LESSON 5: BUYER AGENCY Flashcards
What is a Buyer Representation Agreement?
A contract where a broker is employed as the principal’s agent to locate and negotiate the purchase of a property for the buyer, with the broker’s loyalty and duty solely to the buyer.
What duties does a real estate licensee owe a buyer?
- Obedience, 2. Loyalty, 3. Disclosure, 4. Confidentiality, 5. Accountability, 6. Reasonable care.
What does a Buyer Representation Agreement clarify?
It clarifies each agent’s duties and avoids conflicts of interest, especially when a buyer’s agent was once a subagent of the seller.
What does the Texas Real Estate Commission (TREC) provide for buyer representation?
TREC does not promulgate Buyer Representation Agreements. The Texas Association of REALTORS® provides a copyrighted Buyer Representation Agreement for its members.
What should you do to ensure you’re using current forms?
Download forms from the Texas Real Estate Commission or Texas Association of REALTORS® websites and avoid using outdated forms in your office.
What is the purpose of the parties section in the agreement?
To get the buyer’s legal names, how they want to take title, and accurate contact information.
What is meant by “Market Area” in the agreement?
The area in Texas where the buyer is purchasing property, defined by zip codes, counties, or city limits.
What is the term of the Buyer Representation Agreement?
The agreement must have an effective and ending date, which can vary, but must comply with the Texas Real Estate License Act requiring a definite termination date.
What are the broker’s obligations in the agreement?
The broker must make efforts to find a property, negotiate the best price, and comply with the agreement’s terms.
What are the client’s obligations in the agreement?
The client must work exclusively with the broker, inform others about their representation, and comply with the agreement.
What are the representations made in the agreement?
The buyer/tenant affirms they have not signed another Buyer/Tenant Representation Agreement and that all provided information is true.
What is “Intermediary Status”?
A status where the broker represents both the buyer and the seller in the same transaction, with certain restrictions.
What is the purpose of “Competing Clients” disclosure?
To inform the buyer/tenant that the broker may have other clients and will continue to work with them, even showing properties to others.
What is confidential information in the agreement?
Information about the client that cannot be shared unless authorized by the client in writing.
How are broker’s fees handled?
Commissions are set by the broker, negotiated with the seller or buyer, and may be paid by the seller or buyer depending on the agreement.
What is meant by “Earned and Payable” in broker’s fees?
A commission is earned upon closing and funding, and the broker is entitled to commission even if the buyer breaches the contract.
What is “Additional Compensation” in the agreement?
If the broker receives more than one commission, it must be agreed upon by the client in writing.
What is prohibited regarding compensation from multiple parties?
According to Sec. 1101.652, receiving compensation from more than one party to a real estate transaction without the full knowledge and consent of all parties is prohibited.
What does Article 7 of the Code of Ethics state about compensation?
REALTORS® shall not accept compensation from more than one party without disclosure to all parties and the informed consent of their client(s).
What happens if the buyer purchases the broker’s listing?
If the buyer buys one of the broker’s listings, the compensation will be paid by the seller, and the buyer owes no commission to the broker.
Can brokers receive additional fees?
Yes, brokers may be entitled to additional fees, such as for construction services, vendors, or other services. However, referral fees must be disclosed and listed on the closing statement.
What does the Real Estate Settlement Procedures Act (RESPA) say about referral fees?
RESPA prohibits kickbacks. All referral fees must be disclosed and listed on the closing statement at the time of closing.
What is the “Protection Period” in a Buyer Representation Agreement?
It is a period after the agreement expires where the agent can protect their commission if the buyer purchases a property shown by the agent. If the buyer has signed with another broker, the agent may not be able to claim commission.
How can a REALTOR® protect their commission after the Protection Period?
The REALTOR® may file for arbitration through the Texas Association of REALTORS® if they believe they are the procuring cause of the transaction. Arbitration must be requested within 6 months of the closing date.
What does Article 17 of the Code of Ethics discuss?
Article 17 covers how REALTORS® must mediate or arbitrate contractual disputes with other REALTORS® and settle disagreements through the Board instead of litigation.
What are the requirements for mediation and arbitration under Article 17?
REALTORS® must mediate disputes if required by the Board. If mediation fails, arbitration must occur. Clients must agree to be bound by the resulting agreements or awards.
What happens in cases of disputes over commission between cooperating brokers?
Arbitration may proceed without the listing broker being involved, and the amount in dispute is limited to the commission paid to the respondent broker.
What happens when a buyer or tenant representative is compensated by the seller?
If the seller compensates the buyer’s representative and the listing broker reduces the commission, disputes over commission can lead to arbitration between the brokers.
What happens when two or more listing brokers claim entitlement to compensation?
Arbitration may proceed between the brokers if they agree to participate, and the decision made will be binding on all parties.
What does Standard of Practice 17-5 say about inter-state arbitration?
It establishes that REALTORS® may have to arbitrate disputes across state lines if there is no established inter-association agreement, but they must agree to travel and participate in arbitration in the respondent’s state.
What is Mediation?
Mediation is an alternative dispute-resolution method where a neutral third party helps disputing parties communicate and reach an agreement. The mediator does not make decisions but facilitates the discussion. If an agreement is made, it becomes legally binding.
What are the advantages of Mediation?
Low cost, fast, private, win-win (opportunity for both parties to benefit)
Who bears the cost of mediation?
The cost is shared equally by the disputing parties. The fee depends on the complexity of the issues, mediator experience, and time involved.
Is mediation binding?
Mediation is typically non-binding. If an agreement is reached, it becomes binding and enforceable.
What is the difference between Mediation and Arbitration?
In mediation, the mediator facilitates negotiation, whereas in arbitration, the neutral third party (arbitrator) makes a final, binding decision.
What is Default in a real estate agreement?
Default by the buyer/tenant may result in liability for the commission to the broker. Default by the broker may lead to legal recourse by the buyer/tenant.
Who pays attorney fees in a dispute?
The non-prevailing party in the dispute is required to pay all court costs, attorney fees, and related expenses.
What is Limitation of Liability?
This section covers personal injury and emphasizes the importance of having insurance to cover personal injury risks.
What should be done with Addenda in a real estate agreement?
Check applicable addenda for the buyer/tenant representation agreement and consult with your broker to ensure all required addenda are included.
What are Special Provisions in real estate agreements?
Special provisions should not be included without the broker’s permission and advice.
What are Additional Notices in a real estate agreement?
Includes important sections like broker fees, fair housing laws, and recommendations for inspections and title insurance.
What is the rule on broker fees?
Brokers must independently set pricing policies. They should never suggest pricing collusion among competitors or make false claims about competitors’ business practices.
What does the REALTOR Code of Ethics say about making false statements about competitors?
REALTORS must not knowingly or recklessly make false or misleading statements about competitors or their businesses (Article 15).
How should a broker present their services?
Brokers should focus on the positive aspects of their services and provide truthful representations, without disparaging competitors or engaging in pricing conspiracies.
What should a buyer do regarding property inspections?
A buyer should get an inspection from a licensed inspector for any concerns about the property or surrounding areas.
What does the Texas Real Estate License Act say about title insurance?
The buyer should receive either an abstract of title reviewed by an attorney or a title insurance policy before closing.
What should a broker advise a buyer regarding title insurance?
Brokers must advise buyers in writing that they should have the abstract examined by an attorney or obtain title insurance before closing.
What should a broker do if the consumer doesn’t understand any document?
The broker should advise the consumer to consult an attorney for clarification.
What is the significance of the signature in the Buyer/Tenant Representation Agreement?
The agreement must be signed by both the broker (or sales agent) and the client, with the broker’s license number included on the signature page.
What is the role of the buyer’s agent?
A buyer’s agent is focused solely on representing the buyer’s interests, helping them get the best deal. Unlike a seller’s agent, a buyer’s agent is not concerned with closing a sale but with securing the best possible terms for the buyer.
Why might a broker select to be a buyer’s broker?
A broker might select to represent a buyer if the client is of special value, has a strong personal or business relationship with the broker, or specifically requests the relationship. Some brokers work on a fee against commission, minimum compensation, or a hybrid arrangement.
What is a common compensation structure for buyer-brokers?
The broker may be paid hourly, with a percentage commission on closing, and credit for any hourly amounts paid earlier. The broker may also negotiate reimbursement for expenses or a performance bonus for securing a lower price or exceeding the buyer’s expectations.
What factors influence a broker’s decision to limit practice to just buyers or sellers?
Many brokers wish to represent both buyers and sellers to maximize opportunities in a competitive market. Some brokers, however, may focus on exclusive high-end clients, such as wealthy buyers of expensive properties.
What should a broker consider before deciding to represent a buyer?
The broker should evaluate the buyer’s experience in buying/selling real estate, financing options, whether they need to sell a property first, and the buyer’s decision-making process. The broker should also consider employment details, credit, debt, and motivation.
What are key motivations to assess for a buyer?
Key motivations include savings for down payment and closing costs, type of property desired, timeline for purchase, whether they are working with other agents, credit, debt, income, and their willingness to agree to Exclusive Buyer Representation.
What are the agent’s responsibilities in buyer representation?
The agent must ensure that the buyer is serious, loyal, honest, and cooperative. The agent must communicate in a timely manner and reduce risks for both the agent and the buyer.
What fiduciary duties does an agent owe to a buyer?
The agent owes loyalty, obedience, full disclosure, confidentiality, diligent accounting of paperwork and funds, and protection against foreseeable harm.
What does the Information About Brokerage Services (IABS) form explain about buyer representation?
The IABS form outlines that the broker represents the buyer and must place the buyer’s interests first, without representing the seller. It also emphasizes the importance of confidentiality and full disclosure to the buyer.
What should a broker verify before deciding to represent a buyer?
The broker should verify the buyer’s financial ability to purchase by obtaining a letter from a lender confirming credit, employment, income, and prequalification amount. If the buyer is paying cash, the broker can ask for a bank statement confirming funds.
What are potential red flags for a broker when working with a buyer?
Red flags include refusal to be prequalified by a lender, an unclear or unrealistic timeline for purchase, and buyers who are not serious or have objections that the agent cannot address.
What is accidental agency, and how can it be avoided?
Accidental agency occurs when the broker represents a buyer without a formal agreement. To avoid it, the agent should ensure all representation is documented, especially when the agent might act as an intermediary.
What is the best way to create a buyer agency relationship?
The best way to establish a buyer agency is through a written Buyer Representation Agreement, which clarifies the rights and obligations of both the buyer and the broker.
What should a broker discuss when constructing a buyer-broker agreement?
The broker should discuss the buyer’s preferences (quick purchase, price constraints, financing needs) and financial situation. They should also clarify commission structures, confidentiality, and how conflicts of interest will be managed.
How should a broker handle the potential conflict of interest with a current listing?
The broker should disclose if a property of interest is a current listing and consider using a customer relationship until the agreement is signed, to avoid conflicts of interest. An intermediary arrangement can also be considered.
What steps should a broker take after securing a buyer’s commitment?
After securing commitment, the broker should obtain the buyer’s signature on the representation agreement and ensure that any additional wishes or constraints are addressed.
What is the broker’s role during closing?
The broker should attend the closing to ensure all goes smoothly, address any last-minute issues, and provide a positive final experience for the buyer, which can lead to future referrals.
What should a buyer’s agent look for in terms of property information?
A buyer’s agent should obtain information on property conditions, defects, neighborhood characteristics, property history, offers, price reductions, personal property included, school districts, and potential financing.
What is the buyer’s agent required to do regarding confidentiality?
The buyer’s agent must keep the buyer’s information confidential, such as their willingness to pay more than offered, and ensure that the buyer’s interests are always protected.
What is the buyer’s agent’s responsibility regarding title and abstract policies?
The buyer’s agent must explain in writing that the buyer should either have the abstract examined by an attorney or obtain a title insurance policy before signing a purchase and sale agreement.
What challenges might a buyer face in agreeing to exclusive representation?
Some buyers may be hesitant to sign an exclusive agreement. The buyer’s agent must explain the value of exclusive representation, including dedicated attention, market knowledge, and negotiation skills.
Why is it beneficial for a buyer to use a buyer’s broker?
A buyer’s broker offers expert advice, understands the market, and is motivated to find the best property for the buyer’s needs and financial situation. They provide guidance on contract forms and legal matters, ensuring the buyer gets the best deal.
What are the benefits of a buyer-broker relationship?
The buyer-broker provides comprehensive representation, offering guidance throughout the process, understanding the buyer’s needs, and working exclusively on the buyer’s behalf to find the perfect property. The agent is highly motivated to secure a sale that meets the buyer’s goals.
Who is responsible for paying the broker in a TREC contract?
TREC requires the Broker Info portion of the contract to disclose payment responsibilities. For example, Listing Broker may pay the Other Broker as agreed in a separate arrangement.
What must brokers disclose at the first substantial conversation with potential clients?
Brokers must provide the Information About Brokerage Services (IABS) form at the first substantial conversation.
What is the IABS form used for?
The IABS form provides general information about brokerage services, including details of any relationships with residential service companies.
What additional disclosure is required regarding residential service companies?
Brokers must disclose any relationship with a residential service company and whether they receive compensation for the client purchasing a policy from the company.
What is required when a buyer is purchasing a property built before 1978?
Buyers must sign a Lead-Based Paint Disclosure completed by the seller. The Lead Addendum is part of the sales contract.
What disclosure must be provided before a buyer makes an offer?
Buyers should be provided with the Seller’s Disclosure completed by the seller.
Where are required disclosures listed in TREC contract forms?
Required disclosures are listed in paragraph 6E of the TREC promulgated contract forms.
What must brokers disclose in relation to potential conflicts of interest?
Brokers must disclose relationships that could be viewed as conflicts of interest, such as receiving compensation from referrals or having family ties to a referred person or business.
What must be disclosed regarding financial or ownership interests?
If a broker has a financial or ownership interest in a property or business referred to the client, that relationship must be disclosed.
What details must a broker disclose regarding the agency relationship?
A broker must disclose the beginning and end date of the agency, how and by whom they are compensated, the broker’s obligations, and the buyer’s obligations, among other things.
What must a broker disclose to a buyer in terms of agency relationship?
The broker must disclose obligations related to confidentiality, good faith, competence, financial accountability, and integrity.
What form must be provided during the first substantive conversation?
Brokers must provide the Information About Brokerage Services (IABS) form during the first substantive conversation.
What new requirements were introduced by Senate Bill 699 regarding the IABS form?
Senate Bill 699 amended the IABS form, requiring it to include contact information, license number, and the supervisor’s details. TREC adopted a new version of the IABS form, effective February 1, 2016.
Is there a difference between agency disclosure and the IABS form?
Yes, the IABS form is specific to brokerage services, while agency disclosure is related to the broker’s relationship with the client. Both are required at different stages of the transaction.
