Legal FAQs for REALTORS®
A friend called me after his recent closing to ask about a transaction fee listed on his Closing Disclosure form. He says it was charged to him by the broker representing the other party. When he asked the broker about the fee, she said she always charges this fee to both sides of the transaction.
My friend didn’t know about or authorize this fee. Is the broker in violation of TREC rules or the Code of Ethics by charging this fee without his authorization? (updated August 4, 2016)
According to the conduct described, that broker may have violated the Real Estate License Act. The act states that a broker is in violation of the Real Estate License Act if he or she receives compensation from more than one party to a transaction without full knowledge and consent of all parties.
Article 7 of the Code of Ethics also prohibits a REALTOR® from accepting compensation from more than one party to a transaction without disclosure to all parties and the informed consent of a REALTOR®'s client. The conduct described in this case may be a violation of Article 7, and it might also constitute a violation of Article 1, which requires that REALTORS® treat all parties honestly.
My sister is looking for a new home, and I'm acting as her buyer's agent. Am I required by TREC rules or the Code of Ethics to disclose to the seller that the buyer is my sister? (Updated Jan. 9, 2015)
Yes. Article 4 of the Code of Ethics requires that you disclose to the seller or the seller’s agent your true position when acquiring any ownership interest in property or presenting offers for yourself, any member of your immediate family (which includes siblings), members of your firm, or any entities in which you have any ownership interest.
In addition, when you are selling property you own or in which you have an interest, the Code of Ethics requires you to reveal your ownership or interest to the buyer or buyer’s agent in writing.
These disclosures are required to be in writing prior to the signing of any contract.
TREC rules only require that you disclose your licensee status in writing to a seller when you are acquiring property on your own behalf, on behalf of a business entity in which you own more than 10%, or on behalf of your spouse, parent, or child.
It is probably a good idea to disclose your relationship with any principal to the other party to a transaction even if such a disclosure is not required by TREC or the Code of Ethics. Disclosure can help eliminate complaints or criticism and can increase respect for REALTORS®.
My seller told me I cannot cooperate with a particular firm regarding her listing. Can the seller do that? (updated August 19, 2015)
Yes. While Article 3 of the Code of Ethics requires that REALTORS® cooperate with other brokers, there is an exception when cooperation is not in the client's best interest. A seller’s demand not to cooperate with a firm or agent is a legitimate instruction regarding the sale of her property, and could be viewed as meeting this exception. Be sure, however, that the decision not to cooperate originates from the owner and not you.
It’s a good idea to get this instruction in writing from the seller. Should a broker or agent from that particular firm call for a showing, you can inform them of the seller’s decision to restrict cooperation on this particular sale and follow up by sending written confirmation.
An owner who just terminated her listing with another broker asked me to sell her property. The parties terminated her listing using the Termination of Listing Agreement (TAR 1410), and the owner agreed to pay her previous broker a fee if she sells the property to a named party within the next two months. Can I still get a commission if she sells to the named party within that time frame? (updated May 12, 2014)
Yes, provided that you get the required consent from the owner. According to Standard of Practice 16-14 of the Code of Ethics, you should not knowingly obligate an owner to pay more than one commission except with the owner’s informed consent.
You can complete and attach the Named Exclusions Addendum to Listing (TAR 1402) to your listing agreement to help clarify your rights and the owner's rights and obligations should the owner sell to the named party during the designated time period.
After my listing expired, the owner listed his home with another REALTOR® in our area. Someone I showed the property to when I was the listing broker has now expressed an interest in having me present an offer on this home. Since I previously showed the property to this buyer while my listing was active, can I deal directly with the owner I used to represent, or must I submit any offer to the new listing broker? (Updated May 14, 2014)
The fact that you previously listed this property for the seller and showed this buyer the property does not permit you to contact the owner directly.
Under the Real Estate License Act, a licensee may deliver an offer directly to an owner who is exclusively represented by another broker only if the owner’s broker consents to the delivery and a copy of the offer is sent to the owner’s broker. Any negotiations of the offer must still be conducted through the owner’s broker.
In addition, Standard of Practice 16-13 in the REALTOR® Code of Ethics provides that all dealings concerning property exclusively listed shall be carried on with the client's broker and not with the client, except with consent of the client's broker or where such dealings are initiated by the client.
Since the owner in this situation is now represented by a new broker, you should deal with the new broker concerning any offer a buyer might want to present.
What is a variable-rate commission? (Updated Sept. 17, 2014)
The REALTOR® Code of Ethics defines a variable-rate commission arrangement as a listing in which one amount of commission is payable if the listing broker’s firm is the procuring cause of sale and a different amount of commission is payable if the sale results from the efforts of the seller or a cooperating broker.
The Code of Ethics and NAR’s Handbook on Multiple Listing Policy require listing brokers to disclose a variable-rate commission to potential cooperating brokers as soon as is practical. In response to inquiries from potential cooperating brokers, REALTORS® are also required to disclose the difference between the two rates.
In addition, once a cooperating broker knows that a variable-rate commission has been offered, the cooperating broker must disclose this information to his or her client before the client makes an offer to purchase. In this situation, a buyer who makes an offer that’s identical to an offer from a buyer who’s represented by the listing broker’s firm is at a disadvantage, since the commission on the other offer will be lower.
I’m the property manager for a home in an up-and-coming neighborhood. The property owner said a REALTOR® in his neighborhood convinced him it’s a good time to put the house on the market, with her as the listing agent, after our property-management agreement ends in April. I also list homes, and I have an existing relationship with the homeowner. Is the other REALTOR® violating the Code of Ethics by contacting my client? (updated Jan. 19, 2015)
No. Although Article 16 of the NAR Code of Ethics prohibits REALTORS® from engaging in any practice or taking any action inconsistent with exclusive representation or exclusive brokerage relationship agreements that REALTORS® have with clients, Standard of Practice 16-3 allows REALTORS® to contact the client of another broker to provide a service different than what is currently being provided, or to offer the same type of service for property not subject to a broker’s current exclusive agreements. If you are offering property-management services, another broker can provide brokerage services to sell the same property without risking violating Article 16. And if your owner had two properties and you only managed one, another broker could provide property-management services for the home you don’t have an exclusive agreement for.
However, information received through an MLS or any other offer of cooperation may not be used to target clients of other REALTORS®. In your situation, the other REALTOR® did not use these methods, and is therefore not in violation of the Code.
Is having a signed written agreement, such as TAR’s Residential Buyer/Tenant Representation Agreement, the only way for a broker to create an agency relationship with a buyer? (Updated April 10, 2015)
No. Although agency relationships can exist when you’re acting on behalf of the buyer without a written agreement, the best way to create an agency relationship is to put the rights and obligations of a broker and his or her client in a signed written agreement,.
In addition to being a good business practice, there are several other reasons why broker-client relationships should be in writing:
1. You cannot enforce your right to collect your commission from a seller or buyer unless you have a signed written agreement with them agreeing to pay your commission, according to Section 1101.806(c) of the Real Estate License Act.
2. Section 1101.559 of the Real Estate License Act requires brokers who act as intermediaries to obtain the written consent of each party in the transaction and that written consent must also state who will pay the broker.
3. Article 9 of the Code of Ethics requires that REALTORS® shall assure whenever possible that agreements shall be in writing for the protection of all parties.
Legal Disclaimer: The material provided here is for informational purposes only and is not intended and should not be considered as legal advice for your particular matter. You should contact your attorney to obtain advice with respect to any particular issue or problem. Applicability of the legal principles discussed in this material may differ substantially in individual situations.
While the Texas Association of REALTORS® has used reasonable efforts in collecting and preparing materials included here, due to the rapidly changing nature of the real estate marketplace and the law, and our reliance on information provided by outside sources, the Texas Association of REALTORS® makes no representation, warranty, or guarantee of the accuracy or reliability of any information provided here or elsewhere on TexasRealEstate.com. Any legal or other information found here, on TexasRealEstate.com, or at other sites to which we link, should be verified before it is relied upon.