LESSON 1: WHAT IS AGENCY Flashcards
What is an agency relationship?
An agency relationship is when one person (the principal) delegates authority to another (the agent) to act on their behalf.
How are agency relationships created?
They are created by the mutual consent of the client and a licensed broker. This consent can be written, oral, or implied by actions, but written agreements are recommended.
What is a fiduciary relationship in real estate?
A fiduciary relationship means the agent must act in the client’s best interest, with trust and confidence.
How were real estate transactions handled in early practices?
Sellers could work with multiple brokers through open listings, and brokers only got paid if they found a buyer.
What was NAREE’s role in exclusive agency?
In 1908, NAREE (now NAR) endorsed exclusive agency and required broker cooperation. At that time, buyer’s agents were considered sub-agents of the seller.
How did agency laws develop over time?
Initially, only sellers were represented. Buyer representation emerged in the 1960s due to demand. Today, buyer representation is the norm.
What is the difference between a client and a customer?
Clients receive fiduciary duties such as obedience, loyalty, disclosure, confidentiality, accounting, and care. Customers only receive honesty, fairness, and disclosures.
Why is dual agency problematic?
A broker cannot provide full loyalty and confidentiality to both a buyer and seller. Some states, like Texas, have intermediary laws to manage this issue.
How often does the Texas Legislature review real estate laws?
The Texas Legislature meets every two years to review and update real estate laws, which are enforced by TREC.
What is the Texas Real Estate Commission (TREC)?
Established in 1949, TREC regulates real estate licensing, education, and enforcement. It oversees TRELA and other related laws.
How is a broker defined in real estate?
A broker is someone who, in exchange for compensation, performs acts such as selling, leasing, or negotiating real estate transactions.
What is the Texas Real Estate License Act (TRELA)?
TRELA governs real estate licensing in Texas and includes rules for brokers, sales agents, and business entities.
What are the requirements for holding a real estate license in Texas?
Brokers and sales agents must have a valid license. Sales agents must be sponsored by a broker to engage in real estate transactions.
What are the criminal history requirements for a real estate license?
Applicants must submit fingerprints for background checks through the Department of Public Safety and FBI.
What must a person do if they want the commission to determine their fitness before applying for a license?
The person must request the commission’s determination and pay the required fee.
How long does the commission have to notify a person about the fitness determination?
The commission must notify the person within 30 days after making the determination.
Can the commission conduct a supplemental determination of fitness?
Yes, the commission may conduct a supplemental determination if a person applies after receiving notice.
What is a provisional determination of fitness?
The commission may issue a provisional determination based on certain rules they adopt.
What are the eligibility requirements for receiving a license under this chapter?
The applicant must be at least 18 years old, a U.S. citizen or lawfully admitted alien, and must satisfy honesty, trustworthiness, and integrity requirements, demonstrate competence, and complete required courses.
What must a business entity do to be eligible for a license?
The entity must designate a managing officer as its broker and provide proof of errors and omissions insurance if the broker owns less than 10% of the entity.
What are the requirements for a business entity to act as a broker?
The designated broker must be licensed and in good standing.
What can the commission consider when determining if a designated broker is in good standing?
The commission can consider the broker’s disciplinary history and any amounts owed by the broker or their business entity.
What is required for an applicant to receive a broker license?
The applicant must have at least four years of active experience and complete 60 semester hours of postsecondary education, including real estate courses.
What evidence must a broker license applicant provide if they do not meet the experience requirements in Texas?
They must provide proof of experience and education from another state or evidence that they were previously licensed as a broker in Texas.
What are the educational requirements for a sales agent license applicant?
The applicant must complete at least 12 semester hours of education, including real estate principles, agency law, contract law, and real estate finance.
What happens if a sales agent license applicant was licensed within the last six months?
The commission may waive the education requirements, but proof of education is required for license renewal.
What must an applicant for a broker or sales agent license provide if they are not subject to standard education requirements?
They must provide evidence of completing the continuing education required for license renewal in the two years before their application.
What happens when a person is issued a license under this chapter?
The commission will issue the appropriate license to an applicant who meets all the requirements.
Can the commission issue an inactive sales agent license?
Yes, the commission may issue an inactive sales agent license, but the person must be sponsored by a licensed broker to act as a sales agent.
What happens if an applicant fails the examination three times?
The applicant must provide evidence of completing additional education before applying for reexamination.
What is required for license renewal?
The license holder must pay the renewal fee and comply with continuing education requirements.
How is a license renewal fee calculated if it has been expired for more than 90 days?
The renewal fee is calculated based on the length of time the license has been expired, with higher fees for longer expirations.
What must a broker do if their license expires?
The broker must apply for inactive status or meet the requirements for reactivation.
What must a sales agent do when their relationship with a sponsoring broker ends?
The sales agent’s license is placed on inactive status, and the broker must notify the commission.
What must a broker do when changing their office location?
The broker must submit an application to the commission within 10 days of moving and pay the appropriate fee.
What must a residential rental locator display to clients?
The locator must display their license, a statement they are licensed by the commission, and the notice required by Section 1101.202(a).
What should a buyer do when signing an offer to purchase real estate?
A license holder must advise the buyer, in writing, to either have the abstract examined by an attorney or obtain a title insurance policy.
Is a license holder required to inquire about, disclose, or release information relating to AIDS, HIV, or death on a property?
No, a license holder is not required to inquire about, disclose, or release such information.
What must a broker do when representing a party in a real estate transaction?
The broker must inform the party if they receive material information related to the transaction, answer questions, and present offers.
What must a license holder provide to a party during their first substantive communication regarding a real estate transaction?
The license holder must provide written notice describing how a broker can represent a party, their duties, and the license holder’s contact details.
Under what circumstances is a license holder not required to provide the notice required in a real estate transaction?
A license holder is not required to provide the notice if the transaction is for a lease under one year, if the party is represented by another license holder, or if the communication occurs at an open house.
What is required for a broker to act as an intermediary in a real estate transaction?
The broker must obtain written consent from each party and specify the source of the expected compensation.
What must a broker do to appoint a license holder as an intermediary?
The broker must ensure written consent from the parties and provide written notice of the appointment to all parties involved.
What duties do intermediaries have in real estate transactions?
Intermediaries must act fairly and impartially, ensuring that associated license holders follow instructions and provide opinions and advice impartially.
How do the duties of an intermediary relate to other legal duties of a license holder?
The duties of an intermediary supersede the duties established under any other law, including common law.
Can a broker act as an intermediary if they represent both a buyer and a seller?
Yes, but they must agree to act as an intermediary for both parties in the transaction.
What action can TREC take if a license holder commits certain violations?
TREC can suspend or revoke a license, or take other disciplinary action.
What are some violations that can lead to suspension or revocation of a license?
Violations include committing fraud, misrepresentation, dishonesty, failing to honor checks, or refusing to produce documents when requested.
How does TREC define misrepresentation that can result in disciplinary action?
Misrepresentation includes making false statements about a significant defect in a property or failing to disclose known defects.
What must a license holder do before closing a real estate transaction regarding title and insurance?
The license holder must advise the buyer in writing to either have the abstract examined by an attorney or obtain a title insurance policy.
What must a license holder do with money they receive as an escrow agent in a real estate transaction?
The license holder must deposit the money in trust with a title company or in a custodial, trust, or escrow account in a banking institution.
What happens if a license holder disburses escrow funds prematurely?
Disbursing funds before the completion or termination of the real estate transaction is a violation.
What action is prohibited in a real estate transaction regarding discrimination?
Discrimination based on race, color, religion, sex, national origin, or ancestry is prohibited, including directing a potential buyer or tenant to a different area based on these factors.
Can TREC take disciplinary action for a license holder’s failure to abide by the real estate chapter?
Yes, TREC can take action for disregarding or violating the provisions of the chapter.
What is the Information About Brokerage Services (IABS) form?
It is a form that brokers in Texas must provide to potential clients, outlining their duties, services, and relationships in a real estate transaction. The form is not required at an open house unless confidential information is disclosed.
What is “Implied Agency”?
Implied Agency occurs when an agency relationship is created by actions rather than a written or verbal agreement.
What is the role of a sponsoring broker in real estate transactions?
A sponsoring broker must promptly respond to sponsored salespeople and supervise transactions, ensuring salespersons are providing at least minimum services to clients.
What is the minimum service required by a broker representing a party in a real estate transaction?
A broker must answer the client’s questions, present offers, and inform the party of material information about the transaction.
Who can enter into an agency relationship with a seller, buyer, landlord, or tenant?
Only a broker can enter into an agency relationship, though licensed sales agents work as general agents of their supervising brokers.
What is the difference between a client and a customer in real estate?
A client has a signed agreement with the agent, obligating the agent to represent them. A customer is a third party to whom the agent may provide minimal assistance but is not represented by the agent.
What fiduciary duties does a real estate agent owe to their client?
The agent owes loyalty, confidentiality, full disclosure, and an obligation to act in the best interest of the client, above all other interests.
What is the principal’s obligation to an agent in a real estate transaction?
The principal must compensate the agent, reimburse expenses, indemnify the agent for damages or losses (if not caused by the agent’s illegal actions), and perform their contractual duties.
What is a listing agreement?
A listing agreement is a contract between a broker and a seller, creating an agency relationship. The broker is authorized to represent the seller in selling the property.
What is the National Association of REALTORS®?
It is an organization formed in 1908 to self-regulate the real estate industry, creating a Code of Ethics that influenced state real estate laws, including the Texas Real Estate License Act.
What is a fiduciary relationship in real estate?
It is a relationship where the real estate agent is obligated to act in the best interest of their client, placing the client’s needs above their own and treating all parties fairly.
What happened in the 1880s in the real estate industry?
Real estate vendors realized the need to self-regulate to avoid government intervention, leading to the formation of local organizations and the National Association of REALTORS® in 1908.
What is the obligation of a real estate broker or salesperson regarding integrity?
A real estate broker or salesperson must exercise integrity by employing prudence and caution to avoid misrepresentation through acts of commission or omission.
What are the competency requirements for a real estate license holder?
A license holder must: 1) be informed on local market conditions, 2) stay updated on national, state, and local real estate issues, 3) exercise judgment and skill in real estate activities, and 4) be educated on the characteristics of specific real estate types.
What is the requirement for displaying the Consumer Protection Notice by a real estate license holder?
The Consumer Protection Notice must be displayed in a noticeable location in each business place and a link must be on the homepage of each business website, in at least 10-point or 12-point font.
What is prohibited in real estate transactions regarding discrimination?
A real estate license holder must not inquire, respond, or make any disclosure indicating preference or discrimination based on race, color, religion, sex, national origin, ancestry, familial status, or disability, including AIDS and HIV-related illnesses.
What must a real estate license holder do regarding the Information About Brokerage Services (IABS) Notice?
A license holder must provide a link to the IABS Notice on their business website and give a completed IABS Notice at the first substantive communication with a client.
What is a fiduciary duty in a real estate relationship?
A license holder must put the client’s interests above their own, convey all known information affecting the client’s decisions, and keep the client informed of significant transaction information.
When can a license holder receive a commission or fee from a third party?
A license holder must disclose to their client their intent to receive a commission, rebate, or fee from another party, and obtain the client’s consent before accepting such compensation.
What is prohibited regarding settlement service providers in real estate transactions?
A license holder cannot receive or pay fees, commissions, or rebates to or from settlement service providers in exchange for business referrals, nor enter into exclusive arrangements with service providers that restrict competition.
What are the rules when a license holder is involved in a real estate transaction for their own property?
A license holder must disclose in writing that they are a licensed real estate agent when acting on their own behalf or for a family member, and must not use their expertise to disadvantage the other party.
How do REALTORS® pledge to act when representing clients?
REALTORS® pledge to protect and promote the interests of their clients, while treating all parties honestly. Their duty to the client is primary, but they must also remain honest in non-agency capacities.
What does the Code of Ethics impose duties on in real estate transactions?
The Code of Ethics imposes duties on REALTORS® in all real estate-related activities, whether conducted in person, electronically, or through other means, and applies whether acting as agents or in non-agency capacities, except when duties are imposed exclusively on agents by law.
What is the definition of a “client” according to the Code of Ethics?
A “client” is the person(s) or entity(ies) with whom a REALTOR® or a REALTOR®’s firm has an agency or legally recognized non-agency relationship.
When can REALTORS® represent both the seller/landlord and buyer/tenant in the same transaction?
REALTORS® can represent both parties only after full disclosure and with informed consent from both the seller/landlord and buyer/tenant.
What must REALTORS® do when submitting offers and counter-offers?
REALTORS® must submit offers and counter-offers objectively and as quickly as possible.
What happens when a listing broker receives an offer during the transaction?
The listing broker must submit all offers and counter-offers to the seller/landlord until closing, unless the seller has waived this obligation in writing.
Can REALTORS® share confidential client information after the termination of a professional relationship?
No, REALTORS® must not reveal or use confidential client information to the disadvantage of the client, even after the termination of the professional relationship, unless specific conditions are met (e.g., client consent, court order).
What must REALTORS® do when managing a client’s property?
REALTORS® must competently manage the property with due regard for the rights, safety, and health of tenants and others lawfully on the premises.
What should REALTORS® disclose when entering into listing contracts?
REALTORS® must advise sellers/landlords of company policies regarding cooperation and compensation offered to subagents, buyer/tenant agents, and the potential for dual agency.
Can REALTORS® accept commissions or other profits without the client’s knowledge?
No, REALTORS® must not accept commissions, rebates, or profits on expenditures made for a client without the client’s knowledge and consent.
What is required regarding agreements related to real estate transactions?
REALTORS® must ensure that all agreements, including listing contracts and purchase agreements, are in writing and clearly express the terms, conditions, and commitments of all parties involved.
How should REALTORS® handle commissions in cooperative transactions?
REALTORS® must communicate any changes in compensation offered for cooperative services before the submission of offers to purchase/lease the property.
What must REALTORS® do when recommending services such as mortgage financing or homeowner’s insurance?
REALTORS® must disclose any financial benefits or fees they or their firm may receive as a result of recommending these services.
What is the duty of REALTORS® when involved in the sale or lease of a residence regarding discrimination?
REALTORS® must not discriminate on the basis of race, color, religion, sex, handicap, familial status, national origin, sexual orientation, or gender identity, and must not engage in activities that could result in panic selling.
How should REALTORS® handle the disclosure of demographic information in a transaction?
REALTORS® may provide demographic information only if it is necessary to assist with the transaction and is obtained from a recognized, reliable, independent, and impartial source.
What is prohibited regarding advertising in real estate?
REALTORS® must not print, display, or circulate any advertisement that indicates any preference, limitation, or discrimination based on race, color, religion, sex, handicap, familial status, national origin, sexual orientation, or gender identity.
