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Law of Agency

Texas Real Estate License Exam Section 3 of 6: Law of Agency

QuestionAnswer
Fiduciary an individual upon whom is placed the highest levels of trust and confidence when acting on behalf of another; specific fiduciary duties include obedience, loyalty, disclosure, confidentiality, accountability, and reasonable care
Principal a major party to a real estate transaction (buyer, seller, landlord, tenant) or an individual who authorizes an agent to represent their interests as a client in a real estate transaction
Client a person who has signed an agency agreement with you as their agent a.k.a your principal
Customer a person on the other side of the transaction with whom the license holder does not have an agency relationship
Third Party any person involved in a real estate transaction who is not your client
Broker an individual licensed by TREC to perform brokerage duties
Sales Agent an individual holding a sales agent license from TREC who is sponsored by a broker
License Holder a broker or a sales agent licensed by TREC
Brokerage the joining of two people for the purpose of an exchange of products or services
REALTOR® a licensed sales agent who is a member of the National Association of REALTORS®
Listing Agent a broker representing a seller in a real estate transaction, a.k.a. seller’s agent, seller’s broker, or listing broker
Buyer’s Agent a broker representing a buyer in a real estate transaction, a.k.a. buyer’s broker
Tenant’s Agent a broker representing a tenant in a real estate transaction
Landlord’s Agent a broker representing a landlord in a real estate transaction
Fiduciary an individual whose principal has trusted to represent their interests - it denotes a high level of trust
Ostensible Agency when a principal allows a license holder to act in such a way as to cause a third party to believe that license holder is the principal’s agent
Agency by Estoppel legally binding agency created when an individual allows an agent act as though they were authorized to act on that person’s behalf (ostensible agency) and a third party suffers some harm while dealing with that agent in a transaction
Agency by Ratification created when a license holder acts on behalf of but without prior authorization of a principal and that principal accepts the license holder’s action after the fact
Agency Coupled with Interest when an agent is involved in a real estate transaction with a personal interest (either for themselves, a family member, or a business interest)
Agency by Actual Authority actions taken by an agent for which they have permission, whether given through express or implied authority by a principal
Express Authority when a principal gives an agent authority to act on their behalf by mutual consent, either by written or oral agreement
Implied Authority when an agent takes actions that are considered customary for the profession in order to represent their agent’s interests
Special Agency a form of agency relationship in which agents are limited in scope and are only authorized to perform acts permitted by their principal (Broker-Client)
General Agency a form of agency relationship in which the principal is responsible for the acts of their agent as long as the agent is acting within the scope of their duties (Broker-Sales Agent)
Universal Agency a form of agency relationship in which agents have a very broad and general scope of power to act on behalf of the principal - agents have the general power of attorney (Child-Parent)
Fiduciary Relationship a relationship in which a client puts confidence in a trustee, an attorney, or a broker
Disclosure of Representation the act of explicitly informing all parties of who an agent is representing
Client a person who has signed an agency agreement with you as their agent (a.k.a. your principal)
Customer a person on the other side of the transaction with whom the license holder does not have an agency relationship
Duty of Honesty license holders are required to always tell the truth to their clients and customers; they should also advise their clients to be truthful in their disclosures as well
Duty of Fairness license holders are required to proactively maintain a space of fairness in their real estate transactions and never mislead customers
Third Party any individual in a real estate transaction who is not your client
Misrepresentation a false statement (spoken or written) that is made unintentionally
Material Fact a fact that may cause a buyer or seller to make a different decision in a real estate transaction
Innocent Misrepresentation occurs when an agent communicates false information that the agent is not aware is false
Negligent Misrepresentation occurs when an agent fails to disclose significant property flaws out of ignorance
Fraudulent Misrepresentation occurs when an agent purposely and deliberately hides a property flaw or feature to make the sale
Stigmatized Property a property on which an event has occurred that is affecting the perceived value of the property
Open Listing an agreement that allows multiple real estate brokers (and the owners themselves) the right to sell the property; the individual considered the procuring cause of the sale of the property getting the commission
Net Listing an agreement in which the seller names an amount they want their property to sell for, and then the broker tries to sell it for more because they receive the difference (the dollar amount above what the owner wants) as their commission
Procuring Cause the defining actions that brought a buyer to purchase a property
Seller Agency the relationship between a real estate agent and the seller in the brokerage of homes
Listing Agreement a contract between a principal and a broker to sell or lease a property
Exclusive Agency an agreement in which the seller has an exclusive relationship with an agent but has the right to sell the property to named prospects for a lesser (or none) commission to the listing broker
Exclusive Right-to-Sell Agency an agreement in which the seller guarantees the named broker receives a commission if the property is sold even if the seller brings the buyer themselves
Subagent a license holder who represents a principal through cooperation with the principal’s broker
Material Fact any fact that is significant or essential to the real estate transaction
Substantive Communication a meeting or written communication that involves a substantive discussion relating to specific real property
Seller’s Disclosure Notice form filled out by sellers and given to buyers containing disclosures about the property being sold
Buyer Representation Agreement a document that outlines the duties and implications of the broker-buyer agency relationship
Protection Period a period of time after the buyer’s representation term ends in which the agent can still get compensation for their role in a transaction
Single Agency the most commonly practiced agency form in which the agent represents only one side of a transaction
Dual Agency type of agency in which the agent represents the buyer and seller in a transaction
Exclusive Broker Agreement an agreement that binds the buyer into working only with that broker/ agent for the specified duration of the contract
Non-exclusive Broker Agreement an agreement that leaves the buyer free to work with other agents to acquire a home under the condition that if the buyer does purchase a home because of that agent, the buyer will be required to compensate that agent based on procuring cause
Actual Authority specific powers given to an agent by the principal that allows them to act on the principal’s behalf
Implied Buyer Agency a type of agency where authority is implied or presumed based on the nature of the relationship between the agent and the buyer
Non-agency a type of agency in which the buyer chooses to find and purchase a home without being represented by an agent
Attorney Representation a situation in which a real estate attorney can represent the buyer in the purchase of a home (this option is only available in certain states)
Inspections a vital part of the homebuying process which can reveal significant defects, conditions, and issues that can affect a property’s value
Broker Compensation the percentage fee or commission (or, in rarer instances, flat fee) that is paid for an agent’s representation and services provided during real estate transactions (a.k.a., brokerage fee)
Ready, Willing, and Able Buyer Clause clause in a listing agreement that offers brokers more protection and certainty of being paid compensation for the work and services performed on the client’s behalf
Junk Fees additional fees charged by agents and brokers on top of the sales commission
Disclosure statements of facts associated with real estate transactions that by law must be shared
Dual Agency dual agency occurs when a broker represents both a seller and a buyer in a single real estate transaction according to common law precedent
Intermediary the practice of intermediary brokerage occurs when a single transaction is negotiated within one brokerage and during which proper representation for both the seller and the buyer takes place in accordance with Section §1101.559 of TRELA
In-House Sale when a brokerage handles both sides of a real estate transaction, that transaction is considered an in-house sale
Intermediary Relationship Notice the form that is used to give the buyer and seller notice of intermediary and for the buyer and the seller to accept the appointments (required by law)
Syndicate a financial services group formed to handle large transactions that would be too hard or impossible for an individual person or entity to handle
Undisclosed Dual Agency an action taken by unscrupulous agents in order to take advantage of under-informed clients where the agent treats both parties like clients, but without the proper notice
Mutual Rescission when the license holder (agent) and the principal (client) mutually agree to end the agency relationship
Unilateral termination one party makes the decision to terminate the contract without permission from the other party
Revocation the termination of an agreement by the person who granted it, such as when as when a principal terminates an agency relationship
Renunciation the rejection of an agreement by the person who accepted it, such as when an agent terminates an agency relationship
Independent Contractor someone who is bound by contract to perform a certain job, but who is not considered an employee for federal or state income tax purposes
Employee an individual who works part- or full-time for wages or salary under contract and control of an employer
Safe Harbor refers to effort made by Congress in 1978 to put a halt to what it deemed as overly aggressive attempts to reclassify independent contractors as employees
Employment Contract an agreement between a principal and a broker to buy, sell, lease, or manage a property
Special Agency the relationship between a broker and a principal/client wherein the broker has restricted authority to act on behalf of the principal to achieve a one specific objective
General Agency the relationship between a broker and a principal wherein the broker has broad authority to act on behalf of the principal and can bind the principal in a transaction
Direct Activities activities (that usually require a license) in which a person directly helps another buy, sell or lease real property
Indirect Activities day-to-day activities that are influential, but more difficult to classify as to whether a license is required
Foreign Broker a broker licensed outside of Texas
Quarterly Taxes quarterly estimated taxes used to pay not only income tax, but other taxes such as self-employment tax and alternative minimum tax for individuals or entities who do not have taxes withheld from their income
Laws rules that are enforced by government authority and require mandatory compliance
Ethics standards of conduct agreed upon and recognized by a particular group or culture
Morals personal values derived from a system of beliefs
Kickback any money, fees, commission, credit, gift, gratuity, thing of value, or compensation of any kind for improperly obtaining or rewarding favorable treatment
Security a tradable financial asset of any kind
Collusion a secret agreement or cooperation for an illegal or deceitful purpose
Redlining the refusal for lenders to issue mortgages to a specific area; a violation of the Fair Housing Act
Protected Classes classes of people covered under the Federal Fair Housing Act
Steering deliberate avoidance of showing a protected person a non-integrated area
Blockbusting occurs when an agent canvasses an area and incites panic by suggesting that people of certain races, colors, religions, or other protected classes will be moving into the neighborhood and causing the area to deteriorate and prices to destabilize
Disparate Treatment when someone is treated differently than other people who don’t share the same protected characteristic
Lottery any scheme or procedure whereby 1 or more prizes are distributed by chance among persons who have paid or promised consideration for a chance to win anything -- called a pool, lottery, raffle, gift, gift enterprise, sale, policy game, or other names
Mediation a resolution procedure where an impartial person (the mediator) used to facilitate communication between parties and to promote reconciliation, settlement or understanding
Arbitration a forum where parties and counsel present their positions before an impartial third party who renders a specific award
Fiduciary Duty a responsibility to act in the best interest of your client
Fraud deception deliberately done with the intention of gaining something of value or causing damage to another person
Tort Reform a judicial movement that tries to limit the amount of recourse and awards that can go to a complainant
Texas Deceptive Trade Practices Act (DTPA) the primary consumer protection law in Texas, which protects against false and misleading statements, unconscionable actions, and breaches of warranty
Unconscionable Action an act or practice which, to a consumer’s detriment, takes advantage of the lack of knowledge, ability, experience, or capacity of the consumer to a grossly unfair degree
Consumer an individual, partnership, corporation, the state, or a subdivision or agency of the state who seeks or acquires by purchase or lease, any goods or services
Goods tangible chattels or real property purchased or leased for use
Services work, labor, or service purchased or leased for use, including services furnished in connection with the sale or repair of goods
Public Remedies remedies enforced by the Texas Attorney General’s Office, specifically the Consumer Protection Division
Private Remedies civil lawsuits brought by consumers against the alleged violators
Damages an award paid to someone to compensate them for economic or non-economic loss
Treble Damages damages that are three times the amount
Stigmatized Property property that is less appealing to some buyers not because of its material condition, but because of an unpleasant event that occurred there
Reasonable Person Standard judicial standard for determining liability in which the court would decide that if a reasonable person would have known about the defect in question, the license holder should have, too
Puffing/Puffery the use of exaggeration in advertising; stating opinions about a property that do not constitute misrepresentation
Curb Appeal the attractiveness of property, as viewed from the street (exterior)
Broker’s Price Opinion (BPO) the agent’s determination of an appropriate purchase price
REO real estate owned; describes property that is owned by a lender as result of a failure to find a third-party buyer at a foreclosure auction
Net Sheet one of several names given to a worksheet that provides a seller with an idea of what they would net from the sale on their home if they accepted an offer as presented; a tool for comparing multiple offers
Contingency a provision within a contract that makes performance conditional upon the occurrence of a stated event
Errors and Omissions Insurance protects agents and brokers in the event of accidental legal violations, including mistakes and failures to complete required tasks
Home Warranty policy that insures household items such as the air conditioner, heater, and large kitchen appliances
Created by: jamesowens
 

 



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