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Presentation on theme: "TREC MANDATORY ETHICS COURSE Revised October 2009."— Presentation transcript:


2 COURSE OUTLINE & OBJECTIVES Canons of Professional Ethics Agency Relationships Offers Defects and Disclosure Advertising Dispute Resolution TREC Case Studies

3  Fidelity (22 TAC 531.1)  Integrity (22 TAC 531.2)  Competency (22 TAC 531.3)  Consumer Information Form (22 TAC 531.18)  Discriminatory Practices (22 TAC 531.19)

4  Fidelity  Represents client  Position (representation) must be clear to all parties  Must treat others fairly  Must honor the trust  Must perform scrupulously & meticulously  Place client’s interest first Trust Me!

5  Scrupulously – strict regard for what is right; exact  Meticulously – extreme care in regard to details; careful “Perform with knowledge of what is right and care about the details”

6  Integrity  Special obligations imposed on licensee  Must be careful to avoid misrepresentation (by commission or omission)  Commission – doing something  Omission – neglect or failing to do

7  Competency - Ask Questions Found on Page 2  Must be knowledgeable  Must be informed about market  Continue education  Must stay informed  Must exercise judgment and skill

8  Consumer Information Form 1-1 (See form on Page 2)  Must be displayed in offices  Advises consumers where to file complaints

9  Discriminatory Practices  May not inquire about, respond to, or facilitate inquiries, or make disclosure which indicates or intended to indicate a preference based on a protected class  Protected classes defined  Handicap and AIDS are protected classes See footnotes on Page 2 and 3

10 TREC Complaints Consumers may file complaint at TREC Licensee will be notified Enforcement may investigate If a violation appears to be present the Enforcement will give notice to licensee Matter may be administratively settled or a hearing may be held

11 TREC Complaints (continued) If violation established sanctions include:  Reprimand  Suspension  Revocation  A fine  Probation  Any combination of the foregoing

12 TREC Complaints (continued) Advisory Letters  Determination by TREC staff that TREC will not pursue a sanction; but that there are matters noted by Enforcement Staff that give rise to concern and that should be corrected  Generally used in technical matters or when production of evidence or witnesses may be difficult

13 TREC Complaints (continued) Prioritization of Complaints  TREC is statutorily required to develop a system of prioritization  Degree of harm  Potential for immediate harm  Number of licensees involved  Complaint history  Number of potential violations

14 TREC Complaints (continued) Refunds - In addition to disciplinary action (suspension), TREC can order licensee to give a refund to the complainant (either from a informal settlement or enforcement order)

15 TREC Complaints (continued) Informal Disposition (2 levels)  Discussions with Enforcement Attorney  Additionally, TREC has procedures for informal disposition for licensee to discuss or negotiate case in presence of:  2 staff members; and  Public member of Commission

16 TREC Complaints (continued) Temporary Suspension while Investigation is Pending  In serious cases, TREC has authority to take immediate, temporary action.  May be used if TREC determines that the licensee would constitute a continuing threat to the public welfare

17 Association Complaints  Person may file complaint with a trade association  Complaint is sent to a Grievance Committee  Grievance may send matter to a hearing  Association may offer ADR  If hearing held then sanctions may be:  Reprimand  Fine  Probation  Suspension of Membership  Revocation of Membership  Any combination

18 Case Study (Page 4)  Broker took listing  Seller had falling out with broker; accused broker of rude & threatening behavior & stealing water  Hearing held at Association & Association expelled member for 3 years (MLS access denied)  Broker appealed and sued Association on procedural deficiencies  Court upheld for Association; unless there is lack of due process, Courts will not usually overturn Association decisions

19 Agency Relationships

20  Customer v. Client Customer = unrepresented; but may receive information and services from agent Client = someone the agent agrees to represent ○ Agreement to represent may or may not be in writing ○ Agreement to be an intermediary must be in writing SEE DISCUSSION ON PAGE 7 (Expectations)


22 Agency Relationships (continued) Agency Disclosure & IABS  Duty of Fidelity requires representation must be clear to all  IABS Form adopted in mid 1990s to provide definitions and discussion  2 basic principles about Agency Disclosure Inform everyone in transaction who you represent at first contact Provide IABS to the party you are working with at your first substantive dialogue.

23 1101.558 (b). A license holder who represents a party in a proposed real estate transaction shall disclose orally or in writing, that representation at the time of the licensee’s first contact with: (1) another party to the transaction; or (2) another license holder who represents another party to the transaction.

24 1101.558(c) The license holder shall provide to a party to a real estate trans- action at the time of the first substantive dialogue with the party the written state- ment prescribed by Subsection (d) of this section…, “Before working with a real estate broker, you should know that the duties of a broker depend on whom the broker represents. If you are a prospective seller or landlord (owner)...

25 Listing AgentOwner (listing presentation)Yes Listing AgentBuyer (represented)No Listing AgentBuyer (not represented)Yes Buyer AgentBuyer (buyer rep. agrmt.)Yes Buyer AgentOwner (represented)No Buyer AgentOwner (not represented)Yes Subagent Buyer (1st mtg.)Yes SubagentOwner (represented)No

26 Types of Listings  Exclusive Right to Sell or an Exclusive Agency (see Page 8)  MLS requires written and exclusive listing

27 The Intermediary

28 1101.559(a). A broker may act as an intermediary between the parties to a real estate transaction if: (1)the broker obtains written consentfrom each party for the broker to act as an intermediary in the transaction; and (2)the written consent of the parties states the source of any expected compensation to the broker.

29 1101.551(1). “Intermediary” means a broker who is employed to negotiate a transaction between the parties to a transaction and for that purpose may be an agent of the parties. 1101.559(c). An intermediary shall act fairly and impartially. Appointment by a broker acting as an intermediary of an associated license holder under Section 1101.560 to communicate with, carry out instructions of, and provide opinions and advice to the parties to whom that associated license holder is appointed is a fair and impartial act.

30 §1101.651(d) (d) A broker and any broker or salesperson appointed under Section 1101.560 who acts as an intermediary under Subchapter L may not: (1) disclose to the buyer or tenant that the seller or landlord will accept a price less than the asking price, unless otherwise instructed in a separate writing by the seller or landlord; (2) disclose to the seller or landlord that the buyer or tenant will pay a price greater than the price submitted in a written offer to the seller or landlord, unless otherwise instructed in a separate writing by the buyer or tenant; (3) disclose any confidential information or any information a party speci- fically instructs the broker or salesperson in writing not to disclose, unless: (A) the broker or salesperson is otherwise instructed in a separate writing by the respective party; (B) the broker or salesperson is required to disclose the information by this chapter or a court order; or (C) the information materially relates to the condition of the property; (4) treat a party to a transaction dishonestly; or (5) violate this chapter.

31 POWER TO APPOINT: § 1101.560. Associated License Holder Acting as Intermediary (a)A broker who complies with the written consent requirements of Section 1101.559 may appoint: (1) a license holder associated with the broker to communicate with and carry out instructions of one party to a real estate transaction; and (2) another license holder associated with the broker to communicate with and carry out instructions of any other party to the transaction.

32 Sec. 1101.560 (continued) (b) A license holder may be appointed under this section only if: (1) the written consent of the parties under Section 1101.559 authorizes the broker to make the appointment; and (2) the broker provides written notice of the appointment to all parties involved in the real estate transaction. (c) A license holder appointed under this section may provide opinions and advice during negotiations to the party to whom the license holder is appointed.

33 1101.559(b). A written listing agreement to represent a seller or landlord or a written agreement to represent a buyer or tenant that authorizes a broker to act as an intermediary in a real estate transaction is sufficient to establish written consent of the party to the transaction if the written agreement specifies in conspicuous bold or underlined print, the conduct that is prohibited under Section 1101.651 (d).

34 Decision to Appoint or Not Appoint is Matter of Firm Policy

35 Broker Associate - 1Associate - 2 SellerBuyer Intermediary By making appointments, Associates will provide opinions and advice during negotiations. HOWEVER: RESTRICTIONS UNDER 1101.651(d) APPLY. EXAMPLE 1

36 Broker Associate - 1Associate - 2 SellerBuyer Intermediary * Restricted by Subsection (1101.651(d)) No opinions or advice during negotiations EXAMPLE 2

37 Broker (Firm) Associate - 1 Seller Buyer EXAMPLE 3

38 Broker (Firm) Associate - 1 Seller Buyer Intermediary No Appointment EXAMPLE 3 – Alternative 1

39 Broker (Firm) Associate - 1 Seller Buyer Reassign One Party with consent of all parties = Intermediary Associate - 2 EXAMPLE 3 – Alternative 2

40 Broker (Firm) Associate - 3 Seller Buyer Reassign Both Parties with consent of all parties = Intermediary Associate - 2 Associate - 1 EXAMPLE 3 – Alternative 3

41 Sole Practitioner SellerBuyer No appointment possible. No opinions or advice during negotiations. Subsection 1101.651(d) restrictions apply. Example 4

42 Firm - Intermediary Broker/Owner Associate - 2 Seller Buyer Example 5

43 Broker (Firm) Broker-OwnerAssociate - 2 SellerBuyer Intermediary * Restricted by Subsection 1101.651(d) No opinions or advice during negotiations Firms where Broker/Owner is Active EXAMPLE 5 (continued)

44 Example 6  Agt. orally agrees to represent buyer  Moving to in-house sale  Solutions?  Intermediary; have buyer sign buyer rep. agrmt. and authorize intermediary  If buyer does not agree then must terminate agency relationship with buyer

45 Related Question (Example 6 continued)  Agt. has listing.  Unrepresented buyer wants to make offer  Must agt. move into intermediary relationship?  No.  May treat buyer as customer and represent seller  May move into intermediary under written consents  Check with company policies

46 In-house sale Co-op sale Buyer Rep. Agrmnt Written Information

47 In-house sale Co-op sale Buyer Rep. Agrmnt Written Information Single Buyer Representation

48 In-house sale Co-op sale Buyer Rep. Agrmnt Written Information Notification of Intermediary Relationship Appointments made.

49 Subagency A Subagent is: a license holder who represents a principal through cooperation with and consent of the broker directly representing the principal. a license holder who represents a principal through cooperation with and consent of the broker directly representing the principal. not sponsored by or associated with the broker directly representing the principal. not sponsored by or associated with the broker directly representing the principal. Exercise Caution not create implied agency (Page 13)

50 Other Types of Conflicts of Interest

51 Other Conflicts of Interest (cont.) ► When Licensee is a Principal  May not use expertise to the disadvantage of the other party  Includes when acting for spouse, parent, or child; or business (10% ownership or more)  May not act in dual capacity as an agent and undisclosed principal.  Must use care when purchasing property either currently or recently listed with licensee’s broker

52 Other Conflicts of Interest (cont.) ► If you receive a commission, rebate or fee from a service provider, you must obtain your principal’s consent. You must also disclose to the person being referred to the service provider that you are receiving the commission, rebate or fee. ► The licensee may not receive compensation (money, trips, bonus bucks) from more than one party without the knowledge and consent of all parties to the transaction.

53 Other Conflicts of Interest (cont.) ► If the licensee represents two buyers who are making offers on the same property, the licensee must disclose this status to both buyers. ► The licensee may not interfere with the exclusive agency relationship of another broker. ► A mortgage broker may not act as a mortgage broker and a real estate licensee in the same transaction without knowledge and written consent from the mortgage applicant.

54 Other Other Conflicts (continued) ► When Principal is Subject to Prior Agency Relationship with another broker  Should not provide services until terminated  Should not interfere (e.g., suggesting action)

55 Other Conflicts (cont.) Early Termination of Agency ► Agency is highly personal ► Agency relationship may be terminated at any time by either party. ► Early termination, without cause, may subject one to contractual liability under listing or representation agreement ► If an agent continues to offer property for sale without the consent of the principal, it is a violation of TRELA.

56 Other Conflicts - Early Termination of Agency ► If a principal is subject to an existing exclusive agency relationship with another broker, the licensee should not provide any services until confirmation that the prior agency relationship has been terminated ► Upon receipt of a notice of termination from a principal, the agent should cease acting as the principal’s agent:  Remove signs  Remove MLS listing  Remove information from website

57  Statute of Frauds & Enforceability ◦ To be enforceable all contracts for the sale of real estate must  Be in writing  Signed by person against whom it will be enforced  Consideration is also Required  Mutuality is also Required (unequivocal agreement)

58  Licensee must keep principal informed at all times of material information

59  Buyer agent who asks to be present at time listing agent submits offer ◦ Nothing in law requires listing agent to agree ◦ Buyer agent may not contact owner directly ◦ MLS rules provide for a rule of accommodation with regard to this request (see Page 18)

60  Option money should be delivered to seller (probably through listing broker)  Should not be delivered to 3 rd Party such as a title company or lender ◦ Failure to properly deliver may put buyer at risk of not having an option ◦ To be enforceable option must be supported by consideration and the consideration must be tendered in strict accordance with provisions

61  All offers must be presented to principal  No offer has priority over another  Agent has duty to principal but also duty of fairness to other parties ◦ “Fairness” in multiple offers is interpreted to mean multiple buyers are aware of multiple offers but the terms of offers are kept confidential. (see Page 19)

62  Acceptance is when contract is binding and enforceable  Acceptance is a communication (by any reasonable means) that offer or counter offer (unequivocally) is accepted

63  Enforceable acceptance in Real Estate ◦ In Writing (statute of frauds) ◦ Signed (statute of frauds) ◦ Unequivocal Acceptance of Terms (Mutuality) ◦ Communication of Acceptance  In oral negotiations, be careful not to give impression that enforceability exists until above exists

64  Effective Date: Broker’s fill in final date of acceptance as the effective date in TREC contract forms  Revocation of Offers/Counteroffers: A buyer or seller may revoke anytime prior to acceptance by other party

65 Submit all offers Convey all known information to principal Deal fairly and honestly with non-clients Keep principal informed at all times Convey accurate information Negotiate (???) best transaction for principal

66 Section 1101.557 of TRELA adopted to clarify a broker’s duty to negotiate. A broker who exclusively represents a client must, at a minimum: (1) answer the client’s questions if there are any about the offer or issues related to the offer; (2) keep the client informed of material information; and (3) present offers to or from the parties.

67 A listing broker may NOT instruct a buyer’s broker to negotiate directly with the seller. The mere delivery of an offer by one broker to a client of another broker does not violate TRELA if: the delivery is made with the consent of the client’s broker; the client’s broker receives a copy of the offer; and Deliverer does not otherwise negotiate with other client.

68 When working with minimum service agents, the agents are to be kept in loop (See discussion on Page 20)

69 Technical Questions: Property Managers Builders Gov’t REO procedures See Page 20 for discussion


71  TREC may suspend or revoke a license if licensee fails to disclose a known material defect to buyer regardless of representation  5.008 Property Code requires the delivery of a seller’s disclosure notice in residential sales

72  What is a defect?  Irregularity in surface or structure that mars its appearance or causes property to weaken or fail  Must be tangible and physical  Must be blemished or broken

73  What if seller does not want to disclose, but agent knows of it (DISCLOSE and tell Seller)  Why are there variations of Seller’s Disclosure Notice Form? (See Page 23)

74  Did Seller’s Disclosure Notice add any requirements to disclose?  Generally, no.  Notice is a MECHANISM of a disclosure that probably would otherwise be required  But it did add a few disclosures of PRIOR conditions (fire, foundation repair, flood, termite)  Generally, a repaired condition does not need to be disclosed (except as noted above) because the repair indicates there is no longer a defect

75  Must every seller deliver the seller’s disclosure notice?  There are exemptions (see Page 24)  Most commonly: builders & executors or trustees  Relocation Companies are not exempt

76  Is previous death on property required to be disclosed?  Statute says no as to deaths by natural causes, suicides, and accidents unrelated to condition of property.

77  Must prior water penetration be disclosed?  If cured, it is no longer defective  Prior water penetration is not in form as prior repairs to be disclosed  Questions could exist as to whether it has been repaired or if ensuing damage has been repaired

78  Sex Offenders in Neighborhood?  Code of Criminal Procedure says not the duty of a seller or agent  May disclose, but not obligated  Off-site Conditions?  Generally, not a defect with property  But could be source of a migrating defect

79 Advertising

80 Truth in Advertising  RELA has 2 requirements: May not create a misleading impression  Standard is not truth, but misleading Must identify yourself as broker or agent  Question is what is proper identification  Use “broker,” “agent,” “REALTOR”, etc.

81 Advertising  A licensee must identify his license status in advertisement For sale, Mighty Fine Real Estate OK Brokerage Services, 555-5555 For Sale, Sam’s Realty, 555-5555 OK

82 Advertising (examples that do not comply)  For Sale, Muddy River Real Estate, 555- 5555  For Sale, Good Management, 222-2222  For Sale, Callie Closer and Company, 666- 6666

83 Use of Team Names  In all ads, the broker’s name is to be included  Ads may not mislead consumer as to who is the broker and who is in charge See article on Page 28

84 Inducements in Advertising  Inducements Can be in ad, but conditions of inducements must be clearly disclosed

85 Advertising Compliance Checklist (Page 29)  Must have consent of owner or owner’s agent to advertise properties  Listing must be in broker’s name; not salesperson’s name  Ad must identify advertiser as broker or salesperson  Broker’s name must be in ads (salesperson name is not required)  May not imply that the salesperson is responsible for the brokerage operation  Written consent is required for a sign

86 Fair Housing & Advertisements  Prohibits Discriminatory Language in Ads Race, color, religion, sex, handicap, familial status, or national origin.  Applies to Commercial Transactions

87 Misrepresentations in Advertising  Statements in advertisements about the property from other sources may create liability If information is not otherwise verified; or DTPA Affirmative Defense is not utilized  Disclosure of source  No reason to know of error Large Concern is Square Footage

88 Internet Advertising  Websites are considered to be advertising  Therefore, licensee is to identify himself as a broker or salesperson on websites  Applies to each page  May use headers and footers to comply  E-mail can be considered advertising.  Domain Names may or may not be advertising (see Page 30)  Applies to Social Networking Sites

89 Timely Removal of Listings  Leaving a listing on a web site beyond a reasonable time after the listing expires or is sold could be considered to be a misleading advertisement

90 IDX & IDL Policies  Applies to MLS  Allows display of other brokers’ listings under the specific rules of the IDX or IDL  May not create misleading impressions about whose listings are being advertised

91 Mediation ► Mediation is a forum, before an impartial person, which is designed to facilitate communication between parties and to promote reconciliation, settlement or understanding.

92 Arbitration ► Arbitration is a forum where parties and counsel present their positions before an impartial party who renders a specific award.

93  Broker may share fees only with licensed brokers  Attorneys are exempt  Therefore, attorneys may perform brokerage functions, but must seek compensation from their principals or other parties  2 scenarios arise

94  A principal is not performing a brokerage function  Any principal (including an attorney) may ask for a rebate or inducement from the broker  Broker sharing a fee with a principal, usually just requires full disclosure

95  Attorneys representing a party may ask other party to pay their fees or ask for a concession  Broker may be put in situation where he is asked to reduce his commission  Broker may refuse or agree to reduce commission


97  Agt. signed listing & seller offered $2000 BTSA  In-house offer (through same agt.) was submitted; but offer indicated that buyer was working with another agt. in the firm  Buyer did not sign buyer rep. agreement or authorize intermediary in writing.  Contract signed and agt. did not tell seller he was working with buyer  Sale closed and seller paid commission and bonus  Complaint ensued after closing.  Agt., after mediation, paid some funds back to seller.  Other complaints came in related to advertising (unrelated)  Probated Suspension and Fine ($7K) - See Page 38 for order

98  Agt. helped buyer submit offer to HUD electronically  Agt. forgot to add commission ($5,375) to bid  Hard copy of offer did include commission  HUD was willing to accept Buyer’s electronic offer if Agt. would submit hard copy as reflected in electronic copy; but Agt. refused  Buyer lost bid and complained to TREC  Rec’d probated suspension for negligence

99  Agt. wrongfully obtained rental locating fees  Agt.’s license expired before facts were discovered and then filed an application for late renewal  In application, Agt. Did not disclose that he had been found guilty of such offenses and did not disclose that he had been placed on probation. He also did not disclose that there were pending complaints against him at TREC.  Application for Late Renewal was approved but given a probationary license for not truthfully answering questions on the application.

100  Agt. pleaded guilty to criminal offense of making a false statement to obtain credit and to the offense of arson  Agt. received probation (10 yrs.)  Agt. did not tell TREC of convictions  License was revoked because offenses directly related to occupation of a real estate license and because licensee failed to notify TREC of offenses within 30 days

101 Appendices  Appendix A – NAR Code of Ethics  Appendix B – The Effective Date  References

102 End Ethics: The End

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