Agency Disclosures and What to Expect

If you have ever worked with a real estate agent in Texas you will likely have been provided the consumer notice titled “Information About Brokerage Services”. The IABS is a form that agents are required to provide to any prospective client. In this article we will go over this notice and explain its meaning and purpose.

Types of License Holders

To start with the IABS defines the two different types of real estate agents: Agents and Brokers

• A BROKER is responsible for all brokerage activities, including acts performed by sales agents sponsored by the broker.
• A SALES AGENT must be sponsored by a broker and works with clients on behalf of the broker.

So what does this mean? To begin with, Brokers are licensed by the state and can conduct real estate activities such as representing clients, giving real estate advice and writing contracts. Sales agents, on the other hand, are licensed through their brokers. Agents cannot perform real estate activities unless they are sponsored by a broker. Any activities they do are done on behalf of their broker. Any work performed by an agent is done on behalf of their broker. Brokers are liable for their agents actions and must supervise their agents. If an agent violates the law or their duty to their client it is ultimately the broker who is responsible. That said, the majority of the time you will be dealing with an agent rather than a broker.

A Broker’s Minimum Duties Required by Law

The next section lays out what a broker is required to do. This is known as their fiduciary duty. If you hire an agent, they and their broker, will be required to do these 4 things for you.

• Put the interests of the client above all others, including the broker’s own interests.
• Inform the client of any material information about the property or transaction received by the broker.
• Answer the client’s questions and present any offer to or counter-offer from the client.
• Treat all parties to a real estate transaction honestly and fairly.

First off this spells out the brokers duty to put their clients interests first even their own. This is an important one. It means that we cannot direct clients to a property that pays a higher commission, or we cannot hold back information because it benefits us, or to get a quick sale. We have to do what we feel is best for the client.

The second point says that we cannot hold any material information back. This one is important. Say a buyer’s agent finds out the roof of the home their client is buying is faulty. Or foundation or any other part of the home. The agent must disclose this to their client. They cannot withhold it because they want a quick sale.

The third point is pretty self explanatory. We have to answer any questions and present all offers. In practicality, this one is easy for agents to violate but without malice. As a listing agent, just about every house you list will get low ball offers from investors. Usually within hours of putting the home on the market. If you list a home for $300,000 and an hour later you get an offer for $200,000 you might be tempted to just delete the email and move on to real offers. But this is a violation of our duties. Even though we KNOW our client won’t be interested, we must still present the offer. Now, there is an exception this this: if your client has instructed you otherwise. If a seller says “don’t send me any offers below $280,000” then you don’t need to present anything below that. But it is best to have this in writing.

The final point is just as important as the others. Treat everyone honestly and fairly. Notice that it doesn’t specify just clients. This includes bother buyers and sellers, their agents, lenders and title officers. This is a good idea not just because it is a requirement but also because it helps to keep the transaction flowing smoothly.

Types of Clients

The next section spells out the different broker/client relationships. The first one being the relationship between a broker and a seller. This is usually done through a listing agreement. Then there is the relationship between a broker and a buyer typically done through a buyer’s representation agreement.

After those two it gets more complicated. Intermediary relationships are when a broker represents both a buyer and seller at the same time. In Texas this requires both parties to specifically agree to this. Both the buyer’s representation agreement and the listing agreement have provisions that spell this out and allow the client to agree or decline intermediary relationships. However, it is best for the broker to go over it again when this situation arises.

Intermediary relationships are significantly different due to the obligations to both parties. When representing both sides, brokers are not allowed to give advice to either side. They must stay neutral and act as mediators. They must keep everything either side tells them confidential.

In order to maintain these requirements a broker might appointment specific agents to each party. For instance, Sally might be assigned to work with the seller and John might be assigned to work with the buyers. Each agent then owes confidentiality to their assigned client and has the ability to give guidance. In this instance the broker is kept insulated so that they are not violating their duties to either party.

The last agent type is subagent. Sub agency is an antiquated concept from the early days of real estate. It hasn’t been commonly practiced in over 30 years. Before this point, buyer’s agents didn’t really exist. Instead, listing agents would list the property and subagents would assist buyers. Sounds like a buyer’s agent right? Not quite. Subagents do not represent buyers. Instead they owe duties to the seller because they are a sub agent of the listing agent. They may not know the seller and may never have any dealings with them, but they must put the seller’s interests above the buyers. Complicated right?

So how do you know if your agent is a buyer’s agent or a subagent? Well, the easiest way is to have a written buyer’s representation agreement. This will spell out the agency relationship between your agent and yourself. If you are just using an agent to open doors and don’t want to sign a representation agreement then you are setting yourself up for a sub agency relationship in which case the agent will be looking out for the sellers interest and working to get them the highest price and best terms. So it is best to always have a written agreement. In fact, the next portion of the IABS states just that.

Contact Information

The last section of the IABS is the contact information of the Brokerage, Broker, Agent Supervisor and the Agent themselves. If you are working with an agent and not a broker, this is important so you can contact the supervisor or the broker themselves if you need to.

Next time you work with an agent make sure they provide you this document. In fact, brokers and agents are required to place this notice on their websites and even provide it via email. Most agents just have it included on all emails. But they should also hand you one when meeting in person. If they aren’t doing that, can you be sure they are working in your best interest?