Real estate Agency law

Most real estate-related lawsuits have to do with the condition of the property.
Latent defect
Not trivial or insignificant  (foundation, termites, roof, flooding,)
Not “readily discernible” (not easy to find) to the public
Must be disclosed, if known to seller or licensees in the transaction

How to avoid problems/lawsuits:
(1) Disclose! Disclose! Disclose! Disclose! Disclose! Disclose!
Seller must disclose any known defects. (Use Seller’s Disclosure Form)
Agents/Brokers  must disclose any known defects, no matter who they represent.
​Disclose to the principal they represent (“client”)
​Disclose to the other party (“customer,” “third party”)
Third party  =  anyone you do not represent
So not fiduciary duty, but honesty & fairness
(This whole chapter is written from OLD perspective of Sub-Agency:
“If you represent the seller, what duty do you owe the BUYER?”
Under sub-agency, all licensees represented the seller.  The buyer was only a third party, and licensees called the buyer a “customer.”)
Obligations to Third Parties:  (These are not fiduciary duties)
1. honesty & fairness  (Canons of Ethics)
2. disclose known defects
3. disclose agency
4. do not discriminate
5. title insurance
6. tell them to consult an attorney if they don’t understand contract

(2) Recommend Buyer use a licensed inspector
​They rely on the inspector instead of you.  (think lawsuit liability)
​If they refuse to get an inspection, have them sign a statement saying so.
​Use of a licensed inspector is a “safe harbor” for real estate agents
​do not recommend a specific inspector (creates liability)
​illegal to do both jobs in same transaction
​never conceal an old bad report  (within last 4 years)
(3) If you rely on another source, say so.
Ex: “2400 square feet per HCAD”
(4) Advise Buyer to verify important information
Buyer’s Agent has a duty to require proof from the seller/seller’s agent.
examples:
​buyer can pay an appraiser to measure house square footage
​ask surveyor to verify extent of easement, total acreage, etc.
​Tell buyer to read the restrictions.
​Local ordinances
​Rural property: wells, septic systems, access
​seller who represented there was a warranty
Stigma — a perceived “defect” in the property that is not physical but emotional or psychological in nature​
must disclose
1. death by accident related to the condition of the property
2. murder on the property
“no duty to disclose” but
seller could voluntarily disclose:
death on the property due to:
1.  natural causes
2.  suicide
3.  accident unrelated to the condition of the property
Do not disclose:
(1) race, religion, national origin, etc. (protected classes of people under federal Fair Housing laws)
(2) Aids/HIV (also protected under TRELA)
Possible Responses from Potential Buyers
​A.  Still want to buy
​B.  Want to bargain for a lower price
​C.  Genuinely distressed, will not buy.  (better than a lawsuit)

“Other” (Written laws don’t say if disclosure is required or not.)
Cautious brokers give clients websites such as the ones below.
.  allegations of child molestation in the house  (p. 48)
.  obnoxious/hostile neighbor
.  proximity of registered sex offenders: www.txdps.state.tx.us
.  reputation as a “haunted house” (don’t list the Amityville Horror)
.  still “at large” criminal in the neighborhood:  murder, burglary, rape, robbery, abduction, assault, violence against pets
Agents:  Consult your broker
Brokers:  Consult your attorney
When in doubt, disclose.

Class Exercise:  go to www.txdps.state.tx.us and look up your home or your family’s home.  How close is the nearest registered sex offender?

Chapter 3:  Disclosure–Defects
Class Exercise:  each student fill out a TAR Seller’s Disclosure Notice
Most real estate-related lawsuits have to do with the condition of the property.
Latent defect
Not trivial or insignificant  (foundation, termites, roof, flooding,)
Not “readily discernible” (not easy to find) to the public
Must be disclosed, if known to seller or licensees in the transaction

How to avoid problems/lawsuits:

(1) Disclose! Disclose! Disclose! Disclose! Disclose! Disclose!
Seller must disclose any known defects. (Use Seller’s Disclosure Form)
Agents/Brokers  must disclose any known defects, no matter who they represent.
​Disclose to the principal they represent (“client”)
​Disclose to the other party (“customer,” “third party”)

Third party  =  anyone you do not represent
So not fiduciary duty, but honesty & fairness

(This whole chapter is written from OLD perspective of Sub-Agency:
“If you represent the seller, what duty do you owe the BUYER?”
Under sub-agency, all licensees represented the seller.  The buyer was only a third party, and licensees called the buyer a “customer.”)

Obligations to Third Parties:  (These are not fiduciary duties)

1. honesty & fairness  (Canons of Ethics)
2. disclose known defects
3. disclose agency
4. do not discriminate
5. title insurance
6. tell them to consult an attorney if they don’t understand contract

(2) Recommend Buyer use a licensed inspector
​They rely on the inspector instead of you.  (think lawsuit liability)
​If they refuse to get an inspection, have them sign a statement saying so.
​Use of a licensed inspector is a “safe harbor” for real estate agents
​do not recommend a specific inspector (creates liability)
​illegal to do both jobs in same transaction
​never conceal an old bad report  (within last 4 years)

(3) If you rely on another source, say so.
Ex: “2400 square feet per HCAD”

(4) Advise Buyer to verify important information

Buyer’s Agent has a duty to require proof from the seller/seller’s agent.

examples:
​buyer can pay an appraiser to measure house square footage
​ask surveyor to verify extent of easement, total acreage, etc.
​Tell buyer to read the restrictions.
​Local ordinances
​Rural property: wells, septic systems, access
​seller who represented there was a warranty

Stigma — a perceived “defect” in the property that is not physical but emotional or psychological in nature​

must disclose

1. death by accident related to the condition of the property
2. murder on the property
“no duty to disclose” but
seller could voluntarily disclose:
death on the property due to:
1.  natural causes
2.  suicide
3.  accident unrelated to the condition of the property

Do not disclose:
(1) race, religion, national origin, etc. (protected classes of people under federal Fair Housing laws)

(2) Aids/HIV (also protected under TRELA)

Possible Responses from Potential Buyers
​A.  Still want to buy
​B.  Want to bargain for a lower price
​C.  Genuinely distressed, will not buy.  (better than a lawsuit)

“Other” (Written laws don’t say if disclosure is required or not.)
Cautious brokers give clients websites such as the ones below.
.  allegations of child molestation in the house  (p. 48)
.  obnoxious/hostile neighbor
.  proximity of registered sex offenders: www.txdps.state.tx.us
.  reputation as a “haunted house” (don’t list the Amityville Horror)
.  still “at large” criminal in the neighborhood:  murder, burglary, rape, robbery, abduction, assault, violence against pets
Agents:  Consult your broker
Brokers:  Consult your attorney
When in doubt, disclose.
Class Exercise:  go to www.txdps.state.tx.us and look up your home or your family’s home.  How close is the nearest registered sex offender
Agency:  What this course is about
Who does the licensee represent?
seller? buyer? both? neither?
Theory of agency seems simple.
Application is not.
​What you can and cannot say, do, disclose…….
Critical thinking—think on your feet
small group work– lawsuits—“examples”–stories
​Imagine    think—feel—react
​Licensee: dishonest?
​  not knowledgeable?
​  negligent?
​  honest mistake?
where did they go wrong?  What
​should they have done?​
How fixed it w/o a lawsuit?
Agree with court?  Disagree?  Why?
Lawyers disagree—grey areas—ok disagree /me
discourage—car accidents—education reduces risk

Chapter 1
The Texas Real Estate Commission (TREC) is a consumer protection agency.  (To protect the public from us! )

TRELA The Real Estate License Act
​1939–first Texas real estate licensing law

TREC–Texas Real Estate Commission  ​www.trec.texas.gov
​1949—TRELA (law) established TREC (the state agency)

​2 levels of license:
Salesperson
​Broker
​Licensing requirements
​Get Brokers License and degree

Canons of Professional Ethics (from TREC) see page 229 of textbook
Q: 5 articles
Q: be able to recognize the duties
Expect questions on licensing exam too. (TREC takes seriously)

Good Ethics is Good Business!!!  Why?

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