Unit 4 - Overview Flashcards
Learning Objective: Explain the types of agencies and the processes by which agency can be created and terminated.
Explanation: Agencies can be created either expressly through written or oral agreements or implied by actions. Express agencies, like listing agreements or buyer representation agreements, explicitly state the terms and intentions. Implied agencies are formed through conduct, without explicit terms. Agency can be terminated by mutual agreement, completion of the purpose, or events like death, bankruptcy, or expiration of the contract. It’s essential that agency relationships be clearly defined to avoid misunderstandings.
Learning Objective: Describe an agent’s duties to a principal, a principal’s duties to an agent, and an agent’s duties to customers, as well as a broker’s duties related to minimum service standards.
Explanation: Agents owe fiduciary duties to their principals, including obedience, loyalty, disclosure, confidentiality, accounting, and reasonable care (OLD CAR). The principal, in turn, owes the agent compensation, information, indemnification, and availability (CIIA). Agents also owe duties to customers, including honesty, fairness, and disclosure of material facts. In Texas, brokers are required to meet minimum service standards, such as presenting offers and answering questions related to the transaction
Learning Objective: Identify the broker’s role in the disclosure of agency relationships and the types of agency relationships and agency responsibilities created by Texas statute.
Explanation: Texas law requires real estate agents to clearly disclose their agency relationships to all parties involved in a transaction. Brokers must provide the “Information About Brokerage Services” (IABS) notice and clarify whether they represent the buyer, seller, or both. Agency positions, including single agency, subagency, and intermediary relationships, must be disclosed to ensure transparency and avoid conflicts of interest.
Learning Objective: Distinguish employees from independent contractors and explain why the distinction is important.
Explanation: Employees are subject to more control by their employer, including set work hours and specific job duties. Independent contractors, like real estate agents, work more autonomously and are responsible for their own taxes and expenses. The distinction is important for tax purposes, liability, and work flexibility. Independent contractors must have written agreements with their brokers, and the IRS considers factors such as financial control and behavioral independence when classifying workers.
Learning Objective: List the requirements for broker compensation and some common situations in which a broker would or would not be entitled to a commission.
Explanation: Broker compensation is usually based on a percentage of the sales price and is outlined in listing agreements or buyer representation agreements. Brokers earn a commission when they produce a ready, willing, and able buyer, even if the sale doesn’t close due to the seller’s fault. However, brokers may lose the right to a commission if they fail to disclose material information, are unlicensed, or do not have a signed written agreement.
Learning Objective: Describe the various types of antitrust violations common in the real estate industry.
Explanation: Antitrust violations in real estate include price-fixing (when brokers agree to set commission rates), group boycotting (when competitors conspire to exclude other brokers or businesses), and market allocation (when brokers agree to divide up geographic areas or types of clients). These practices limit competition and are illegal. Violations can result in severe penalties, including fines and imprisonment.
Learning Objective: Explain the provisions of the Texas Deceptive Trade Practices Act—Consumer Protection Act (DTPA) and its applicability to actions of real estate agents.
Explanation: The Texas Deceptive Trade Practices Act (DTPA) protects consumers from false, misleading, or deceptive acts in real estate transactions. Real estate agents can be held liable for misrepresentations or omissions that cause harm to a buyer or seller. Agents must disclose known material facts about a property and avoid making exaggerated claims. If an agent knowingly deceives a consumer, they may face severe penalties, including treble damages.
Key Term: Agency
Definition: A relationship in which one party (the agent) is authorized to act on behalf of another party (the principal) in dealings with third parties.
Key Term: Agency by ratification
Definition: An agency relationship created when a principal accepts or confirms actions taken by an agent after the fact, even if no prior agency relationship existed at the time the agent acted.
Key Term: Agent
Definition: A person authorized to represent a principal in dealings with third parties. In real estate, agents can be brokers or sales agents representing buyers, sellers, landlords, or tenants.
Key Term: Antitrust laws
Definition: Federal and state regulations that prohibit monopolies and unfair business practices, such as price-fixing, group boycotting, and market allocation, that limit competition.
Key Term: Appointed license holder
Definition: A license holder designated by an intermediary broker to represent one party in a transaction while another license holder from the same brokerage represents the other party, maintaining neutrality.
Key Term: Brokerage
Definition: The business of bringing buyers and sellers together in the marketplace, typically for a fee or commission.
Key Term: Buyer representation agreement
Definition: A written agreement between a buyer and a broker in which the broker agrees to represent the buyer in finding and negotiating the purchase of real estate.
Key Term: Caveat emptor
Definition: A Latin phrase meaning “let the buyer beware,” indicating that the buyer is responsible for checking the quality and suitability of goods before purchase.
Key Term: Client
Definition: A person who has engaged the services of a real estate agent through a contractual agreement, such as a listing or buyer representation agreement, creating a fiduciary relationship.
Key Term: Commingle
Definition: The illegal act of mixing client funds, such as earnest money or security deposits, with personal or business funds.
Key Term: Commission
Definition: The fee paid to a broker for services, typically a percentage of the sale price in a real estate transaction.
Key Term: Consumer
Definition: An individual or entity that seeks or acquires goods or services, including real estate, for personal, family, or household use.
Key Term: Customer
Definition: A person who receives limited services from a real estate agent but has not entered into an agency agreement with the agent. A customer is not owed the same fiduciary duties as a client.
Key Term: Employee
Definition: A worker who is subject to the control and direction of an employer, including specific hours and job duties. Employers must withhold taxes and provide benefits for employees.
