Brokering Texas Real Estate Transactions
In most states, attorneys are not required to hold a real estate license in order to represent a client in a real estate transaction. Real estate brokers and sales agents in general, and Multiple Listing Services (MLS) in particular, are typically not too pleased with this fact, for obvious reasons.
Texas takes the general rule of allowing attorneys to act as real estate brokers for their clients a step further: In Texas, an attorney may lawfully broker a real estate transaction for a non-client. See, Texas Occupations Code § 1101.005(1) (Texas Real Estate License Act (RELA) does not apply to licensed attorneys); Banowsky v. Schultz, 05-14-01624 (Tex. App., 2016) (licensed attorney, being statutorily exempt from RELA, may collect a commission for brokering real estate transaction, even in the absence of an attorney-client relationship with party for whom the transaction was brokered).
Given that a person who is seeking professional assistance when buying or selling Texas real estate can choose between a Broker and an Attorney, let us take a look at what each of these professionals does best.
Texas takes the general rule of allowing attorneys to act as real estate brokers for their clients a step further: In Texas, an attorney may lawfully broker a real estate transaction for a non-client. See, Texas Occupations Code § 1101.005(1) (Texas Real Estate License Act (RELA) does not apply to licensed attorneys); Banowsky v. Schultz, 05-14-01624 (Tex. App., 2016) (licensed attorney, being statutorily exempt from RELA, may collect a commission for brokering real estate transaction, even in the absence of an attorney-client relationship with party for whom the transaction was brokered).
Given that a person who is seeking professional assistance when buying or selling Texas real estate can choose between a Broker and an Attorney, let us take a look at what each of these professionals does best.
The Texas Real Estate Broker
The primary function of a Broker (including Sales Agents who work under a Broker) is to bring real estate buyers and sellers together. One need look no further than a Broker’s listing agreement to see that it is this “matchmaking” function that earns the Broker a commission.
The single most powerful tool that Brokers have to assist them in bringing buyers and sellers together is the local MLS. Every MLS spends large amounts of money to collect real estate market data and make it available to MLS members. Generically speaking, “the MLS” is the benchmark for real estate market data; all other sources of such data are measured against the MLS.
Furthermore, every MLS jealously restricts data access to its member Brokers and Sales Agents, and usually charges its members hefty fees for the privilege of MLS access.
In order to get paid, after a Broker(s) brings a buyer and seller together, the Broker(s) has to close the deal. To do this, Brokers handling residential transactions typically fill out standard real estate contract forms, get the needed signatures, and coordinate matters with the closing agent, usually a title company.
For residential transactions in Texas, Brokers are required to use a standard form of contract that is furnished by the Texas Real Estate Commission (TREC).
According to the TREC website, the educational requirements to become licensed as a Texas real estate sales agent (and work under a Broker), and thus to authorize one to use the TREC form when brokering residential real estate transactions for others, includes instruction in:
1. Principles of Real Estate I (30 classroom hours);
2. Principles of Real Estate II (30 classroom hours);
3. Law of Agency (30 classroom hours);
4. Law of Contracts (30 classroom hours);
5. Promulgated Contracts Forms (30 classroom hours); and
6. Real Estate Finance (30 classroom hours).
That works out to be about four and one-half weeks of full-time instruction.
According to the TREC website, in order to become licensed as a Texas real estate broker, an applicant must complete the classes required for a sales agent license and take a 30 hour Real Estate Brokerage class. Additionally, an applicant for a broker’s license must have “four years’ of active experience” as a real estate broker or sales agent. Although no college degree is required, Broker applicants who do not possess a bachelor’s degree must complete an additional 630 hours of acceptable real estate-related course work.
The single most powerful tool that Brokers have to assist them in bringing buyers and sellers together is the local MLS. Every MLS spends large amounts of money to collect real estate market data and make it available to MLS members. Generically speaking, “the MLS” is the benchmark for real estate market data; all other sources of such data are measured against the MLS.
Furthermore, every MLS jealously restricts data access to its member Brokers and Sales Agents, and usually charges its members hefty fees for the privilege of MLS access.
In order to get paid, after a Broker(s) brings a buyer and seller together, the Broker(s) has to close the deal. To do this, Brokers handling residential transactions typically fill out standard real estate contract forms, get the needed signatures, and coordinate matters with the closing agent, usually a title company.
For residential transactions in Texas, Brokers are required to use a standard form of contract that is furnished by the Texas Real Estate Commission (TREC).
According to the TREC website, the educational requirements to become licensed as a Texas real estate sales agent (and work under a Broker), and thus to authorize one to use the TREC form when brokering residential real estate transactions for others, includes instruction in:
1. Principles of Real Estate I (30 classroom hours);
2. Principles of Real Estate II (30 classroom hours);
3. Law of Agency (30 classroom hours);
4. Law of Contracts (30 classroom hours);
5. Promulgated Contracts Forms (30 classroom hours); and
6. Real Estate Finance (30 classroom hours).
That works out to be about four and one-half weeks of full-time instruction.
According to the TREC website, in order to become licensed as a Texas real estate broker, an applicant must complete the classes required for a sales agent license and take a 30 hour Real Estate Brokerage class. Additionally, an applicant for a broker’s license must have “four years’ of active experience” as a real estate broker or sales agent. Although no college degree is required, Broker applicants who do not possess a bachelor’s degree must complete an additional 630 hours of acceptable real estate-related course work.
Attorneys
Attorneys, by comparison, almost always have a bachelor’s degree in addition to a law school degree.
A portion of the typical three-year curriculum at an American Bar Association (ABA) law school (all good law schools in the United States, and even most mediocre ones, are ABA accredited) will almost always include:
1. Property Law (two semesters);
2. Law of Agency (one semester);
3. Contract Law (two semesters);
4. Business Organizations (one semester);
5. Marital Property Law (one semester); and
6. Wills and Trusts (one semester).
That’s eight semesters of law school course work, not counting the rest of the three-year law school curriculum.
A portion of the typical three-year curriculum at an American Bar Association (ABA) law school (all good law schools in the United States, and even most mediocre ones, are ABA accredited) will almost always include:
1. Property Law (two semesters);
2. Law of Agency (one semester);
3. Contract Law (two semesters);
4. Business Organizations (one semester);
5. Marital Property Law (one semester); and
6. Wills and Trusts (one semester).
That’s eight semesters of law school course work, not counting the rest of the three-year law school curriculum.
Real Estate Brokers and Attorneys: What Each Does Best
Returning now to our discussion of whether to hire a Broker or Attorney to handle your next real estate transaction, recall that we mentioned earlier that a Broker’s commission is earned — as we see through a review of the typical listing agreement — by bringing buyer and seller together.
If you have ever asked a Broker a question about a real estate contract, there’s a good chance that the Broker responded by suggesting you consult with your attorney. At least that’s what the answer probably should have been, as Brokers are not permitted to give legal advice.
Texas Brokers are required to use the TREC form for residential transactions; they don’t have a choice. Ask a Texas Broker to do anything other than fill-in the blanks or check-the-boxes on a TREC form, and wait for the response. For example, ask a Broker to cross out certain wording and add another line which states “such-and-such.” You will likely be told that is not allowed.
It is true that Texas Brokers are not allowed to add, delete, or change language on the TREC residential contract. However, since attorneys are not even required to use the TREC form, there is certainly no impediment to an attorney adding, deleting, or changing language on a TREC form.
A Broker also may not give you advice on whether you should, for example, take title to property in the name of your limited liability company or other business entity, advise you on marital property issues relating to the transaction, or draft a deed for you that will adequately address your estate planning needs. An attorney may provide all of these services, and more.
If you have ever asked a Broker a question about a real estate contract, there’s a good chance that the Broker responded by suggesting you consult with your attorney. At least that’s what the answer probably should have been, as Brokers are not permitted to give legal advice.
Texas Brokers are required to use the TREC form for residential transactions; they don’t have a choice. Ask a Texas Broker to do anything other than fill-in the blanks or check-the-boxes on a TREC form, and wait for the response. For example, ask a Broker to cross out certain wording and add another line which states “such-and-such.” You will likely be told that is not allowed.
It is true that Texas Brokers are not allowed to add, delete, or change language on the TREC residential contract. However, since attorneys are not even required to use the TREC form, there is certainly no impediment to an attorney adding, deleting, or changing language on a TREC form.
A Broker also may not give you advice on whether you should, for example, take title to property in the name of your limited liability company or other business entity, advise you on marital property issues relating to the transaction, or draft a deed for you that will adequately address your estate planning needs. An attorney may provide all of these services, and more.
Who Represents (and Who Does Not Represent) Whom
In the discussion that follows, the term “Broker” means a real estate brokerage or “sponsoring” Broker, while the term “Sales Agent” or simply “Agent” refers to licensees who work for a brokerage or sponsoring Broker, even though such Sales Agents may, themselves, be licensed as “brokers.”
Sales Agents are subject to the control and supervision of their Broker; the acts of a Sales Agent are considered to be the acts of their Broker.
Additionally, in the eyes of the law, both Brokers and their Sales Agents are considered to be “agents” of the party whom they represent. For example, both the Seller’s Broker, and the Sales Agents who work for that Broker, are considered to be “agents” of the Seller. As such, they each owe the Seller certain legal duties.
The “default” rule in Texas is that a Broker represents the Seller, unless there is an express agreement to the contrary between Broker and Buyer. This makes sense in that it is the Seller who decides whether to list a property for sale, it is the Seller who will pay the sales commission for brokering the transaction, and it is the Seller’s Broker (and/or that Broker’s Sales Agent) who will pay to advertise the property for sale.
Thus, when a Buyer calls a Seller’s Broker in response to an advertisement for a property, the Seller’s Broker is representing the Seller, not the Buyer. In this situation, the Buyer is unrepresented.
A Buyer, in order to have independent Broker representation, would need to enter into an agreement with a Buyer’s Broker, that is, with a Broker other than the Seller’s Broker. When this occurs, the Seller’s Broker and the Buyer’s Broker typically share the 6% sales commission (paid by the Seller), with each Broker receiving 3%. Each Broker’s 50% share of the 6% sales commission (3%) is then divided between Broker and Sales Agent.
Texas, like many other states, allows a Seller’s Broker, with certain restrictions, to “represent” both Seller and Buyer. When a Seller’s Broker “represents” both Seller and Buyer, the Seller’s Broker is not required to give 50% of the commission (that is, 3% of the 6% sales commission) to a Buyer’s Broker.
In Texas, this dual “representation” (sometimes also referred to as “dual agency”) can take one of two forms.
The first of these two forms of dual “representation” involves the Seller’s Broker acting as a mere “intermediary” (TREC’s term) between Seller and Buyer, without providing any real representation to either. When this occurs, the Seller is not getting the Broker representation that is usually thought by sellers to be included in the 6% commission they are paying to sell their property, and the Buyer, as with the “default rule” described above, still gets no representation at all.
In the second of these two forms of Texas dual “representation” the Seller’s Broker appoints one of that Broker’s Sales Agents to “represent” the Seller and another of that Broker’s Sales Agents to “represent” the Buyer. This arrangement, although on its face may appear to be legitimate, is rife with pitfalls.
As an initial matter, this second form of dual “representation” asks us to naively believe that the two Sales Agents, both of whom work for the same Broker, and who perhaps have offices or desks in close proximity to each other, who may attend Realtor training sessions together, and who might even socialize with each other outside of work, will not put their best interests of closing the deal — and getting paid — above the respective interests of the Seller and Buyer whom they supposedly represent. This is not an indictment of Sales Agents; rather, it is simply an acknowledgment of human nature.
More importantly, however, each of these Sales Agents is, in the eyes of the law, merely an extension of the Broker. Thus, although this arrangement may provide the appearance of separate or independent representation, such an appearance is a mere illusion. One Broker is still representing both sides of the transaction.
Because a real estate purchase-sale transaction, like any other contract negotiation, is, at its core, a transaction with (at least) two mutually-exclusive interests — the Seller trying to sell on terms most favorable to the Seller and the Buyer trying to buy on terms most favorable to the Buyer — it simply is not possible for one Broker to represent the best interests of both Seller and Buyer.
Compare Broker dual “representation” to the representation a Seller or Buyer receives from an attorney or law firm.
Although it is technically possible for an attorney to act as an “intermediary” between Seller and Buyer, and not forming an attorney-client relationship or providing legal advice to either, most competent attorneys would never accept employment on these terms. The major exception, of course, are attorneys who are employed by title companies. The difference here, of course, is that these attorneys do provide representation to a client: the title company.
But back to our hypothetical Seller and Buyer. When was the last time you heard about a law firm representing both sides in a transaction, with one of the firm’s attorneys representing the seller and another of the firm’s attorneys representing the buyer? Probably never, because such arrangements are prohibited.
One last thought as we conclude this article and bring this subject “in for a landing.” When litigation results from a real estate transaction, as it sometimes inevitably does, the Brokers and Sales Agents who were involved in the transaction are almost always subpoenaed to provide testimony about what happened. Such testimony is likely to focus on statements made during conversations by and between Brokers/Sales Agents, on the one hand, and the party they “represented” in the transaction, on the other hand.
Attorney-Client communications, however, are protected from compelled disclosure by the Attorney-Client Privilege. It is extremely rare for an attorney’s client to be compelled to testify about what the client said to the attorney, or for an attorney to be compelled to testify about what the attorney told the client.
Sales Agents are subject to the control and supervision of their Broker; the acts of a Sales Agent are considered to be the acts of their Broker.
Additionally, in the eyes of the law, both Brokers and their Sales Agents are considered to be “agents” of the party whom they represent. For example, both the Seller’s Broker, and the Sales Agents who work for that Broker, are considered to be “agents” of the Seller. As such, they each owe the Seller certain legal duties.
The “default” rule in Texas is that a Broker represents the Seller, unless there is an express agreement to the contrary between Broker and Buyer. This makes sense in that it is the Seller who decides whether to list a property for sale, it is the Seller who will pay the sales commission for brokering the transaction, and it is the Seller’s Broker (and/or that Broker’s Sales Agent) who will pay to advertise the property for sale.
Thus, when a Buyer calls a Seller’s Broker in response to an advertisement for a property, the Seller’s Broker is representing the Seller, not the Buyer. In this situation, the Buyer is unrepresented.
A Buyer, in order to have independent Broker representation, would need to enter into an agreement with a Buyer’s Broker, that is, with a Broker other than the Seller’s Broker. When this occurs, the Seller’s Broker and the Buyer’s Broker typically share the 6% sales commission (paid by the Seller), with each Broker receiving 3%. Each Broker’s 50% share of the 6% sales commission (3%) is then divided between Broker and Sales Agent.
Texas, like many other states, allows a Seller’s Broker, with certain restrictions, to “represent” both Seller and Buyer. When a Seller’s Broker “represents” both Seller and Buyer, the Seller’s Broker is not required to give 50% of the commission (that is, 3% of the 6% sales commission) to a Buyer’s Broker.
In Texas, this dual “representation” (sometimes also referred to as “dual agency”) can take one of two forms.
The first of these two forms of dual “representation” involves the Seller’s Broker acting as a mere “intermediary” (TREC’s term) between Seller and Buyer, without providing any real representation to either. When this occurs, the Seller is not getting the Broker representation that is usually thought by sellers to be included in the 6% commission they are paying to sell their property, and the Buyer, as with the “default rule” described above, still gets no representation at all.
In the second of these two forms of Texas dual “representation” the Seller’s Broker appoints one of that Broker’s Sales Agents to “represent” the Seller and another of that Broker’s Sales Agents to “represent” the Buyer. This arrangement, although on its face may appear to be legitimate, is rife with pitfalls.
As an initial matter, this second form of dual “representation” asks us to naively believe that the two Sales Agents, both of whom work for the same Broker, and who perhaps have offices or desks in close proximity to each other, who may attend Realtor training sessions together, and who might even socialize with each other outside of work, will not put their best interests of closing the deal — and getting paid — above the respective interests of the Seller and Buyer whom they supposedly represent. This is not an indictment of Sales Agents; rather, it is simply an acknowledgment of human nature.
More importantly, however, each of these Sales Agents is, in the eyes of the law, merely an extension of the Broker. Thus, although this arrangement may provide the appearance of separate or independent representation, such an appearance is a mere illusion. One Broker is still representing both sides of the transaction.
Because a real estate purchase-sale transaction, like any other contract negotiation, is, at its core, a transaction with (at least) two mutually-exclusive interests — the Seller trying to sell on terms most favorable to the Seller and the Buyer trying to buy on terms most favorable to the Buyer — it simply is not possible for one Broker to represent the best interests of both Seller and Buyer.
Compare Broker dual “representation” to the representation a Seller or Buyer receives from an attorney or law firm.
Although it is technically possible for an attorney to act as an “intermediary” between Seller and Buyer, and not forming an attorney-client relationship or providing legal advice to either, most competent attorneys would never accept employment on these terms. The major exception, of course, are attorneys who are employed by title companies. The difference here, of course, is that these attorneys do provide representation to a client: the title company.
But back to our hypothetical Seller and Buyer. When was the last time you heard about a law firm representing both sides in a transaction, with one of the firm’s attorneys representing the seller and another of the firm’s attorneys representing the buyer? Probably never, because such arrangements are prohibited.
One last thought as we conclude this article and bring this subject “in for a landing.” When litigation results from a real estate transaction, as it sometimes inevitably does, the Brokers and Sales Agents who were involved in the transaction are almost always subpoenaed to provide testimony about what happened. Such testimony is likely to focus on statements made during conversations by and between Brokers/Sales Agents, on the one hand, and the party they “represented” in the transaction, on the other hand.
Attorney-Client communications, however, are protected from compelled disclosure by the Attorney-Client Privilege. It is extremely rare for an attorney’s client to be compelled to testify about what the client said to the attorney, or for an attorney to be compelled to testify about what the attorney told the client.
Conclusion
It is always a good idea to use the right tool for the job. Likewise, when professional assistance is needed, the best practice is to hire the right professional for the job. In the case of buying and selling real estate, that means working with a Broker to “bring buyer and seller together.” But it also means that a Seller and Buyer should each retain their own attorney to provide legal advice and handle the purchase contract and other legal documents.
As the old saying goes, “An ounce of prevention is worth a pound of cure.”
As the old saying goes, “An ounce of prevention is worth a pound of cure.”
Disclaimer
The information contained in this publication is provided by Lapin Law Offices, P.C., for informational purposes only and, shall not constitute legal advice or create an attorney-client relationship. The laws and interpretation of laws discussed herein may not accurately reflect the law in the reader’s jurisdiction. Do not rely on the information contained in this publication for any purpose. If you have a specific legal question, please consult with an attorney in your jurisdiction who is competent to assist you.
