LESSON 6: INTERMEDIARY BROKER

Question 1

Question 2

Question 3

Question 4

What was the traditional representation in real estate before the mid-1980s?

Answer 4

The real estate industry mainly represented sellers, with the listing broker and the sub-agent working for the seller. Buyers had no representation.

Question 5

How did the MLS system change to accommodate buyer representation?

Answer 5

The MLS system evolved to allow for sub-agency, buyer agency compensation, or both. The offer of sub-agency was no longer automatic and was decided by the seller and listing broker.

Question 6

What is the relationship between payment and representation?

Answer 6

Payment and representation are separate issues. A buyer’s agent can represent the buyer and get paid by the seller or the seller’s agent, and vice versa.

Question 7

What was the concern regarding liability in dual agency?

Answer 7

Brokers were concerned about liability when representing both parties in a transaction, as dual agency required loyalty to both clients, which could lead to conflicts.

Question 8

What did TREC discourage regarding dual agency?

Answer 8

TREC discouraged dual agency because it created conflicts of interest, as brokers were required to give 100% loyalty to both clients.

Question 9

What duties does a license holder have when representing a customer instead of a client?

Answer 9

A license holder must act with honesty, fairness, disclosure, good faith, and competency, but cannot provide advice or confidential information.

Question 10

What does the license holder do when working as a subagent?

Answer 10

The license holder can provide confidential information about the seller to the seller but must explain this to the consumer.

Question 11

What changes were made to dual agency laws in 1996?

Answer 11

In 1996, Texas replaced dual agency laws with intermediary representation rules. The broker must act as an intermediary when representing both parties.

Question 12

What are the key differences between dual agency and intermediary representation?

Answer 12

In intermediary representation, the broker can appoint two different agents to represent the buyer and seller, allowing for advice and opinions, unlike dual agency.

Question 13

Why did buyer brokerage grow slowly in Texas?

Answer 13

Buyer brokerage grew slowly because most buyer brokers did not take listings, and many companies still treated buyers as customers rather than clients.

Question 14

What is the concern with cooperating broker sales and in-house sales?

Answer 14

In cooperating broker sales, the agent may be considered a subagent of the seller, a buyer’s agent, or a dual agent, creating confusion. In in-house sales, brokers must follow intermediary rules to avoid dual agency issues.

Question 15

What can happen if a broker does not follow intermediary rules in an in-house transaction?

Answer 15

If the broker does not follow intermediary rules, dual agency could be created, leading to legal and ethical issues.

Question 16

How does dual agency create conflicts of interest?

Answer 16

Dual agency creates conflicts because the agent cannot fully advocate for both parties; they may breach loyalty and confidentiality duties to one or both clients.

Question 17

What happened when Texas created intermediary agency laws?

Answer 17

Texas eliminated dual agency as a legal method of representation and introduced intermediary agency to allow brokers to represent both parties in a transaction.

Question 18

What is single agency brokerage?

Answer 18

Single agency brokers only represent either buyers or sellers exclusively. They do not represent both parties in a transaction and follow strict policies regarding representation.

Question 19

What happens if a party reverts to customer status after being represented?

Answer 19

The agent must explain that the party will now receive customer services, not full representation, and confidentiality duties remain even after the relationship ends.

Question 20

What problems arise when representing both a buyer and a seller?

Answer 20

There are significant conflicts of interest, such as trying to get the best deal for the seller and the lowest price for the buyer, which the agent cannot do without breaching loyalty or confidentiality.

Question 21

Why is dual agency in real estate compared to a lawyer representing both sides of a divorce?

Answer 21

Similar to a divorce lawyer, an agent in dual agency faces conflicts of interest and risks legal and ethical issues, as it is impossible to represent both parties’ best interests.

Question 22

What is the problem with an agent representing both parties in an in-house sale?

Answer 22

If the agent doesn’t disclose their role and follow intermediary rules, it could lead to dual agency, creating legal and ethical issues.

Question 23

What happens if an agent does not follow the rules of intermediary in an in-house sale?

Answer 23

Not following intermediary rules in an in-house sale can create dual agency, leading to potential legal problems and ethical complaints.

Question 24

May a broker act as a dual agent?

Answer 24

A broker may act as an intermediary between parties if they obtain written consent from each party, stating the source of expected compensation. The broker must act fairly and impartially.

Question 25

What steps must occur before a broker or sales agent can represent both the buyer and seller?

Answer 25

1. Present the Information About Brokerage Services to both parties.

Answer 26

2. Seller must execute a Listing Agreement with the broker.

Answer 27

3. Buyer must execute a Buyer Representation Agreement with the broker.

Answer 28

4. Both must sign an intermediary notice.

Question 29

What happens if the intermediary broker or sales agent fails to comply with intermediary provisions?

Answer 29

They may face disciplinary sanctions, including revocation, suspension, reprimand, or administrative penalties.

Question 30

What conduct is prohibited for an intermediary broker or sales agent?

Answer 30

1. Disclosing price reductions or higher offers without written consent.

Answer 31

2. Disclosing confidential information.

Answer 32

3. Treating any party dishonestly.

Answer 33

4. Violating the Texas Real Estate License Act.

Question 34

What is required for a broker to act as an intermediary?

Answer 34

1. Written consent from each party.

Answer 35

2. Written consent must specify the source of compensation.

Answer 36

3. A written listing agreement or buyer representation agreement is sufficient to establish consent.

Question 37

How must a broker acting as an intermediary treat the parties?

Answer 37

The broker must act fairly and impartially. They can appoint associated license holders to represent the parties, provided they act impartially.

Question 38

What types of agency are there for brokers who do not practice intermediary?

Answer 38

1. Buyer Agency: Only works with buyers.

Answer 39

2. Seller Agency: Only works with sellers.

Answer 40

3. Single Agency: Works with both buyers and sellers, but never in the same transaction.

Question 41

What must a broker’s policy and procedures manual include?

Answer 41

It must detail the type of agency practiced, including whether the broker practices intermediary or not.

Question 42

What can a broker or sales agent NOT disclose when acting as an intermediary?

Answer 42

1. Price reductions or higher offers without written permission.

Answer 43

2. Confidential information unless authorized in writing or required by law.

Answer 44

3. Any information prohibited by the Texas Real Estate License Act.

Question 45

What is the role of a license holder acting as an intermediary under Section 1101.560?

Answer 45

A license holder may be appointed by the broker to communicate with and carry out the instructions of one party, and provide advice during negotiations for the party they are appointed to.

Question 46

When is the written consent of the parties required in intermediary transactions?

Answer 46

Before a contract is written, both the buyer and seller must provide written consent, specifying the appointed agents.

Question 47

What is the main requirement for a broker to appoint a license holder under Section 1101.560?

Answer 47

The written consent of the parties must authorize the broker to make the appointment, and the broker must provide written notice of the appointment to all parties involved in the transaction.

Question 48

What duties does a license holder acting as an intermediary supersede?

Answer 48

The duties of a license holder acting as an intermediary supersede duties established under common law or any other law.

Question 49

What does Section 1101.559 require for a broker to act as an intermediary?

Answer 49

Written consent from the parties, specifying compensation and the conduct prohibited under Section 1101.651(d).

Question 50

What must happen if a broker is acting as an intermediary and appoints another license holder?

Answer 50

The broker must provide written notice to all parties involved, and the appointed license holder may provide advice and opinions to the party they are appointed to.

Question 51

What happens if the intermediary relationship is not confirmed in writing?

Answer 51

An intermediary relationship does not exist unless written consent is given by the parties. You cannot create an intermediary relationship orally.

Question 52

What is intermediary brokerage?

Answer 52

Intermediary brokerage allows a broker to act as a go-between for the buyer and seller, with written consent from all parties and disclosure of compensation expectations.

Question 53

What must the written consent in intermediary brokerage include?

Answer 53

The written consent must disclose the source of compensation and can be evidenced by a listing agreement that allows intermediary brokerage.

Question 54

What does the intermediary broker need to do according to the Texas law?

Answer 54

The intermediary must act "fairly and impartially" and can appoint associates to communicate, carry out instructions, and provide advice to the parties they represent.

Question 55

What happens if a broker acts as an intermediary without appointments?

Answer 55

If no appointments are made, the intermediary cannot provide advice or opinions to either party.

Question 56

How are appointments made in intermediary brokerage?

Answer 56

Appointments are made when the broker assigns an associate to either the buyer or seller in an intermediary transaction. The agent can then provide advice to their designated party.

Question 57

Can a broker appoint themselves as an intermediary?

Answer 57

No, the broker cannot appoint themselves as an intermediary.

Question 58

What happens if a broker's policy allows one agent to represent both buyer and seller?

Answer 58

If one agent represents both parties, no appointments can be made, and the agent must remain neutral, giving no advice or opinions.

Question 59

Can a broker work as an intermediary in a firm with fewer than three agents?

Answer 59

No, the firm must have at least three agents (broker and two associates) to make appointments. A broker with one or two agents cannot make appointments.

Question 60

What is the role of a sole practitioner broker in intermediary brokerage?

Answer 60

A sole practitioner can act as an intermediary but cannot make appointments. The broker must act as the intermediary without giving advice or opinions.

Question 61

What are the consequences of giving advice in an intermediary transaction without appointments?

Answer 61

Giving advice in an intermediary transaction without appointments is prohibited, as it violates the neutrality required.

Question 62

What is the main distinction between confidentiality and property condition disclosure?

Answer 62

Property condition is not confidential information; it must be disclosed, especially if it impacts the buyer's decision.

Question 63

When is an intermediary relationship not advisable?

Answer 63

It is not advisable when the broker or agent is purchasing a company listing for their own account, as it may cause conflicts of interest.

Question 64

What happens if a broker violates fiduciary duties due to greed?

Answer 64

Violations can lead to losing the commission, losing the real estate license, and facing lawsuits for damages.

Question 65

What must a broker do when a potential buyer makes an offer on a property already under contract?

Answer 65

The broker must keep the seller informed of any new offers that are material to the decision-making process, as failing to do so is a violation of fiduciary duties.

Question 66

How can brokers avoid conflicts of interest?

Answer 66

Brokers must prioritize the client's interests and avoid situations that may lead to conflicting obligations or ethical violations.

Question 67

What are "Specialized Intermediary Applications"?

Answer 67

These are transactions where a broker might unintentionally become an intermediary due to conflicts of interest, requiring either the broker to act as an intermediary or remove themselves from the deal.

Question 68

What happens if a broker owns an interest in the property?

Answer 68

The broker must disclose their interest and obtain consent from all parties involved. If the broker is also a partner or shareholder, full disclosure is required, and the parties should seek separate representation.

Question 69

What is the legal situation if a broker represents a trust or minor?

Answer 69

The broker may give consent on behalf of a minor or trust, but if the deal is not beneficial, the broker could face legal consequences.

Question 70

What is a Section 1031 Exchange?

Answer 70

A Section 1031 exchange allows property owners to defer taxable gain from the sale of investment property by exchanging it for another property of like-kind. The transaction can involve a broker as an intermediary, but caution is needed due to complex legal and tax considerations.

Question 71

Can a broker represent both parties in a Section 1031 Exchange?

Answer 71

While not impossible, it is generally inadvisable due to the complexity and tax ramifications of such deals. The broker should advise the parties to be independently represented.

Question 72

What is the difference between intentional vs. unintended dual representation?

Answer 72

Intentional dual representation occurs when a broker knowingly represents both parties, while unintended dual representation can occur when a broker inadvertently represents both sides due to failure to disclose their position.

Question 73

What is the issue with "unintended dual agency" in real estate?

Answer 73

It occurs when a broker inadvertently represents both parties, such as acting as a buyer’s agent while representing the seller. Full disclosure is required to avoid this scenario.

Question 74

How does "unintended dual agency" occur with an associate?

Answer 74

If an associate working for a seller’s broker acts as if representing the buyer (without proper disclosure), this results in unintended dual agency.

Question 75

What is the risk of working with "flippers" in real estate?

Answer 75

Working with a flipper without full disclosure of their intentions (such as future listings) can lead to violations of fiduciary duties and potential dual agency.

Question 76

What should a broker do in a situation with flippers?

Answer 76

The broker should disclose the nature of the transaction to all parties and ensure consent for any intermediary role.

Question 77

What are the consequences of not providing proper disclosure in a real estate transaction?

Answer 77

A broker could face disciplinary actions, including suspension of their license, fines, and legal consequences for failing to provide necessary forms, consent, or disclosures.

Question 78

What happens if a seller is at home during a showing?

Answer 78

The buyer’s agent must inform the seller that they represent the buyer, following the law to avoid unintended sub-agency or dual agency.

Question 79

What is the role of the broker in an open house?

Answer 79

Brokers must inform everyone at an open house that they represent the seller and disclose their role before engaging with any buyers. If a buyer becomes interested, further disclosure and a Buyer's Rep Agreement are needed.

Question 80

What does the National Association of Realtors® Code of Ethics require?

Answer 80

The Code of Ethics provides guidelines for ethical behavior in real estate, helping agents maintain professional reputations and avoid legal issues.

Question 81

Who can practice law in Texas?

Answer 81

Only members of the State Bar of Texas or those who comply with the Texas Supreme Court's rules regarding the practice of law can provide legal services, such as preparing contracts or wills.