Unit 4: Real Estate Brokerage and Law of Agency

Question 1

Explain the types of agencies and the processes by which agency can be created and terminated.

Answer 1

Agency is created at the broker level, not the sales agent level.

The real estate broker-seller relationship generally is created by an employment contract, commonly called a listing agreement. A broker-buyer agency relationship is created by a buyer representation agreement.

Written listing agreements and buyer representation agreements are examples of express agency, in which the parties state the contract’s terms and express their intentions.

A broker’s actions may create an implied agency relationship.

Agency by ratification is an agency “after the fact.”

Generally, an agency relationship may be terminated at any time.

Question 2

Describe the 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.

Answer 2

The five common law fiduciary duties to a principal may be remembered by the acronym COALD: Care, Obedience, Accounting, Loyalty, and Disclosure.

The four common law duties of a principal (client) to an agent may be remembered by the acronym CIIA: Compensation, Information, Indemnification, and Availability.

Agents responsibilities to customers - duties of reasonable care and skill, honest and fair dealing, and disclosure of known material facts about the property.

A broker owes the client a full, fair, and timely disclosure of all known facts relevant to the transaction.

Question 3

Identify the broker’s role in the disclosure of agency relationships, and the types of agencies and the types of agency relationships and and agency responsibilities created by Texas statute.

Answer 3

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” that sets forth generalized information relative to seller representation, subagency, buyer representation, and the intermediary position, including “the basic duties and obligations a broker has to a party to a real estate transaction” and “provides the name, license number, and contact information for the license holder and the license holder’s supervisor and broker.”

Four statutory agency positions:
1 - Seller’s agent (A broker who lists the property for sale or lease represents the owner as a seller’s agent, usually through a written listing agreement.)
2 - Subagent
3 - Buyer’s agent (A broker who acts as a buyer’s agent represents the buyer, usually through a written buyer representation agreement.)
4 - Intermediary

Question 4

List the requirements for broker compensation and some common situations in which a broker would or would not be entitled to a commission.

Answer 4

According to common law, to be entitled to a sales commission, selling brokers must be able to show that they were the procuring cause of a sale.

Also required:
1 - The person held a valid real estate broker’s license.
2 - The agreement to pay was in writing and signed by the party to be charged.
3 - The broker or sales agent advised the buyer in writing before closing that the buyer should obtain or be furnished with a title insurance policy or have the abstract covering the subject property examined by an attorney of the buyer’s choice.

Some situations in which a broker would not be entitled to a commission:
1 - Failure to give the required title notice to the buyer.
2 - Failure to state an amount or percentage rate of commission in a listing contract.
3 - Failure (without fault) on the part of the seller to deliver title assurance (an abstract or title insurance policy) to the buyer.
4 - The Texas Real Estate License Act prohibits a real estate license holder from paying a commission, fee, or other valuable consideration to a person who is not licensed as a sales agent or broker for services as a real estate agent.

Question 5

Describe the various types of antitrust violations common in the real estate industry.

Answer 5

Antitrust violations
include these:
- Price-fixing
- Boycotting a competitor
- Allocation of customers or markets

Question 6

Explain the provisions of the Texas Deceptive Trade Practices Act - Consumer Protection Act (DPTA) and its applicability to actions of real estate agents.

Answer 6

The DTPA protects consumers against
false, misleading, or deceptive acts or
practices of sellers or real estate agents.

The three circumstances under which the DTPA does apply to the actions of real estate agents are:

1 - “an express misrepresentation of a material fact that cannot be characterized as advice,
judgment, or opinion”;

2 - 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

3 - “an unconscionable action or course of action that cannot be characterized as advice, judgment, or opinion.”

Question 7

agency

Answer 7

The relationship between a principal and an agent wherein the agent is authorized to represent the principal in certain transactions.

Question 8

agency by ratification

Answer 8

An agency relationship that is established after the fact.

Question 9

agent

Answer 9

One who acts or has the power to act for another. A fiduciary relationship is created under the law of agency when a property owner, as the principal, executes a listing agreement or management contract authorizing a licensed real estate broker to be her agent.

Question 10

antitrust laws

Answer 10

Laws designed to preserve the free enterprise of the open marketplace by making illegal certain private conspiracies and combinations formed to minimize competition. Violations of antitrust laws in the real estate business generally involve price-fixing (brokers conspiring to set fixed compensation rates), allocation of customers or
markets (brokers agreeing to limit their areas of trade or
dealing to certain areas or properties), or agreement to
boycott competitors.

Question 11

appointed license holder

Answer 11

A license holder associated with and appointed by an intermediary broker to communicate with, carry out instructions of, and provide opinions and advice to the parties to whom the license holder is appointed.

Question 12

broker

Answer 12

One who buys and sells for another for a commission.

Question 13

brokerage

Answer 13

For a commission or fee, bringing together parties interested in buying, selling, exchanging, or leasing real property.

Question 14

buyer representation agreement

Answer 14

A contract that establishes a broker-buyer agency relationship.

Question 15

caveat emptor

Answer 15

Latin phrase meaning “let the buyer beware.”

Question 16

client

Answer 16

The person who employs an agent to perform a service for a fee.

Question 17

commingle

Answer 17

The illegal act of a real estate broker who mixes the money of other people with his own money instead of maintaining a separate trust account for other parties’ funds held temporarily by the broker.

Question 18

commission

Answer 18

Payment to a broker for services rendered, such as in the sale or purchase of real property; usually a percentage of the selling price of the property.

Question 19

consumer

Answer 19

An individual, partnership, corporation, or Texas government agency that seeks or acquires, by
purchase or lease, any goods or services, as defined by the Texas Deceptive Trade Practices Act.

Question 20

customer

Answer 20

One who purchases or sells property without being represented by an agent.

Question 21

employee

Answer 21

One who works under the supervision and control of another. The employer is obligated to withhold income taxes and Social Security taxes from the compensation of an employee. See also independent contractor.

Question 22

express agency

Answer 22

An agency created by specific agreement, whether written or oral, of principal and agent.

Question 23

fiduciary relationship

Answer 23

A relationship of trust and confidence, as between trustee and beneficiary, attorney and client, or principal and agent.

Question 24

fraud

Answer 24

A misstatement of a material fact made with intent

to deceive or made with reckless disregard of the truth, and that actually does deceive.

Question 25

general agent

Answer 25

One authorized by the principal to represent the principal in a broad range of matters, for example, a property manager.

Question 26

implied agecy

Answer 26

An agency created by acts or words of principal and agent; an agency inferred by circumstances.

Question 27

independent contractor

Answer 27

Someone retained to perform a certain act but who is subject to the control and direction of another only as to the end result and not as to the way in which she performs the act. Unlike an employee, an independent contractor pays for all her own expenses and both Social Security and income taxes and receives no employee benefits. Most real estate sales agents are independent contractors.

Question 28

IABS disclosure

Answer 28

Information About Brokerage Services disclosure

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” that sets forth generalized information relative to seller representation, subagency, buyer representation, and the intermediary position, including “the basic duties and obligations a broker has to a party to a real estate transaction” and “provides the name, license number, and contact information for the license holder and the license holder’s supervisor and broker.”

Question 29

intermediary broker

Answer 29

A broker who is employed to negotiate a transaction between both parties and who for that purpose may be an agent of both parties to the transaction, acting fairly so as not to favor one party over the other.

Question 30

law of agency

Answer 30

see “agent.” One who acts or has the power to act for another. A fiduciary relationship is created under the law
of agency when a property owner, as the principal, executes a listing agreement or management contract authorizing a licensed real estate broker to be her agent.

Question 31

listing agreement

Answer 31

A contract between a landowner (as principal) and a licensed real estate broker (as agent) by which the broker is employed to sell real estate on the owner’s terms within a given time, for which service the landowner agrees to pay a commission.

Question 32

misrepresentation

Answer 32

An unintentional misstatement of a fact; incorrect or misleading representation.

Question 33

principal

Answer 33

A main party to a transaction— the person for whom the agent works.

Question 34

procuring cause

Answer 34

The effort that brings about the desired result. Under an open listing, the broker who is the procuring cause of the sale receives the commission.

Question 35

puffing

Answer 35

Exaggerated or superlative comments or opinions not made as representations of fact and thus not grounds for misrepresentation.

Question 36

ready, willing, and able buyer

Answer 36

One who is prepared to buy property on the seller’s terms and is ready to take positive steps to consummate the transaction.

Question 37

special agent

Answer 37

One authorized by a principal to perform a single act or transaction; a special agent for a seller is authorized to find a ready, willing, and able buyer for a particular property; a special agent for a buyer is authorized to assist a buyer in locating and negotiating the purchase of a property.

Question 38

subagent

Answer 38

A license holder who represents a principal through cooperation with and consent of a broker representing the principal and who is not sponsored by or associated with the principal’s broker. (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.)

Question 39

Texas Deceptive Trade Practices - Consumer Protection Act (DTPA)

Answer 39

Makes it illegal to use false, misleading, or deceptive acts or practices in the advertising, offering for sale, selling, or leasing of any real or personal property.