requirements and much more. The landlord retains a reversionary interest in the property so that when the lease ends the property will revert to the landlord. For each transaction, you should be able to determine who is who. So if a broker takes a listing agreement from a consumer, you should know:  Who are the parties engaged in the relationship and  How are they referred to? o In conversations o Presenting the information on brokerage services o Listing agreements Page 10 of 950