TREC MANDATORY ETHICS
COURSE
Revised October 2009
COURSE OUTLINE & OBJECTIVES
Canons of Professional Ethics
Agency Relationships
Offers
Defects and Disclosure
Advertising
Dispute Resolution
TREC Case Studies
5 CANONS OF PROFESSIONAL ETHICS
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)

CANONS OF PROF. ETHICS (CONT.)

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!
FIDELITY (CONTINUED)
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”

CANONS OF PROF. ETHICS

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
CANONS OF PROF. ETHICS

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
CANONS OF PROF. ETHICS

Consumer Information Form 1-1 (See form on
Page 2)
 Must
be displayed in offices
 Advises consumers where to file complaints
CANONS OF PROF. ETHICS

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
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
TREC Complaints (continued)
 If violation established
sanctions include:
Reprimand
 Suspension
 Revocation
 A fine
 Probation
 Any combination of the
foregoing

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
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

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)
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
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
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
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
Agency Relationships
Agency Relationships

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)
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.
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.
1101.558(c) The license holder shall
provide to a party to a real estate transaction at the time of the first substantive
dialogue with the party the written statement 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)...
Listing Agent
Owner (listing presentation)
Yes
Listing Agent
Buyer (represented)
No
Listing Agent
Buyer (not represented)
Yes
Buyer Agent
Buyer (buyer rep. agrmt.)
Yes
Buyer Agent
Owner (represented)
No
Buyer Agent
Owner (not represented)
Yes
Subagent
Buyer (1st mtg.)
Yes
Subagent
Owner (represented)
No
Types of Listings

Exclusive Right to Sell or an Exclusive
Agency (see Page 8)

MLS requires written and exclusive listing
The Intermediary
1101.559(a). A broker may act as an intermediary
between the parties to a real estate transaction if:
(1)the broker obtains written consent
from 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.
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.
§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 specifically 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.
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.
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.
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).
Decision to Appoint or Not Appoint
is Matter of Firm Policy
EXAMPLE 1
Broker
Associate - 1
Seller
Intermediary
Associate - 2
Buyer
By making appointments, Associates will provide opinions and advice
during negotiations. HOWEVER: RESTRICTIONS UNDER 1101.651(d)
APPLY.
EXAMPLE 2
Broker
Intermediary *
Associate - 1
Seller
Associate - 2
Buyer
Restricted by Subsection (1101.651(d))
No opinions or advice during negotiations
Broker (Firm)
Associate - 1
Seller
EXAMPLE 3
Buyer
Broker (Firm)
Intermediary
Associate - 1
Seller
Buyer
No
Appointment
EXAMPLE 3 – Alternative 1
Broker (Firm) = Intermediary
Associate - 1
Associate - 2
Seller
Buyer
Reassign One Party
with consent of all parties
EXAMPLE 3 – Alternative 2
Associate - 1
Broker (Firm) = Intermediary
Associate - 3
Seller
Associate - 2
Buyer
Reassign Both Parties
with consent of all parties
EXAMPLE 3 – Alternative 3
Example 4
Sole Practitioner
Seller
Buyer
No appointment possible.
No opinions or advice during negotiations.
Subsection 1101.651(d) restrictions apply.
Firm - Intermediary
Broker/Owner
Associate - 2
Seller
Buyer
Example 5
Firms where Broker/Owner is Active
Broker (Firm)
Intermediary *
Broker-Owner
Seller
Associate - 2
Buyer
Restricted by Subsection 1101.651(d)
No opinions or advice during negotiations
EXAMPLE 5 (continued)
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
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
Co-op
sale
In-house
sale
Buyer Rep. Agrmnt
Written Information
Single Buyer Representation
Co-op
sale
In-house
sale
Buyer Rep. Agrmnt
Written Information
Co-op
sale
In-house
sale
Buyer Rep. Agrmnt
Written Information
Notification of
Intermediary Relationship
Appointments made.
Subagency
A Subagent is:
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.
Exercise Caution not create implied agency
(Page 13)
Other Types of Conflicts of
Interest
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
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.
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.
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)
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.
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

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)

Licensee must keep
principal informed at all
times of material
information

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)


Option money should be delivered to seller
(probably through listing broker)
Should not be delivered to 3rd 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



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)


Acceptance is when contract is binding and
enforceable
Acceptance is a communication (by any
reasonable means) that offer or counter offer
(unequivocally) is accepted

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


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
 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
 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.
 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.
 When working with minimum service agents, the
agents are to be kept in loop (See discussion on Page
20)
 Technical Questions:
 Property Managers
 Builders
 Gov’t REO procedures
See Page 20 for discussion


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

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


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)

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

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

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.

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

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
Advertising
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.
Advertising

A licensee must identify his license status in
advertisement
For sale, Mighty Fine Real Estate
Brokerage Services, 555-5555
OK
For Sale, Sam’s Realty, 555-5555
OK
Advertising
(examples that do not comply)

For Sale, Muddy River Real Estate, 5555555

For Sale, Good Management, 222-2222

For Sale, Callie Closer and Company, 6666666
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
Inducements in Advertising

Inducements

Can be in ad, but
conditions of
inducements must
be clearly disclosed
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
Fair Housing & Advertisements

Prohibits Discriminatory Language in Ads


Race, color, religion, sex, handicap, familial
status, or national origin.
Applies to Commercial Transactions
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

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
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
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
Mediation
► Mediation
is a forum, before an impartial person,
which is designed to facilitate communication
between parties and to promote reconciliation,
settlement or understanding.
Arbitration
► Arbitration
is a
forum where parties
and counsel present
their positions before
an impartial party
who renders a
specific award.




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



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



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
TREC DISCIPLINARY CASES
THE MISSING BUYER REPRESENTATIVE









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
LOW BIDDER LOSES






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
MYSTERIOUS RENTAL FEES
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.

FELONY OFFENSES
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

Appendices

Appendix A – NAR Code of Ethics

Appendix B – The Effective Date

References
Ethics:
The End
End