The Law of Agency

Law of Agency
• Defines the rights and duties of the parties in
a real estate transaction
– The broker is the agent/fiduciary, the one who
is employed by the principal/client.
– The principal/client could be a seller, landlord,
buyer, and/or tenant.
– The sales agent(s) is the agent of the broker.

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 Law of Agency
• The broker is the agent of the principal and the
sales agent is the agent of the broker.
• The “other” brokerage in the transaction could be
the subagent of the listing broker, or the “other”
brokerage is an agent of their client (principal).
– Agents and subagents have a fiduciary relationship
with a principal.
– A consumer who has no representation is also
known as the third party.
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 Law of Agency
• § 1101.557 of the Texas Real Estate License
Act provides that a broker who represents a
party in a real estate transaction or who lists
real estate for sale under an exclusive
agreement for a party is that party’s agent.

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 Law of Agency
• Texas Legislature requires license holders to
make clear to all parties which party they are
acting for (TRELA 1101.652(b)(7);
1101.558(b)).
– This must be done at first contact.
• An agent works for the client.
• An agent works with the customer.

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 Law of Agency
• An agent
– must inform the client if material information
related to a transaction to list, buy, sell, or
lease is received by the agent, including the
receipt of an offer;
– must, at a minimum, answer the client’s
questions and present any offer to or from the
client;

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 Law of Agency
– may not instruct another broker to negotiate directly
with the client (seller, landlord, buyer, or tenant);
however, another broker may deliver an offer to the
agent’s client if
• the agent consents to the delivery,
• a copy of the offer is sent to the agent, and
• the other broker does not negotiate or attempt to
negotiate the contract; and
– is a party to a lease or sale if she is operating under a
power of attorney or property management
agreement.
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 Agency Positions and Disclosure

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 Four Statutory Agency Positions
• Seller’s agent
• Subagent
• Buyer’s agent
• Intermediary

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 Information About Brokerage Services
• The law requires that “at the time of a license
holder’s first substantive communication with
a party,” a license holder is required to provide
a “written notice,” Information About
Brokerage Services (IABS).

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 Information About Brokerage
Services
• No later than the first substantive
communication means a meeting or written
communication that involves a substantive
discussion relating to specific real property the
IABS must be given.

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 Information About Brokerage Services
• When is it not mandatory?
– If the proposed transaction is for a residential
lease for not more than one year and no sale is
being considered (this exemption does not
apply to commercial leases)
– If the license holder meets with a party the
license holder knows is represented by
another license holder
– At an open house
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 Information About Brokerage Services
– If a link labeled “Texas Real Estate Commission
Information About Brokerage Services” is on
the license holder’s website or other social
media
• Do not place it in a footnote; make sure it is in
the body of the email/letter in no less than
10pt font and has the above quote.

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Additional Broker Obligations to All Parties

• Verify information and statements made by

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 Summary of Broker Agency Positions
• A broker who lists the property for sale or
lease represents the owner as a seller’s agent,
usually through a written listing agreement.

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 Summary of Broker Agency Positions
• A broker who acts as a subagent represents
the owner in cooperation with the listing
broker; a subagent is not sponsored by or
associated with the listing broker.
– Agents and subagents have a fiduciary
relationship with a principal.

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 Summary of Broker Agency Positions
• A broker who acts as a buyer’s agent
represents the buyer, usually through a
written buyer representation agreement.
• A broker must agree to act as an
intermediary if agreeing to represent
both a buyer and a seller in a transaction.
Each party to the transaction must give
written consent to the broker’s acting as
an intermediary.

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 Summary of Broker Agency Positions
• An intermediary broker may appoint a licensed
associate (appointed license holder), with the
written consent of the parties, to communicate
with and carry out instructions of each party.
• The written consent must state who will pay the
broker and set forth the broker’s obligations. The
intermediary broker (or appointed license holder)
‒ must treat all parties honestly,

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 Summary of Broker Agency Positions
– may not disclose that the owner will accept a price
less than the asking price,
– may not disclose that a buyer will pay a price
greater than that submitted in a written offer,
– may not disclose any confidential information or
any information a party specifically instructs the
broker in writing not to disclose unless otherwise
instructed or required to do so, and
– must comply with the Texas Real Estate License
Act.
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 Types Agency
• Express agency
– Intentions of the parties is expressly given to
each other via a written listing agreement or
buyer agreement

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 Types Agency
• Implied agency
– Occurs when through the actions of the license
holder, the consumer believes his interest is
being protected
• Example: A license holder shows a listed
property of another broker; however, no
disclosure of agency is given and the buyer
receives advice and opinions while being shown
the property

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 Types Agency
• Agency by ratification
– “After the fact,” an agent who obtains a
purchase contract for a property that has not
been listed might be considered an agent by
ratification if the seller subsequently ratified,
or agreed to, the contract.

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 Types Agency
• Special agency is created when an agent is
authorized to perform a particular act without
the ability to bind the principal (in an advisory
capacity only):
– Listing brokerage firm to seller
– Buyer brokerage firm to buyer

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 Types Agency
• General Agency
– The relationship between the broker of record
and a license holder, through a written
agreement known as an Independent
Contractor Agreement (ICA)
– A property management company and the
property owner, through an agreement to
manage the property

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 Termination of Agency
• The following terminate an
agency relationship:
– Death or incapacity of either
party (notice of death is not
necessary)
– Destruction or condemnation
of the property
– Expiration of the term of the
agency
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 Termination of Agency
– Mutual agreement to terminate the agency
(must be written)
– Renunciation by the broker or revocation by
the owner
– Bankruptcy of the owner if title transferred to
receiver
– Completion or fulfillment of the purpose for
which the agency was created

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 Brokerage and Nature of the
Brokerage Business

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 TRELA
(The Real Estate Licensing Act)
• Regulates many of the business operations of
a real estate brokerage:
– Place of business
– Accounting procedures
– Handling of client trust fund accounts
– Retention of documents

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 Responsibilities of Broker
• Set effective written policies
• Hiring of employees and sales
agents
• Determination of compensation
• Direction of staff and sales
activities
• Procedures to follow
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CC BY-NC

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 Responsibilities of Broker
• In addition, § 535.2 of the TREC rules requires a
brokerage firm to
– set the scope of the sponsored sales agents’
activities;
– keep the license status;
– set compensation; and
– know the changes to the license act, rules, and
promulgated contract forms; continuing education;
competency; advertising; and maintenance of trust
accounts and client records.
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 Broker-Sales Agent Relationship
• A real estate sales agent is any person licensed to perform
real estate activities on behalf of a licensed real estate broker.
– The sales agent can carry out only those responsibilities
assigned by the broker.
• All activities must be performed in the name of the supervising
broker.
• Unless the scope is limited or revoked in writing, a broker is
responsible for the authorized acts of persons licensed under
the broker.
• If the sponsored sales agent conducts activities beyond the
scope explicitly authorized by the broker, the broker is
responsible for those acts.

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 Broker-Sales Agent Relationship
• A broker is licensed to act as the principal’s agent
and can collect compensation.
• A sales agent has no authority to make contracts
or receive compensation directly from a principal.
• All compensation to the sales agent must go
through the brokerage.
• The brokerage firm owns and is responsible for all
contracts, including listings (employment) and
purchase contracts.
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 Broker-Sales Agent Relationship
• The role of the sales agent can be an
employee or independent contractor:
– Employee
• Will have taxes withheld
– Independent contractor
• Must have a signed ICA stating that they may
set their own work hours and pay their own
taxes

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Author is licensed under
CC BY-ND
 Fiduciary Duties

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 OLD CAR

• Obedience
– An agent must obey the lawful directions of
the principal.
• Loyalty
– The client’s interest comes before all others.

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 OLD CAR
• Disclosure
– Disclose all pertinent information that the client
would want to know (why is the seller selling?).
• Confidentiality
– An agent must keep the principal’s confidential
information private.
– An agent must keep price, terms, and motivation
(PTM) confidential forever.
– An agent may release confidential information with
written permission from the principal.
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 OLD CAR
• Accounting
– Do not collect, disburse, or deposit funds until the
parties are under contract.
• Reasonable skill and care
– Take care to act within professional authorization.
• What only clients receive? (NOA)
– Negotiating strategies
– Opinions
– Advice
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 Texas Deceptive Trade Practices
—Consumer Protection Act

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Texas Deceptive Trade Practices—Consumer
Protection Act (DTPA)
• Purpose
– To protect the public from “false, misleading or
deceptive acts or practices” in the advertising,
offering for sale, selling, or leasing of any real
or personal property

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Texas Deceptive Trade Practices—Consumer
Protection Act (DTPA)
• Examples of false, misleading, or deceptive
acts or practices
– Representing that something is new or original
when it is not or that it is of a particular quality
when it is not
– Advertising property with no intention of
selling the property as advertised
– Making false statements of fact concerning the
reasons for a price reduction
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Texas Deceptive Trade Practices—Consumer
Protection Act (DTPA)
– Misrepresenting the authority of an agent to
negotiate the final terms of a sales contract
– Representing that a warranty guarantees or
confers rights or remedies not included
– Representing that work has been done on real
or personal property when the work has not
been done

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Texas Deceptive Trade Practices—Consumer
Protection Act (DTPA)
• DTPA does not apply to claims arising from an
act or omission by a broker or sales agent,
with exception to S.B. 1353, 2011.

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Texas Deceptive Trade Practices—Consumer
Protection Act (DTPA)
• The three circumstances under which the
DTPA does apply to the actions of real estate
agents are
– “an express misrepresentation of a material
fact that cannot be characterized as advice,
judgment, or opinion;

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Texas Deceptive Trade Practices—Consumer
Protection Act (DTPA)
– “a failure to disclose information concerning
goods or services that was known at the time
of the transaction if the failure to disclose such
information was intended to induce the
consumer into a transaction into which the
consumer would not have entered had the
information been disclosed; or

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Texas Deceptive Trade Practices—Consumer
Protection Act (DTPA)
– “an unconscionable action or course of action
that cannot be characterized as advice,
judgment, or opinion.”

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Texas Deceptive Trade Practices—Consumer
Protection Act (DTPA)
• The consumer must prove
– that the deceptive act was the producing cause
of damages.

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Texas Deceptive Trade Practices—Consumer
Protection Act (DTPA)
– The suit must be commenced within two years after
a false, misleading, or deceptive act or practice
occurred—or within two years after the consumer
discovered, or should have discovered, it.
– With the exception of residential property, the DTPA
does not apply to transactions
• that exceed $100,000 where there is a written
contract and
• where the consumer is represented by legal counsel.

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Texas Deceptive Trade Practices—Consumer
Protection Act (DTPA)
• Waiver
– Consumers may waive their rights to bring a
suit under the DTPA.
– However, court opinion is that “any waiver by a
consumer is contrary to public policy.”
– Therefore, it’s unenforceable and void.

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Texas Deceptive Trade Practices—Consumer
Protection Act (DTPA)
– For waiver requirements to be valid and
enforceable,
• the waiver must be in writing and signed by the
consumer,
• the consumer must not be in a significantly
disparate bargaining position, the consumer
must be represented by legal counsel (not
referred by the defendant or an agent of the
defendant) in seeking or acquiring the goods or
services,
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Texas Deceptive Trade Practices—Consumer
Protection Act (DTPA)
• the waiver must be conspicuous and in
boldface type at least 10 points in size, and
• the waiver must be in substantially the
promulgated form under the heading “Waiver
of Consumer Rights.”

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Texas Deceptive Trade Practices—Consumer
Protection Act (DTPA)
• Recovery under the DTPA is limited to
economic damages—costs of repair and
replacement.
– If found to have committed the act knowingly,
• damages for mental anguish may also be
awarded (and in some cases, up to three times
the amount of economic damages).

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Texas Deceptive Trade Practices—Consumer
Protection Act (DTPA)
– If found to have committed the act
intentionally,
• the economic and mental anguish damages
may be trebled.

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Texas Deceptive Trade Practices—Consumer
Protection Act (DTPA)
– In addition to consumer compensation, the
DTPA allows for civil penalties of up to $20,000
per violation, with an additional penalty of up
to $250,000, for violations that target the
elderly.

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