There’s only one legal method in Texas to handle “in-house” real estate transactions—those deals where a broker and that broker’s associated license holders represent both the buyer and seller in the same transaction. That legal vehicle is called intermediary, and it comes with many rules the broker must follow. Here are answers to common questions about intermediary and a flow chart on pages 24-25 to help determine the required steps. For additional questions about intermediary, members of Texas REALTORS® can call the Legal Hotline at 800-873-9155.
How is a typical intermediary relationship created?
At the time of the first substantive dialogue with a seller or a prospective buyer, a license holder must provide the party with a copy of the Information About Brokerage Services (TXR-2501, TREC IABS 1-0) as required by The Real Estate License Act (TRELA). The IABS form includes an explanation of the intermediary relationship.
Before a broker may act as intermediary, TRELA requires the broker to obtain written consent from both parties. A written representation agreement between a broker and a seller or buyer will satisfy the consent requirement if the agreement: 1) authorizes the broker to act as an intermediary between the parties; 2) lists the conduct an intermediary is prohibited from performing in conspicuous bold or underlined print; and 3) states who will pay the broker. The agreement must also authorize the broker to appoint associated license holders if the broker intends to make appointments when the intermediary relationship arises. The Texas REALTORS® promulgated listing agreements and buyer/tenant representation agreements contain language necessary to fully comply with TRELA when creating an intermediary relationship.
When it becomes evident that the buyer represented by the firm wishes to purchase property listed with the firm, the intermediary status comes into play.
What are the two ways an intermediary relationship can exist?
There are two alternatives for the brokerage firm and the parties to consider in an intermediary relationship:
1) If the firm has obtained permission in writing from both parties to be an intermediary and to appoint associated license holders to work with the parties, the intermediary broker may appoint one associated license holder to the seller and a different associated license holder to the buyer. The associated license holders may provide opinions and advice during negotiations to the party to whom the license holder is appointed.
2) If the firm has obtained permission in writing from both parties to be an intermediary but does not appoint different associated license holders to work with the parties, then neither the broker nor any associated license holder may give advice or opinions to the parties. Instead, the broker and all associated license holders must remain neutral and not favor one party over the other.
What are the duties and obligations of an intermediary?
The intermediary is required to treat the parties fairly and honestly and to comply with TRELA. The intermediary is prohibited from favoring one party over the other and may not reveal confidential information obtained from one party without the written instructions of that party, unless disclosure of that information is required by TRELA, court order, or the information materially relates to the condition of the property. The intermediary and any associated license holders appointed by the intermediary are prohibited from disclosing, without written authorization, that the seller will accept a price less than the asking price or that the buyer will pay a price greater than the price submitted in a written offer.
What is the difference between an associated license holder who is appointed to work with a party and an associated license holder who has not been appointed to work with one party?
During negotiations, the associated license holder who is appointed to one party may provide advice and opinions to the party. An associated license holder who has not been appointed must act in the same manner as the intermediary, not giving opinions and advice and not favoring one party over the other.
What are the differences between the duties owed to a seller or buyer by the intermediary broker and the duties owed to those same parties by the associated license holder whom the intermediary appoints to a party?
The intermediary broker is authorized to facilitate a transaction between the parties but may not give advice or opinions to either party in negotiations. An associated license holder who is appointed to a party may provide advice or opinions to that party. Both intermediaries and associated license holders who are appointed to parties are obligated to treat the parties honestly and are prohibited from revealing confidential information.
Is an intermediary an agent?
Yes, but the duties and obligations of an intermediary are different than for exclusive, or single, agents.
Can there be two intermediaries in the same transaction?
If a broker lists a property and has also been working with a prospective buyer under a written representation agreement, does the broker have to act as intermediary if the buyer wants to make an offer on the listed property?
No. The broker could represent one of the parties and work with the other party as a customer rather than a client. For example, the buyer may agree to terminating the buyer representation agreement and the broker will represent the seller and work with the buyer as a customer. When a broker represents the seller only, the seller is the broker’s client, and the buyer is a customer. In those instances, the broker is obligated to act in the seller’s best interests.
Is a broker who represents only the buyer in a transaction an intermediary?
No. In the case of a for-sale-by-owner or other seller who is not already represented by a broker, the broker representing the buyer is not considered an intermediary. When a broker represents the buyer only, the buyer is the broker’s client, and the seller is a customer. In those instances, the broker is obligated to act in the buyer’s best interests. Alternatively, the broker could secure the consent of both parties to act as an intermediary and have the seller sign a representation agreement.
Can associated license holders act as intermediaries?
Only a broker can contract with the parties to act as an intermediary between them. In that sense, only a broker can be an intermediary. If, however, the broker intermediary does not appoint associated license holders to work with the parties in a transaction, any associated license holders of the intermediary who function in that transaction would be required to act just as the intermediary does, not favoring one party over the other.
Can a broker who is a solo practitioner act as an intermediary?
Yes. The solo broker may act as an intermediary, but that broker cannot make appointments of associated license holders to each of the parties.
As the broker for my firm, can I appoint myself to represent one of the parties in an intermediary situation?
No. Appointing yourself, the firm’s broker, to represent one party and appointing an associated license holder to represent the other party in an intermediary situation is not considered fair and impartial under TRELA.
May more than one associated license holder be appointed by the intermediary to work with the same party?
May the intermediary appoint the same associated license holder to work with both parties in a transaction?
No. The law requires the intermediary to appoint different associated license holders to work with each party.
May an intermediary appoint a subagent in another firm to work with one of the parties?
No. A subagent in another firm cannot be appointed as one of the intermediary’s associated license holders.
Can the intermediary delegate to another license holder the authority to appoint license holders associated with the intermediary?
Yes. If the intermediary authorizes another associated license holder to make the appointments, that person must not appoint himself or herself, as this would be an improper combination of the different functions of intermediary and associated license holders.
If a buyer or seller initially consents to the broker acting as intermediary at the time the buyer or seller signed a representation agreement, must that party consent again to the broker acting as intermediary in a specific transaction?
No. A second written consent is not required by TRELA, but a written notice of any appointments is required. A broker is not prohibited from obtaining a second consent as a business practice to identify and resolve potential conflicts.
What is the Intermediary Relationship Notice used for?
The Intermediary Relationship Notice (TXR 1409) is used for two purposes:
1) It serves as a reaffirmation by the seller and the buyer of the prior consent they both gave in writing to the broker to act as an intermediary
in the transaction.
2) It is used by the broker to satisfy the requirement to give written notice to all parties of the appointment of associates to each side of the transaction if such appointments are to be made.
This form is not a substitute for the initial written consent that both parties gave when they each signed brokerage agreements with the broker. The Intermediary Relationship Notice should only be used if the seller and the buyer have given their written consent to the broker to act as an intermediary in the listing and buyer representation agreements. This form may also be used when the broker is acting as an intermediary in a landlord-tenant situation.
When must the intermediary appoint the associated license holders associated to work with the parties?
This is a judgment call for the intermediary. The intermediary relationship does not exist until the parties who have authorized it are beginning to deal with each other in a proposed real estate transaction; an example would be when the buyer begins to negotiate to purchase the seller’s property. Prior to the creation of the intermediary relationship, the broker will typically be acting as an exclusive agent of each party. If appointments are going to be made, they should be made before the buyer begins to receive advice and opinions from an associated license holder in connection with the property listed with the broker. If the broker appoints the associated license holders at the time the listing agreement and buyer representation agreement are signed, it should be clear that the appointments are effective only when the intermediary relationship arises. It is important to remember that both parties must be notified in writing of both appointments. If, for example, the listing agent is “appointed” at the time the listing is taken, care must be taken to ensure that the buyer is ultimately also given written notice of the appointment. The Intermediary Relationship Notice (TXR 1409) can be used for this purpose. When a buyer client begins to show interest in a property listed with the firm and both parties have authorized the intermediary relationship, the seller must be notified in writing as to which associate has been appointed to work with the buyer.
Must each party’s identity be revealed to the other party before an intermediary transaction can occur?
Yes. If the intermediary makes appointments, the law provides that the appointments are made by giving written notice to both parties. To give notice, the intermediary must identify the party and the associated license holder(s) appointed to that party. The Intermediary Relationship Notice (TXR 1409) can be used for this purpose. The law does not require notice if no appointments are made.
Who decides whether a broker will act as an intermediary—the broker or the parties?
Both. Initially, the broker makes a decision in determining the policy of the firm. If the broker does not wish to act as an intermediary, nothing requires the broker to do so. If the broker’s policy is to offer services as an intermediary, both parties must authorize the broker in writing before the broker may act as an intermediary or appoint license holders to work with each of the parties.
Our company policy requires all buyers and sellers to agree to the intermediary practice before commencing to work with them. Does the law permit a listing agreement to specify this practice?
How can the intermediary broker advise the seller or the buyer on things such as the value of the property, the amount of any escrow deposits, or interest rates?
When the listing agreement or buyer representation agreement has come into existence but no intermediary status yet exists, the broker may advise the parties generally on these matters. Once the intermediary status has been created, the intermediary broker may not express opinions or give advice during negotiations. When asked questions by the client, the intermediary broker may supply information about matters that do not constitute an opinion or advice. For example, the intermediary could tell the buyer what the prevailing interest rate is without expressing an opinion or giving advice. These same rules apply to an associated license holder acting as an intermediary without appointments made by the intermediary broker. If appointments have been made, the associated license holder who has been appointed to a party may provide opinions and advice during negotiations to that party.
I’m the listing agent for an owner leasing his single-family home. We both signed the Residential Real Estate Listing Agreement, Exclusive Right to Lease (TXR 1102). A prospective tenant called me to ask questions about the property and request a rental application. If I provide the rental application to the prospect, will this trigger an intermediary relationship?
No. Merely discussing the listing and providing the rental application will not trigger an intermediary relationship. However, if the prospective tenant requests that you represent her in the lease negotiation process, you will need to obtain her written consent for your broker to act as an intermediary. You can use the Residential Buyer/Tenant Representation Agreement (TXR 1501) for this purpose. Then you’ll need to comply with the steps required for an intermediary relationship, which apply to both sales and leasing transactions.