Understanding Agency Relationships in Texas Real Estate

Client

Has agency agreement with agent or broker

Customer

Has no agency agreement with agent or broker (third party)

Fiduciary

Someone in a position of trust and loyalty

Principal

Party to the transaction, often the person for whom the agent acts

Agent

Acts on behalf of someone else and owes fiduciary duties

Exclusive agent for sellers

An exclusive agent for sellers only (seller agent)

Exclusive agent for buyers

An exclusive agent for buyers only (buyer agent)

Agent for either buyer or seller

An agent for either the buyer or the seller within a single transaction (but not both within a single transaction)

Sub-agent

A sub-agent for the buyer or the seller (working with the buyer agent or seller agent)

Non-agent

An agent for neither the buyer nor the seller (non-agent)

Agency disclosures

All licensees must make agency disclosures to any party that the licensees do not represent (customers) in a transaction or a possible transaction.

Information About Brokerage Services form

A written notice provided to the customer explaining agency/brokerage services at the time of the 'first substantive dialogue with the party.'

Substantive dialogue

A written or verbal communication in which a discussion about a specific real property is discussed.

Client status

Once a licensee has entered into an agency relationship with a client, through either a listing agreement (with a seller) or a buyer representation agreement (with a buyer), that person is a client.

Agency disclosure requirement

Texas law does not require that the agency disclosure to a customer be provided in writing.

Undocumented agency agreements

Can be serious economic and legal consequences if agency disclosures are not documented.

Policies and Procedures Manual (PPM)

Establishes what types of agency relationships are allowed in your firm, clarifies the duties and activities of each entity, prohibits illegal activities, and includes step-by-step procedures for common agency scenarios.

PPM purpose

Helps the brokerage control the agency relationships its affiliated licensees enter into, while avoiding illegal agency.

PPM benefits

Can help to prevent lawsuits, misunderstandings, and mismanagement, and protect the public from improper handling of trust funds and transactions.

Intermediary agency policy

A brokerage firm may have a policy against intermediary agency, and its PPM would state the procedures for handling situations where intermediary agency might arise.

PPMs

Guidelines and standards of behavior for firm members, core business practices and procedures, allowed agency types, duties/activities of each entity, and prohibited activities.

Policies

The rules by which a business operates.

Procedures

The ways in which tasks are carried out within the firm.

TREC Rules for PPMs

Require that any broker who sponsors sales agents or is the designated broker for a business entity must maintain a current version of a written PPM.

Authorized Activities

Every sponsored sales agent must understand the scope of their authorized activities under TRELA and be competent to perform those activities.

Active License Requirement

Every sponsored sales agent must keep their license in active status any time they are engaging in activities that require an active license under TRELA.

Compensation Payment

All compensation paid to a sponsored sales agent must only be paid through the sponsoring broker or with that sponsoring broker's consent.

Notice of Changes

Every sponsored sales agent must be provided with notice regarding any change to TRELA, TREC's rules, or any TREC-published contract forms before the effective date of such change.

Continuing Education Requirements

Every sponsored sales agent must complete the statutory minimum continuing education requirements and receive any additional education or instruction deemed necessary by their broker.

Advertising Rules

Every sponsored salesperson must comply with TREC's advertising rules.

Trust Account Maintenance

Every trust account, including property management and other trust accounts, and other funds received from consumers must be maintained by the broker as required under TREC rules.

Consequences for Violations

The consequences for violations of the PPM should be included within the PPM.

Communication of PPM

The importance of communicating the information in the manual and having everyone sign off on it, and then enforcing it so members can't claim they didn't understand.

Training on PPM

Everyone must be provided training on how to use the PPM and how to abide by its requirements.

Agency Relationships

The PPM content that pertains to agency relationships might include basic agency philosophy, definitions of agency types, and the firm's policy on types of agency permitted.

Information About Brokerage Services

Requirement to provide the Information About Brokerage Services form.

Disclosure of Agency Relationships

Disclosure of agency relationships, including the timing of required disclosures.

Required Forms

Use of required forms, including the agency disclosure form.

Duties to Buyers and Sellers

Duties to buyers and sellers should be outlined in the PPM.

Client Meeting Scripts

Scripts for meeting with clients in various scenarios.

Handling Common Situations

Procedures for handling common situations should be included in the PPM.

Dealing with Outside Companies

Guidelines for dealing with outside companies and other agents.

FAQs

Frequently asked questions related to PPMs.

Buyer Representation

The process through which a buyer is represented by an agent in real estate transactions.

Open Agency

An arrangement that allows buyers to work with multiple agents but limits the level of representation.

Exclusive Agency Agreement

An agreement that allows buyers to work with a single agent or find a buyer for their home on their own.

Exclusive Right to Represent Agreement

An agreement that offers the buyer the highest level of exclusive representation.

Buyer Client

A buyer who has a formal relationship with an agent, allowing for a higher level of service and representation.

Buyer Customer

A buyer who does not have a formal relationship with an agent and receives limited services.

Earnest Money

A deposit made to demonstrate a buyer's serious intent to purchase a property, typically suggested at an amount based on local practices (e.g., 2%, 10%).

Financing Options

Various methods available for buyers to finance their property purchase, which agents can discuss without recommending specific approaches.

Pre-Qualification Letter

A document from a lender indicating that a buyer is qualified for a mortgage up to a certain amount.

Pre-Approval Letter

A more formal document than a pre-qualification letter, indicating that a lender has verified a buyer's financial information.

Making an Offer

The process of presenting a proposal to purchase a property, where agents can help make the offer more attractive.

Property Disclosure

The obligation to inform buyers of any known adverse material facts about a property.

Transactional Documents

Documents related to the real estate transaction that must be reviewed for accuracy by the buyer's agent.

Negotiation

The act of discussing terms and prices on behalf of the buyer to secure the best deal.

Showing Listings

The process of finding and scheduling property viewings that meet the buyer's criteria.

Buyer Agent Tasks

Responsibilities of an agent representing buyers, including advocating for their interests and ensuring they understand property conditions.

Due Diligence

The process of conducting thorough inspections and evaluations of a property before purchase.

Buyer Presentation

A one-hour meeting with potential buyers to establish professionalism and build rapport.

Material Facts

Important information about a property that must be disclosed to buyers.

Commission

The fee paid to an agent for their services, often covered by the seller in a transaction.

FSBO

For Sale By Owner, a property being sold directly by the owner without an agent.

Subagent

An agent who works on behalf of another agent or brokerage in a real estate transaction.

Brokerage Policy

The guidelines and rules established by a real estate brokerage that govern agent conduct and transactions.

State Law

Legal regulations that govern real estate transactions within a specific state.

Qualifying Buyers

The purpose of qualifying buyers is to determine their readiness to work with you and their readiness to purchase.

Buyer Representation Agreement

The buyer representation agreement is a document that outlines the relationship between the buyer and the agent, similar to a job interview.

Buyer Clients Expectations

Buyers can expect negotiating, representation, contract to close counseling, personalization, and wider searches from a buyer's agent.

Buyer Customers

Buyer customers are owed honesty, fairness, and proper accounting for funds but do not receive advocacy or negotiation for the best terms.

Exclusive Right-to-Purchase

Exclusive right-to-purchase means greater client loyalty as buyers commit to working with the buyer's agent exclusively.

Negotiating

A buyer's agent negotiates on behalf of the buyer to get the best price and terms available.

Wider Searches

A buyer's agent may extend the search to include open listings, properties listed with other brokers, or properties not yet on the market.

Speed with Internet-savvy Buyers

Speed is of the essence with Internet-savvy buyers, and pre-qualification helps buyers determine how much home they can afford.

Questions to Ask Buyers

"How did you get my name?" and "How long have you been looking for a home?" are questions that can reveal buyer commitment and intentions.

Importance of Buyer Agency

It's important to explain the difference between duties owed to the buyer as a customer versus those owed as a client.

Licensee Responsibilities

When there's an agency agreement, the licensee's responsibility includes getting the best house for the best price and advocating for the buyer.

Contingent Sales

Some sellers are opposed to working with buyers who have contingent sales, which can affect the buyer's ability to purchase.

First-time Homebuyers

First-time homebuyers require extra hand-holding, such as explaining transaction steps, earnest money, contractual liability, and deadlines.

Texas Law on Brokerage Services

Texas law doesn't require a signature on the Information About Brokerage Services form, but licensees may need to prove they've provided it.

Buyer Representation Presentation

Start the buyer presentation by giving the buyer a copy of the Information About Brokerage Services form.

Objections to Meetings

Overcome the buyer's objections to a meeting and don't leave the meeting time open-ended.

Pre-qualification

Pre-qualification helps buyers determine how much home they can afford and prevents time spent with buyers who can't buy.

Agent's Liability

The buyer's agent isn't liable for any misrepresentations made by a listing agent since there's no agency relationship with the seller.

Buyer Needs Assessment

Allows you to build rapport and provides an opportunity to define the buyer's needs, wants, and readiness to purchase.

Meeting Likelihood

A face-to-face meeting increases the likelihood that the buyer won't shop around for another broker.

Buyer Readiness

It's important to establish that buyers are not already exclusively represented by another agent.

Legal Advice

A buyer's agent should be careful to avoid giving legal advice.

Buyer Counseling

Contract to close counseling is part of the services provided by a buyer's agent.

Purpose of Buyer Presentation

To build trust with the buyer.

Buyer Questionnaire

A form completed with information about the buyer, including their wants and needs, type of property, primary motivation for purchase, price range, and lender.

Termination of Buyer Agency Agreement

A buyer agency agreement can be terminated if the term expires, the buyer purchases a property, there is mutual written agreement, or either party dies or is incapacitated.

Required Elements of a Texas Buyer's Representation Agreement

Includes parties to the agreement, start and end date, broker compensation, duties and responsibilities, intermediary status, competing clients, and addenda.

Protection Period

After the agreement ends, the broker is owed compensation if the client acquires a property shown during the term of the agreement.

Written Notification of Compensation

Texas law requires written notification of compensation if there is a dispute about non-payment of fees.

Procuring Cause Dispute

Creating an agency relationship with a written buyer's representation agreement makes a procuring cause dispute rare.

Broker's Fees Section

The section of the buyer representation agreement where the broker's compensation is agreed upon.

Buyer's Broker Compensation

The most common way the buyer's broker is compensated is by a share of the listing broker's commission from the sale.

Required Disclosures

Includes Information About Brokerage Services form, Disclosure of Agency Relationships, Disclosure of Property Conditions, and Disclosure of Licensee's Interests.