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  • REAL ESTATE Texas

    Agency EIGHTH EDITION

    Donna K. Peeples, PhD, and Minor Peeples III, PhD, and A. Sue Williams, MS, with Thomas C. Terrell

    and Kathleen E. Terrell, CREI, Contributing Editors

    TX_RE_Agency_8E.indb 1 9/22/2014 2:38:01 PM

    Unauthorized reproduction or resale of this product is in direct violation of global copyright laws. Customized for use solely by State Continuing Education.

  • This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional advice. If legal advice or other expert assistance is required, the services of a competent professional should be sought.

    President: Dr. Andrew Temte Chief Learning Officer: Dr. Tim Smaby Executive Director, Real Estate Education: Melissa Kleeman-Moy Development Editor: Julia Marti

    TEXAS REAL ESTATE AGENCY EIGHTH EDITION ©2014 Kaplan, Inc. Published by DF Institute, Inc., d/b/a Dearborn Real Estate Education 332 Front St. S., Suite 501 La Crosse, WI 54601

    All rights reserved. The text of this publication, or any part thereof, may not be reproduced in any manner whatsoever without written permission from the publisher.

    Printed in the United States of America

    ISBN: 978-1-4754-2809-4 / 1-4754-2809-X PPN: 1560-0509

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  • iii

    About the Authors vii About the Contributing Editors viii Acknowledgments ix Preface x

    C H A P T E R 1

    Agency Concepts 1 What Is Agency? 2 The Real Estate License Act, the TREC Rules, and You 4 Roles People Play in Agency Relationships 9 Client or Customer? 14 Why Study Agency? 14 Relationships Between Principal and Agent 18 Summary 20 Key Points 21 Suggestions for Brokers 21 Chapter 1 Quiz 22 Discussion Questions 23

    C H A P T E R 2

    Basic Agency Relationships, Disclosure, and Duties to the Client 25 Agency Defined 26 Authority of Agent 27 Classifications of Agency 29 Fiduciary Duties and Responsibilities 34 Information About Brokerage Services and Disclosure of Representation 53 Summary 57 Key Points 58 Suggestions for Brokers 58 Chapter 2 Quiz 60 Discussion Questions 62

    C H A P T E R 3

    Duties and Disclosures to Third Parties 63 Nonfiduciary Duties 64 General Duties of Honesty and Fairness 65 Define Third Party and Obligations to Third Party 66 Avoiding Disclosure and Misrepresentation Problems 67 Section 5.008 of the Texas Property Code (Seller’s Disclosure of Property Condition) 69 Material Facts 76 Stigmatized Properties 79 Liability for Misrepresentation 86 Summary 87

    Contents

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  • iv Contents

    Key Points 88 Suggestions for Brokers 88 Chapter 3 Quiz 89 Discussion Questions 91

    C H A P T E R 4

    Seller Agency 93 Listing Agreements 94 Exclusive Seller Agency 111 Benefits of Seller Agency Relationships 116 Subagency 119 Nonexclusive Seller Agency 123 Disclosure Issues 125 Summary 128 Key Points 128 Suggestions for Brokers 129 Chapter 4 Quiz 130 Discussion Questions 132

    C H A P T E R 5

    Buyer Agency 133 Buyer Representation Agreement 134 Deciding to Represent the Buyer 140 The Creation of Buyer Agency 142 Benefits of Buyer-Agency Relationships 149 Written Notification of Compensation to Broker and Fee Arrangements 162 Buyer’s Broker Disclosures 175 Summary 185 Key Points 186 Suggestions for Brokers 186 Chapter 5 Quiz 187 Discussion Questions 189

    C H A P T E R 6

    Representing More Than One Party in a Transaction: Intermediary Brokerage 191 The Path From Dual Agency to Intermediary Brokerage 192 Representation of More Than One Party in a Transaction 195 Intermediary Brokerage 197 Concerns Related to Intermediary Practice 211 Specialized Intermediary Applications 213 Intentional Versus Unintended Dual Representation 214 Summary 223 Key Points 223 Suggestions for Brokers 224 Chapter 6 Quiz 225 Discussion Questions 227

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  • vContents

    C H A P T E R 7

    Creation and Termination of Agency 229 How and When Agency Is Created 230 Important Issues 240 How Agency Is Terminated 244 Duties of Agency That Survive Termination 248 Summary 250 Key Points 250 Suggestions for Brokers 251 Chapter 7 Quiz 252 Discussion Questions 253

    C H A P T E R 8

    Clarifying Agency Relationships 255 Disclosure Policy 256 Understanding and Developing a Company Policy 264 Summary 270 Key Points 272 Suggestions for Brokers 272 Chapter 8 Quiz 273 Discussion Questions 274

    C H A P T E R 9

    Employment Issues 275 Independent Contractor Agreements 276 Employment Law 295 Employment Relationships Between Brokers and Principals 298 Employment and Compensation of Personal Assistants 305 Relationships Between Brokers, Agents, and Subagents 309 Other Compensation Issues 313 Summary 314 Key Points 315 Suggestions for Brokers 315 Chapter 9 Quiz 316 Discussion Questions 317

    C H A P T E R 10

    Agency, Ethics, and the Law 319 Corporate Values and Business Environment 320 Distinctions Between Law, Ethics, and Morals 322 Federal and State Law Relating to Conduct 323 Texas State Law 345 TRELA and Rules of the Commission 350 Professional Codes of Ethics 351 Minimum Ethical Standards 353 The Bottom Line on Ethics 362 Summary 363 Key Points 363 Suggestions for Brokers 364 Chapter 10 Quiz 365 Discussion Questions 366

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  • vi Contents

    C H A P T E R 11

    Deceptive Trade Practices and Consumer Protection Act 367 Applicability: Real Estate Broker and Salesperson Exemption From the DTPA 368 Fraud Versus Misrepresentation 369 Deceptive Trade Practices and Consumer Protection 370 Damages 383 Defenses 384 Ethical and Legal Concerns 387 Summary 387 Key Points 388 Suggestions for Brokers 388 Chapter 11 Quiz 389 Discussion Questions 391

    C H A P T E R 12

    Implementation and Presentation 393 Introduction: Preventive Brokerage 394 The Broker Working For or With the Seller 396 The Broker Working For or With the Buyer 399 A Practical Guide to Everyday Practice: Using Rehearsed Dialogue 409 Other Considerations 412 Risk Management 416 Summary 418 Key Points 419 Suggestions for Brokers 419 Chapter 12 Quiz 420 Discussion Questions 422

    A P P E N D I X A

    Texas Occupations Code 423

    A P P E N D I X B

    Questions and Answers Regarding Disclosure of Agency and Intermediary Practice 467

    A P P E N D I X C

    The National Association of REALTORS® Code of Ethics 479

    Glossary 489 Answer Key 495 Index 497

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  • vii

    About the Authors

    Donna K. Peeples (Katy), PhD, is an associate professor of management at Texas A&M-Corpus Christi and previous co-owner of the Real Estate Institute of Corpus Christi. She is licensed as a real estate broker in Texas, holds a BBA in finance, an MBA from Texas A&M University at Corpus Christi, and a PhD from Texas A&M University at College Station. Her real estate designations include the GRI, CRB, and the Texas Real Estate Teachers Association’s (TRETA) CREI designation. Katy is a frequent public speaker on topics relating to business and real estate. Katy is a coauthor of Prepare for the Texas Real Estate Exam with Dr. Johnnie Rosenauer and Dr. Minor Peeples III, PhD.

    Minor Peeples III, PhD, is cofounder, previous owner, and former CEO and prin- cipal instructor of the Real Estate Institute of Corpus Christi, Inc. Minor is a Texas real estate broker with extensive experience in the real estate business and has served as a content expert for various editions of the Texas real estate exami- nation and as a member of the TREC MCE content committee. He is a coau- thor of Prepare for the Texas Real Estate Exam with Dr. Johnnie Rosenauer and Dr. Katy Peeples. His educational background includes a BA in economics from Texas A&M at College Station, an MBA from Texas A&M-Corpus Christi, and a PhD from Texas A&M at College Station. Currently, Dr. Peeples offers consult- ing services to real estate brokerage companies and expert witness services in the area of agency law and is a frequent speaker at professional real estate meetings throughout south Texas.

    A. Sue Williams, MS, GRI, served for over 20 years in the U.S. Navy in myr- iad assignments, ranging from associate professor of computer science at the U.S. Military Academy in West Point, New York, to commanding officer of the fleet ballistic missile (FBM) submarine base in Holy Loch, Scotland. She has been licensed as a real estate broker since 1996 in Texas and holds a BA in English from Texas State University in San Marcos and an MS in computer science from the Naval Postgraduate School in Monterey, California. Sue has been affiliated with the Real Estate Institute of Corpus Christi since 1994, serving full time as an instructor and writer of prelicensing and continuing education courses. She then stepped up to the position of executive director for several years before retiring in December 2010. She continues to author and teach mandatory continuing educa- tion (MCE) courses throughout the Coastal Bend and often contributes to the review and editing of real estate textbooks for Dearborn Real Estate Education, including previous editions of Texas Real Estate Agency and Texas Real Estate Exam Prep, Third Edition, and the writing of exam and chapter quiz rationales for Mod- ern Real Estate Practice in Texas, 13th