PRESENTED BY Peggy

Santmyer

PURPOSE

The purpose of the course is to address the regulatory aspects of theManagementOperationSupervision

of a real estate brokerage business in Texas

A working knowledge of The Law of Agency Planning and organization of business

entities Requirements for written policies &

procedures Records retention and control Advertising rules and The anatomy of a complaint filed with

the Texas Real Estate Commission

THE COURSE PROVIDES

The Texas Real Estate License Act is Chapter 1101 of the Texas Occupations Code

The Texas legislature has empowered the Real Estate Commission to enact Rules of the Commission which describe how they intend to enforce the license act.

A violation of the Rules is subject to the same sanctions as a violation of the license act.

The License Act and the Rules

Section 535.2 of the TREC Rules require the following to take the 6 hour course as a part of their 15 hour MCE

A broker that sponsors salespersons A designated broker of a business

entity A licensee that is the delegated

supervisor of one or more licensees for 6 months of more during the current license term

Licensees and employees required by the sponsoring broker to take the course

Who Must Take the Course?

Buying, Selling or Leasing Real Estate for another with the expectation of receiving something of value constitutes the practice of brokerage under the Texas Occupations Code 1101.652(a).

Acting for the licensees own account does not fall under the definition of brokerage.

Brokerage

IndividualPartnershipCorporationLLCAny other legal entity

Person

Sells, exchanges, leases, purchases real estate for another

Offers or negotiates any of the above Deals in options on real estate Aids, offers or attempts to locate

properties or purchasers for any of the above

Controls the deposit of rent on a single family residential unit

Provides opinions of value in the ordinary course of business

Real Estate Broker

An individual with an active Texas Broker’s License designated by a business entity (licensed by TREC) to act on the entities behalf.

Must be an officer of a corporation, manager of an LLC or general partner of a partnership

NOTE: If the DO does not own at least 10% of the entity, the entity will be required to have E&O insurance.

Designated Broker

A person who is associated with a licensed broker for the purpose of performing real estate brokerage

Salesperson

Residential or Commercial Sales Residential or Commercial Leasing and

Property Management, International Selling

Sale or rental or coastal area property Sale or rental of farm and ranch

property Sale or rental of condos and

townhouses Sale of vacant land, Short Sales,

Foreclosures …. Just to name a few

A License holder may act on behalf of their Broker in:

Can any salesperson be knowledgeable enough to work in all of those various fields??

Can any sponsoring broker be knowledgeable enough to train and monitor agents in all of those fields??

Two Important Questions

Does Broker liability increase when their sponsored licensees attempt to work in areas of the real estate business that they are not trained or experienced in???

Broker Liability

How many real estate specialties can the average broker have the knowledge & experience to train and monitor agents??

Is it risky for a broker to authorize their agents to do things the broker has no knowledge about?

Thoughts to ponder…..

A broker is required to advise a sponsored sales person on the scope of their authorized activities. Trec Rules 535.2a

The broker is responsible for the authorized activities of their agents

If the broker permits the salesperson to conduct activities beyond the authorized scope the broker is responsible to those activities too.

Broker Responsibility

A sponsoring broker should create competency standards required before a supervised licensee can enter into specific real estate specialties.

The standards can be in the office manual, the independent contractor agreement, etc

The standards might include education or experience in the various specialties.

Competency Standards

Is a new licensee capable of selling a downtown high rise office building?

Do new licensees need assistance with completing contract forms?

Does a licensee need to know about the Landlord/Tenant laws before offering property management?

Should licensees selling Farm and Ranch property be aware of mineral rights and cash crops?

Competency Considerations

A broker :

must have written policies to ensure the competency of their salespeople within the scope of their practice.

must ascertain that the licensees are receiving the necessary education to perform the duties of their authorized activities.

Broker Must Ensure Licensees Competency

Sponsoring Brokers may find it prudent to require a background check of all employees of the broker and all employees of the licensees that have access to the office and the files.

A broker may want to consult with an attorney regarding the implementation of such a policy.

Background Checks

There are no regulations regarding recruiting licensees from other sponsoring brokers.

Recruiting Licensees

A salesperson represented a buyer in the purchase of a condominium. The buyer told the salesperson they could not afford more that $200 a month for association fees.

Condo documents were delivered late and showed fees of $323 a month and no one noticed

Salesman did not review the HUD and still no one noticed the $323 monthly fees.

Continued….

Case Study

The sponsoring broker was the respondent in a TREC complaint

The broker was found guilty of having failed to monitor and supervise the sales agent

The broker was not aware that the transaction involved a condominium or that the salesperson was inexperienced in handling condominium transactions

The broker agreed to a reprimand and paid an administrative fee of $1,000.00.

The Law of Agency and the Texas Real Estate License Act govern the relationships between clients and brokers.

Agency relationships can be created in various ways by written or verbal authority.

Broker compensation can come from the brokers principal, the other principal in the transaction or the other principals broker as long as all parties are aware and agree.

Law of Agency

The relationship requires the consent of both parties to establish.

The consent can happen in writing or orally or by action of the parties.

Confidential information obtained, even in pursuit of an agency relationship, may obligate the broker to keep confidential information confidential forever

Timing of the Agency Relationship

Agency by Actual Authority

Agency by Ostensible Authority

Agency by Ratification

Types of Agency

Created by an express written or oral contract between the parties.

The contract can obtain some express authority plus it includes some implied authority

Implied authority is the right to perform certain acts on behalf of the principal even though the acts have not been specified in the contract. ie: marketing, advertising, placing signs, etc.

Agency by Actual Authority

Agency by Ostensible Authority is formed when the principal causes a third party to believe someone is their agent even though a contract does not exist

Agency by Ostensible Authority

Agency by Ratification is also known as Agency After the Fact. It happens when the principal allows the agent to act, even though the agent is not authorized, and the principal benefits from the agents actions.

Agency by Ratification

Real estate licensees are sometimes sued by parties in a transaction for the following alleged liability for:

Misrepresentation Breach of contract Negligence Slandering title Fraud Expression of an opinion

Agency Liabilities

General Agency An ongoing relationship Many transactions Broker to Agents Property Managers

Special Agency A one time transaction Broker to Sales Clients

Two Types of Agency

The relationship between a broker and their sales-agents is general agency. It is on going.

The principal (Broker) is always responsible for the acts of the agent that is working within the scope of their authorized duties.

General agency comes with a wide range of authority. For example an agent can sign a Listing Agreement and bind the broker.

If the agent makes a misrepresentation the broker is liable.

Note: Property Management Transactions are usually general agency. Broker can bind principal.

General Agency

The relationship between the broker and the sales client is usually special agency. It is for one transaction.

The agent does not have the authority to bind the client under special agency or to sign anything for the client.

In special agency the principal/client has very little control over the agent. Therefore any misrepresentation or other wrongful acts by the broker (or their agents) will result in the broker being liable rather than the client.

Special Agency

Client Broker SalesAgent

General AgencySales-Agent Can Bind BrokerProperty Manager Broker can Bind OwnerOn Going Transactions

Special AgencyBroker Can Not Bind ClientOne Time Transaction

The agent (broker) acts as a fiduciary for the client. The agent owes the client:

Trust Honesty business dealings Confidentiality

The agent must not do anything that is not in the clients best interest.

Brokers Duty to the Client

The license act gives any licensee or not for profit real estate board the right to use information regarding sales prices or terms for the purpose of facilitating, selling, leasing, financing or appraising real property.

This right exist even if there is a confidentiality clause in the contract, unless the disclosure is specifically prohibited by statute. Tx Occ Code 1101.804

Disclosing Sales Prices

A person with Aids or HIV illness is handicapped according to the Fair Housing Laws.

Section 1101.556 of the License Act provides that real estate licensees have no duty to inquire or disclose anything regarding Aids or HIV illness.

Disclosing HIV Issues

Under the license act a licensee does not have to disclose death in a property because of natural causes, suicide or accident unrelated to the property.

Nothing in the law address disclosure in the event of murder, accident related to the property or unnatural causes.

Disclosing Death on a Property

Section 62.056(e) of the Code of Criminal Procedure says that the licensee has no duty to disclose registered sex offenders.

Parties can research on the data base.

Disclosing Registered Sex Offenders

PerformanceLoyaltyReasonable CareAccounting for All Monies

Duties Owned to the Principal

The Broker, as the agent, will use their best efforts and diligence to market the property according to the principals instructions.

Obtain the best price available for the principal.

Corresponding duties apply to buyers agents, tenant representatives or landlords’ agents.

Performance

The Broker (and all of the brokers sales agents) owe the principal 100% loyalty.

When one Broker represents both the Buyer and the Seller in one transaction, the conflict is resolved by the intermediary relationship as defined by the act. It is important to follow the procedures defined in the act.

Loyalty also means the agent will not advance the agents’ interest to the detriment of the principal. This is the essence of the fiduciary responsibility of the agent.

Loyalty

The duty of loyalty includes the agents full disclosure to the principal.

TREC Rules require that the licensee disclose all known information that may affect the principals decision to accept or reject offers and keep the principal informed of all significant information.

A broker that puts their own interest above that of the client may face breach of fiduciary duties allegations.

Full Disclosure

A broker must ascertain a seller knows about any appreciation in value before agreeing to sell the property.

If a broker has more than a 10% interest in the entity purchasing the property it must be disclosed to the seller

A broker working on behalf of his spouse, parent or child must be disclosed.

TREC Rules 535.144 (b)

Required Disclosures

Protecting the principal from harm requires the brokers’ competence and expertise.

The broker must avoid any fraud or misrepresentation that would prevent the principal from making sound decisions

Standards of conduct concerning reasonable care can be found in the act, in the TREC Rules and in customary practice within the industry.

Reasonable Care

Any money collected for a principal must be promptly remitted or delivered into an escrow account.

Money belonging to principals my never be commingled with the brokers’ funds. Tx. Occ. Code 1101.652 (b) (10) and (11)

A broker or salesperson may never accept an undisclosed rebate, commission or profit on expenditures. Tx. Occ. Code 1101.652 (b) (13)

Accounting

PerformanceCompensationReimbursementIndemnification

Duties of the Principal to the Broker

The principal is expected to do what ever is necessary to accomplish the purpose of the agency.

Performance

Normally compensation is agreed to in the Listing Agreement, Buyers’ Representation Agreement, etc.

Compensation is earned when the agent produces a ready, willing and able buyer.

Compensation is usually payable when the transaction closes.

Compensation

The principal owes the agent reimbursement for expenses made on behalf of the principal.

Would include minor repairs made to protect the property for an absentee owner

Does not include cost of doing business such as marketing, advertising, etc.

Reimbursement

The duty arises when the agent, due to no fault of their own, suffers a loss while performing duties on behalf of a principal

For example if the owner misrepresents the condition of the property to the agent causing the agent to make a misrepresentation to a third party, the agent may be entitled to reimbursement for losses.

Indemnification

The duty of fidelity is owed to the principal, however a duty of fairness and honestly is owed to third parties in the transaction.

All parties are entitled to complete disclosure regarding the property. Tx. Occ. Code 1101.652 (b) (3) and (4)

All parties are entitled to know who the broker is representing. Tx. Occ. Code 1101.652 (b) (7)

Continued….

Duties to Third Parties

A broker that represents a buyer may do so under a written or oral agreement.

Note: Intermediary transactions require written permission from both parties

A broker can represent a buyer and be paid by the seller or the seller’s agent, paid by the buyer or paid by both.

All commission must be disclosed to the principal.

Buyer Brokerage

A broker is obligated to advise all parties to have the abstract examined Tx. Occ. Code 1101.652 (b) (29)

If a broker or agent receives a request for a copy of a document by a person that signed the document, the licensee is obligated to return the document. Tx. Occ. Code 1101.652 (b) (28)

All licensees when engaging in real estate on their own behalf are obligated to inform anyone in the transaction they are licensed and shall not use their expertise to the disadvantage of any party. TREC Rules 535.144.

Fees for services provided Works well for buyers and sellers that want to do part of the research, etc

Rebates to buyers do not violate the act

Fee for Services/Rebates

A broker who represents a party must:

Inform their client of material information including offers on the property

Present offers to the clientHelp the client negotiate the offer

Minimum Level of Service

The law states that a broker that represents both the buyer or tenant and the owner or landlord in a transaction must act as an intermediary under the rules in the license act

No dual agency in Texas Both parties must agree to allow the

broker to be an intermediary. The listing agreement and the Buyer/ Tenant representation agreement are the usual way permission is given.

Being an Intermediary

If the Listing Agreement and Buyer/Tenant Agreement give the Broker the right to appoint two different agents to assist the two different parties the Broker may do so.

The parties must accept the appointments in writing. TAR Notice of Intermediary works well.

Broker May Appoint Agents

Much more complicated transactions than a sales transaction.

Brokers contract with vendors for service to maintain or repair the properties. Vendors expect to be paid

If the agent works within the scope of their authority and the vendor knows who the owner is, the agent is normally not liable for the debt. Continued…………

Property Management Responsibilities

If a vendor relied on the fact he believed the agent was acting under authority from the principal/owner the principal may still be liable to the vendor under apparent representation however

If the agent was acting outside their scope of authority the owner may have a cause of action against the agent

If the vendor never knows the identity of the owner, the agent will probably be liable to the vendor for payment.

continued…..

Can be by an agreement of the parties

Can be by one party if it is for just causeEither party may be exposed to legal

liability if they default under the contract

Can be an operation of law◦Death or insanity of the principal or the agent

◦A change in the law making the transaction illegal

◦Expiration of the agreement

Termination of Agency

Improper creation of agency was a part of several TREC hearings last year.

Buyer ask agent to prepare an offer on an in house listing. Buyer had not signed a Buyers Rep.

Agent had buyer sign IABS and TAR Notice of Intermediary but no Buyers Rep.

There was an amendment to the contract later with an additional $12,000 earnest money and some ambiguous language.

Continued…..

Case Study

The salesperson was found guilty of failing to establish a proper intermediary relationship and failing to instruct purchaser they should seek legal advise before signing the amendment.

Agent agreed to: $2500 administrative penalty Reprimand

Many Licensees like to work under legal entities for liability protection and for tax purposes.

The choice should be made only after consultation with both legal and tax consultants.

Legal Entities

If an entity is to receive real estate commissions the entity must be licensed by TREC.

The entity must designate an individual broker to be responsible for the actions of the entity as a licensee.

The designated broker must be

The Entity Must be Licensed

An officer of the corporationA manager of the limited liability company orA general partner of the partnership

If the designated officer owns less than 10% of the entity the entity must obtain and maintain errors and omissions insurance in the amount of $1million.

Legal entities(including individuals) can do business under an Assumed Name. Must file the assumed name with TREC. Can use the TREC dba form.

Entities, Assumed Names and E&O

Corporations

PartnershipsGeneral PartnershipLimited Partnership

Limited Liability Companies

Types of Legal Entities

Chartered by the State of Texas Owned by shareholders Operated by officers Structured by bylaws S Corp pays no tax at the Corporate Level

C Corp pays tax at both the Corporate and individual level

Corporation (inc or corp after name)

General partnership All partners have liability for the debts of

the partnership A written agreement is recommended but

not required.

Limited partnership Filed with the Secretary of State LP or LLP after it’s name The partners have a Partnership Agreement Must have a General Partner that accepts

liability

PartnershipsTaxed at Partners Level not Entity

Articles of incorporation are filed with the Secretary of State

Limited liability for the members Taxes passed through to the members

No requirement for a general partner

An individual broker who is a manager is needed for the LLC to get a real estate license

LLC

Section 532.2 of the TREC Rules require brokers to maintain written policies and procedures addressing:

The relationship between the broker and the agents

Competency of agents Compensation issues Maintenance of trust accounts and

business records

Need for Agency Policy – Scope of Authorizations

A contract between the broker and the insurance company

Policies need to be scrutinized to determine exclusions and other coverage issues

Most E&O policies require timely and complete disclosure of any potential claim

Errors and Omissions Insurance

Brokers need to address: Broker/agent safety Client safety Cell phone use Computer use Checklist for office personnel Listing and contract files Copyright and license obligations Other risk management issues broker

thinks is needed

Risk Management Policy

It is a crime for an unlicensed person to engage in any activity that requires a real estate license.

The licensee that employs the unlicensed person can be charged with a crime and penalized by TREC

Real estate brokerage activities must be for another person or entity and done with the expectation of receiving something of value

Use of Unlicensed Assistants

Part of the license act says that assisting to find buyers, sellers or properties requires a license. No telemarketing

Can sit on an open house as host/hostess but must take care not to “show the property”

Can set up appointments for the licensee Can open the property (not show the

property), put up signs, write ads,etc Must identify themselves as “unlicensed”

continued……

Fine Line Determining Need for Licensure

Unlicensed assistants must refer all questions about the property to the licensee

Unlicensed persons can train, motivate licensees but can not assist with any real estate activity to buy, sell or lease property.

Cannot review contracts May not direct or supervise agents

A person who controls the collection of rent on a single family residence must have a real estate license

Single family residence is a single family home, condo, townhouse.

Does not include a duplex, triplex, 4 plex unless a single unit is what is owned

One who controls rent is someone thata. Has the authority to use the rent

money for management of the propertyb. Has the right to deposit the rent checks or withdraw money from that

account

Definitions

Make sure all licensees keep their license active.

Determine the extent to which unlicensed assistants are being ask to do activities that may require a real estate license according to TREC Rules

Establish written rules describing for agents and unlicensed assistants what the unlicensed person can and cannot do.

Risk Management for the Broker

TREC Rules say that the broker or salesperson may not place an ad that in any way indicates someone other than the broker is responsible for operation of the brokerage.

All advertising must contain the name of the broker (may be an individual name, entity name or assumed name registered with TREC)

` continued…..

Who’s In Charge?

If the assumed name or the corporate name of the Broker contains the name of a salesperson, the ad must also contain either(a)The individual name of the

designated officer or(b)Another assumed name of the

broker Groups and Teams that contain the

name of a salesperson must also advertise including the name of the broker

If a corporate name includes the name of a salesperson the D.O. name must also be included in any advertising

If a Broker Associate sponsors sales agents, does the company E&O cover them?

How will the Team or Group be compensated?

Are all the assumed names registered with TREC?

Is the brokerage name included in all advertising?

Other Policy Issues Regarding Teams

Good marketing opportunities but include risk such as defamation or copyright infringement

If broker is unsure of a statement he/she can list it as an opinion. Once on the web it is there forever.

If others comment on a brokers blog or website the broker should make a disclaimer that some of the comments are from others and give contact information to have comments removed.

E-Mail, Social Networks, Websites

A false statement made to others either in writing (libel) or spoken (slander) that harms another’s reputation.

If a licensee is a victim of defamation he/she should ask the publisher to remove the statement or ask for a retraction.

If a licensee is harmed and has evidence of the defamation they may have the right to sue for damages

Licensees must be cautious about making false statements about others.

Defamation

When a broker becomes incapacitated by illness or dies suddenly the entire company is put on inactive status until they are able to locate a new broker.

If the sponsoring broker is a legal entity the entity must find a new D.O. to continue operations.

If the sponsoring broker is an individual the agents each must find to new broker to continue their business. Continued…..

What Happens When the Broker is Unable to Act?

A written policy addressing what happens in emergency situations may help alleviate client concerns and help the firm meet regulatory requirements and continue operations.

Property management issues were the origination of many TREC complaints in 2011.

Many of the complaints included:*Inadequate supervision by the

broker.*Lack of knowledge the agent was

doing property management.

*Improper record keeping.continued…..

Case Study

Salesperson entered into a property management agreement with an owner

Tenant sent rent to salespersons home and she deposited into her checking account and did not send the owner what was due

Owner contacted broker and broker immediately paid the owner the amount due.

The broker had a written policy forbidding agents from doing property management. Broker had no knowledge of the property management agreement.

Continued….

Salesperson claimed her former broker allowed her to manage properties unsupervised and that she did not know it was not acceptable.

She paid the owner all funds due and ceased all property management activity

She agreed to a one year suspension of her license probated for one year, additional education and a $2400 administrative fee.

Brokers must retain “executed” copies of all transaction files (closed or terminated) for at least 4 years.

Files can be kept electronically but broker must be able to reproduce and/or transmit as requested.

Records Retention

A broker is required to advise a salesperson of the scope of the salespersons authorized activities under the Act.

A broker is responsible for the authorized acts of their sponsored sales agents.

If the broker allows the sales agent to do things outside of the authorized activity, the broker is also responsible for those acts

Authorized acts can be included in the independent contractor agreement and reviewed periodically.

Salespersons Authorized Acts

Supervision of sponsored agents is a broker responsibility.

Broker may delegate, in writing, other licensees to assist in administering compliance with the Act and the Rules.

Broker is Responsible

Brokers must maintain all of the above records in addition to the following for at least four years from the closing or termination of the contract:

Disclosures Commission Agreements Work Files Contracts and Related Addenda Receipts and Disbursements Related to

the File continued…..

Minimum Record Keeping

Property Management Contracts USPAP documents for appraisals Sponsorship Agreements with the Sales Agent

Brokers Must Also Maintain Written Policies and Procedures to Ensure That:

Sales agents maintain current licenses Sales agents receive all money for services

subject to the Act through or with the written consent of the sponsoring broker.

Sales Agents receive notice in advance of any changes in the Act, Rules, Contracts continued..

That in addition to required MCE classes each sales agent receives additional training to remain competent in their authorized activities.

Sales agents advertising complies with TREC Rules

All trust accounts and any consumer money is handled with appropriate controls by the broker.

Secure executed copies of all documents in a transaction

Devise a filing system making files easy to find

Keep duplicate disk if hard copies are shredded

Be able to convert and/or transmit to TREC if requested

Be able to separate transaction files from other files at the end of four years

Continued….

Retention Considerations

Have a written policy regarding having protected access to files, both in office and out of office.

IRS records must be maintained for 7 years.

Independent Contractor Agreements must be maintained between the sales agents and the broker.

Confidentiality of personal information does not have an expiration date.

Brokers must assure that sponsored agents comply with TREC Rules regarding advertising. Brokers need a policy to demonstrate compliance. Policies might include:

How and by whom sales peoples advertising is reviewed

How sales people are educated regarding advertising rules

How corrections to advertising are documented

Advertising TRELA and TREC Rules

Section 1101.652b provide that a licensee may not:

Publish an advertisement that misleads the public

Publish an ad that does not identify themselves as a broker or agent

Offer to sell or lease without the knowledge and consent of the owner or the owner’s agent

Continued….

Advertising Provisions

Offer property on terms other that those authorized by the owner or the owner’s agent

Make misrepresentations or false promises

Place a sign on a property without permission of the owner or the owner’s agent

A licensee may not:

If an advertisement promotes a service provider and the licensee expects compensation, a disclosure that the licensee may receive compensation is required.

Advertisers may not rank service providers unless the ranking is based on disclosed objective criteria.

Service Providers

A licensee may not advertise they provide TREC approved classes unless approved to offer such courses.

Offering TREC Courses

TREC Rules 535.154 provides the following information:

Definitions of advertisements:◦Publications, stationery, business cards

◦Signs and billboards◦Radio, television and electronic media◦Internet, e-mail, social media, networking websites

Does not include:Correspondence from licensee to clientInformation in a virtual office

TREC Advertising Rules

Each page of a website is an advertisement and must include the required disclosure.

Advertisements by e-mail, discussion groups, text messages and social networking must include the disclosures.

If space is limited the ad can contain a link to “TREC Disclosures”

Disclosures

A licensee may not place advertising that:

Implies the salesperson is responsible for the brokerage business

Causes someone to think someone not licensed is engaged in brokerage.

Is inaccurate in a material way Advertising another broker’s listing

without permission. Not including the listing broker’s name in the ad

Continued…..

Deceptive Advertising

Place an ad that indentifies a salesperson as a broker

Fail to remove advertising when property is no longer available

Place an ad the create confusion about the use of the property

Use a copywrited trade name without authority to do so.

A licensee may not:

All advertising must clearly and conspicuously contain the broker’s name (entity name or individual name)

An assumed name , registered with TREC, is the broker’s name and can be use in advertising.

All assumed names used in advertising must be registered with TREC

If the assumed name contains the name of a salesman, the ad must include another assumed name of the broker or the broker’s actual name.

Broker’s Name

TREC must be notified within 30 days of a broker starting or stopping the use of an assumed name

Road signs must identify the advertiser as a broker or agent

If the broker’s name in the ad is at least 50% as large as the largest other contact information in the ad, it will be considered a safe harbor.

More About Names

Any ad offering rebates must disclose the terms of the rebate.

Rebates

TREC Complaint against a salesperson who advertised on Craig’s List with 24 ads.

Failed to identify the broker. Offered properties no longer available Failed to identify the respondent as an

agent. Offered unauthorized rebates Ads contained conflicting information

Result = $4800 administrative penalty

Case Study

Was created to provide financial stability to the United States by improving transparency and accountability.

It targets financial reform and ultimately has an affect on real estate.

Created in 1974 to help consumers shop for settlement services and eliminate kick backs.

Section 8 of RESPA prohibits service providers from paying or giving anything of value for referrals of business.

Service providers may pay brokers for actual services rendered.

Service providers must be cautious of paying for anything for real estate agents. They can purchase advertising from agents at open houses, in news letters,etc.

RESPA

Requires the lender to furnish the buyer with a Good Faith Estimate of Closing Cost within 3 days of application and a booklet explaining their cost.

The buyer has the right to examine the HUD closing statement one day prior to closing and the HUD statement compares the Good Faith Estimate with the actual closing cost.

RESPA

Disclosure is required when a settlement service provider refers the consumer to a provider with whom the referring party has an ownership or other beneficial interest.

The referring party must give the disclosure at or prior to the time of referral. The disclosure must describe the business arrangement that exists between the 2 providers and give the borrower an estimate of the second provider’s charges.

The referring party may not require the consumer to use the affiliated provider (some exceptions)

Affiliated Business Arrangements

Section 9 of RESPA prohibits sellers from making the buyer purchase the Title Insurance from a particular title company as a condition of the sale.

The TREC Legal Update says that the decision of which title company to use must be left to a decision of the parties.

Title Company Choice

Under TREC Rules §535.148 a licensee may not receive compensation from someone other than the person whom the client represents unless the licensee discloses to the client that the licensee will receive the compensation and obtains the client’s consent.

This does not apply to referral fees between licensees.

Texas Real Estate Commission Rules

A licensee may not enter into a contract with a service provider to provide services on behalf of the service provider in a transaction if the contract is exclusive (prohibits the licensee from offering similar services on behalf of other service providers).

NO EXCLUSIVITY

A licensee may not accept compensation from a service provider ifthe compensation is contingent on a party in the transaction purchasing a contract or service from the service provider.

A licensee must use Form RSC-1, Disclosure of Relationship with Residential Service Company, if the licensee (or the brokerage firm) will receive compensation from the residential service company.

The compensation to the broker or salesperson may be in any form, whether a one-time payment or a periodic payment under a contract between the broker and the residential service company.

A broker should maintain a policy related to transactions in which a licensee is involved in buying or selling his or her own property.

Items to consider: E&O coverage on such transactions How such property is advertised, Disclosure of the license status in or

contemporaneous with the contract, Whether the licensee must be represented

by another licensee in the firm when listing property owned by the licensee.

LICENSEES BUYING OR SELLING

Licensees Buying or Selling Their Own Property, TX. Occ. Code 1101.652(a)(3) & TREC Rules §535.144

A broker should maintain a policy related to transactions in which a licensee is involved in buying or selling his or her own property.

continued

The policy should consider: Does the Brokers’ E& O Policy cover the transaction?

how such property is advertised, disclosure of the license status in or

contemporaneous with the contract,

whether the licensee must be represented by another licensee in the firm

All monies held by a broker must be in a trust account of the broker.

Trust Accounts must be in the name of the broker and identified as a trust account.

Trust Accounts may be interest bearing and broker may retain the interest with clients permission.

continued

Trust Account Policy, TREC Rules §535.146, §535.159, §535.160

Property managers must have at least one trust account

The broker must be able to give an accounting of any money held in escrow

Keep all records up to date.

Supervising Licensees have an obligation to be available to the sponsored agents, client, customers during normal business hours.

Licensees need to be reminded of the duty to be fair to all parties in a transaction.

Licensees must keep clients informed of any significant information that would alter the desire to buy, sell or lease property.

Informing & Responding to Clients

Covered by several state and federal laws if they contain solicitation or advertisements.

If a broker is using this type of marketing need to be aware of and educated about the statutes.

Do-Not-Call Policy, CanSpam, Fax policy