LESSON 6: INTERMEDIARY BROKER Flashcards
What was the traditional representation in real estate before the mid-1980s?
The real estate industry mainly represented sellers, with the listing broker and the sub-agent working for the seller. Buyers had no representation.
How did the MLS system change to accommodate buyer representation?
The MLS system evolved to allow for sub-agency, buyer agency compensation, or both. The offer of sub-agency was no longer automatic and was decided by the seller and listing broker.
What is the relationship between payment and representation?
Payment and representation are separate issues. A buyer’s agent can represent the buyer and get paid by the seller or the seller’s agent, and vice versa.
What was the concern regarding liability in dual agency?
Brokers were concerned about liability when representing both parties in a transaction, as dual agency required loyalty to both clients, which could lead to conflicts.
What did TREC discourage regarding dual agency?
TREC discouraged dual agency because it created conflicts of interest, as brokers were required to give 100% loyalty to both clients.
What duties does a license holder have when representing a customer instead of a client?
A license holder must act with honesty, fairness, disclosure, good faith, and competency, but cannot provide advice or confidential information.
What does the license holder do when working as a subagent?
The license holder can provide confidential information about the seller to the seller but must explain this to the consumer.
What changes were made to dual agency laws in 1996?
In 1996, Texas replaced dual agency laws with intermediary representation rules. The broker must act as an intermediary when representing both parties.
What are the key differences between dual agency and intermediary representation?
In intermediary representation, the broker can appoint two different agents to represent the buyer and seller, allowing for advice and opinions, unlike dual agency.
Why did buyer brokerage grow slowly in Texas?
Buyer brokerage grew slowly because most buyer brokers did not take listings, and many companies still treated buyers as customers rather than clients.
What is the concern with cooperating broker sales and in-house sales?
In cooperating broker sales, the agent may be considered a subagent of the seller, a buyer’s agent, or a dual agent, creating confusion. In in-house sales, brokers must follow intermediary rules to avoid dual agency issues.
What can happen if a broker does not follow intermediary rules in an in-house transaction?
If the broker does not follow intermediary rules, dual agency could be created, leading to legal and ethical issues.
How does dual agency create conflicts of interest?
Dual agency creates conflicts because the agent cannot fully advocate for both parties; they may breach loyalty and confidentiality duties to one or both clients.
What happened when Texas created intermediary agency laws?
Texas eliminated dual agency as a legal method of representation and introduced intermediary agency to allow brokers to represent both parties in a transaction.
What is single agency brokerage?
Single agency brokers only represent either buyers or sellers exclusively. They do not represent both parties in a transaction and follow strict policies regarding representation.
What happens if a party reverts to customer status after being represented?
The agent must explain that the party will now receive customer services, not full representation, and confidentiality duties remain even after the relationship ends.
What problems arise when representing both a buyer and a seller?
There are significant conflicts of interest, such as trying to get the best deal for the seller and the lowest price for the buyer, which the agent cannot do without breaching loyalty or confidentiality.
Why is dual agency in real estate compared to a lawyer representing both sides of a divorce?
Similar to a divorce lawyer, an agent in dual agency faces conflicts of interest and risks legal and ethical issues, as it is impossible to represent both parties’ best interests.
What is the problem with an agent representing both parties in an in-house sale?
If the agent doesn’t disclose their role and follow intermediary rules, it could lead to dual agency, creating legal and ethical issues.
What happens if an agent does not follow the rules of intermediary in an in-house sale?
Not following intermediary rules in an in-house sale can create dual agency, leading to potential legal problems and ethical complaints.
May a broker act as a dual agent?
A broker may act as an intermediary between parties if they obtain written consent from each party, stating the source of expected compensation. The broker must act fairly and impartially.
What steps must occur before a broker or sales agent can represent both the buyer and seller?
- Present the Information About Brokerage Services to both parties.
- Seller must execute a Listing Agreement with the broker.
- Buyer must execute a Buyer Representation Agreement with the broker.
- Both must sign an intermediary notice.
What happens if the intermediary broker or sales agent fails to comply with intermediary provisions?
They may face disciplinary sanctions, including revocation, suspension, reprimand, or administrative penalties.
What conduct is prohibited for an intermediary broker or sales agent?
- Disclosing price reductions or higher offers without written consent.
- Disclosing confidential information.
- Treating any party dishonestly.
- Violating the Texas Real Estate License Act.
What is required for a broker to act as an intermediary?
- Written consent from each party.
- Written consent must specify the source of compensation.
- A written listing agreement or buyer representation agreement is sufficient to establish consent.
How must a broker acting as an intermediary treat the parties?
The broker must act fairly and impartially. They can appoint associated license holders to represent the parties, provided they act impartially.
What types of agency are there for brokers who do not practice intermediary?
- Buyer Agency: Only works with buyers.
- Seller Agency: Only works with sellers.
- Single Agency: Works with both buyers and sellers, but never in the same transaction.
What must a broker’s policy and procedures manual include?
It must detail the type of agency practiced, including whether the broker practices intermediary or not.
What can a broker or sales agent NOT disclose when acting as an intermediary?
- Price reductions or higher offers without written permission.
- Confidential information unless authorized in writing or required by law.
- Any information prohibited by the Texas Real Estate License Act.
What is the role of a license holder acting as an intermediary under Section 1101.560?
A license holder may be appointed by the broker to communicate with and carry out the instructions of one party, and provide advice during negotiations for the party they are appointed to.
When is the written consent of the parties required in intermediary transactions?
Before a contract is written, both the buyer and seller must provide written consent, specifying the appointed agents.
What is the main requirement for a broker to appoint a license holder under Section 1101.560?
The written consent of the parties must authorize the broker to make the appointment, and the broker must provide written notice of the appointment to all parties involved in the transaction.
What duties does a license holder acting as an intermediary supersede?
The duties of a license holder acting as an intermediary supersede duties established under common law or any other law.
What does Section 1101.559 require for a broker to act as an intermediary?
Written consent from the parties, specifying compensation and the conduct prohibited under Section 1101.651(d).
What must happen if a broker is acting as an intermediary and appoints another license holder?
The broker must provide written notice to all parties involved, and the appointed license holder may provide advice and opinions to the party they are appointed to.
What happens if the intermediary relationship is not confirmed in writing?
An intermediary relationship does not exist unless written consent is given by the parties. You cannot create an intermediary relationship orally.
What is intermediary brokerage?
Intermediary brokerage allows a broker to act as a go-between for the buyer and seller, with written consent from all parties and disclosure of compensation expectations.
What must the written consent in intermediary brokerage include?
The written consent must disclose the source of compensation and can be evidenced by a listing agreement that allows intermediary brokerage.
What does the intermediary broker need to do according to the Texas law?
The intermediary must act “fairly and impartially” and can appoint associates to communicate, carry out instructions, and provide advice to the parties they represent.
What happens if a broker acts as an intermediary without appointments?
If no appointments are made, the intermediary cannot provide advice or opinions to either party.
How are appointments made in intermediary brokerage?
Appointments are made when the broker assigns an associate to either the buyer or seller in an intermediary transaction. The agent can then provide advice to their designated party.
Can a broker appoint themselves as an intermediary?
No, the broker cannot appoint themselves as an intermediary.
What happens if a broker’s policy allows one agent to represent both buyer and seller?
If one agent represents both parties, no appointments can be made, and the agent must remain neutral, giving no advice or opinions.
Can a broker work as an intermediary in a firm with fewer than three agents?
No, the firm must have at least three agents (broker and two associates) to make appointments. A broker with one or two agents cannot make appointments.
What is the role of a sole practitioner broker in intermediary brokerage?
A sole practitioner can act as an intermediary but cannot make appointments. The broker must act as the intermediary without giving advice or opinions.
What are the consequences of giving advice in an intermediary transaction without appointments?
Giving advice in an intermediary transaction without appointments is prohibited, as it violates the neutrality required.
What is the main distinction between confidentiality and property condition disclosure?
Property condition is not confidential information; it must be disclosed, especially if it impacts the buyer’s decision.
When is an intermediary relationship not advisable?
It is not advisable when the broker or agent is purchasing a company listing for their own account, as it may cause conflicts of interest.
What happens if a broker violates fiduciary duties due to greed?
Violations can lead to losing the commission, losing the real estate license, and facing lawsuits for damages.
What must a broker do when a potential buyer makes an offer on a property already under contract?
The broker must keep the seller informed of any new offers that are material to the decision-making process, as failing to do so is a violation of fiduciary duties.
How can brokers avoid conflicts of interest?
Brokers must prioritize the client’s interests and avoid situations that may lead to conflicting obligations or ethical violations.
What are “Specialized Intermediary Applications”?
These are transactions where a broker might unintentionally become an intermediary due to conflicts of interest, requiring either the broker to act as an intermediary or remove themselves from the deal.
What happens if a broker owns an interest in the property?
The broker must disclose their interest and obtain consent from all parties involved. If the broker is also a partner or shareholder, full disclosure is required, and the parties should seek separate representation.
What is the legal situation if a broker represents a trust or minor?
The broker may give consent on behalf of a minor or trust, but if the deal is not beneficial, the broker could face legal consequences.
What is a Section 1031 Exchange?
A Section 1031 exchange allows property owners to defer taxable gain from the sale of investment property by exchanging it for another property of like-kind. The transaction can involve a broker as an intermediary, but caution is needed due to complex legal and tax considerations.
Can a broker represent both parties in a Section 1031 Exchange?
While not impossible, it is generally inadvisable due to the complexity and tax ramifications of such deals. The broker should advise the parties to be independently represented.
What is the difference between intentional vs. unintended dual representation?
Intentional dual representation occurs when a broker knowingly represents both parties, while unintended dual representation can occur when a broker inadvertently represents both sides due to failure to disclose their position.
What is the issue with “unintended dual agency” in real estate?
It occurs when a broker inadvertently represents both parties, such as acting as a buyer’s agent while representing the seller. Full disclosure is required to avoid this scenario.
How does “unintended dual agency” occur with an associate?
If an associate working for a seller’s broker acts as if representing the buyer (without proper disclosure), this results in unintended dual agency.
What is the risk of working with “flippers” in real estate?
Working with a flipper without full disclosure of their intentions (such as future listings) can lead to violations of fiduciary duties and potential dual agency.
What should a broker do in a situation with flippers?
The broker should disclose the nature of the transaction to all parties and ensure consent for any intermediary role.
What are the consequences of not providing proper disclosure in a real estate transaction?
A broker could face disciplinary actions, including suspension of their license, fines, and legal consequences for failing to provide necessary forms, consent, or disclosures.
What happens if a seller is at home during a showing?
The buyer’s agent must inform the seller that they represent the buyer, following the law to avoid unintended sub-agency or dual agency.
What is the role of the broker in an open house?
Brokers must inform everyone at an open house that they represent the seller and disclose their role before engaging with any buyers. If a buyer becomes interested, further disclosure and a Buyer’s Rep Agreement are needed.
What does the National Association of Realtors® Code of Ethics require?
The Code of Ethics provides guidelines for ethical behavior in real estate, helping agents maintain professional reputations and avoid legal issues.
Who can practice law in Texas?
Only members of the State Bar of Texas or those who comply with the Texas Supreme Court’s rules regarding the practice of law can provide legal services, such as preparing contracts or wills.
