Dual agency refers to a real estate agent representing the buyer and the seller in a single transaction. While this approach might seem financially beneficial for the agent due to double commission, it brings inherent challenges and potential conflicts of interest.
Representing both parties can make it difficult for an agent to equally advocate for the interests of each party. Recognizing these challenges, the Texas Real Estate Commission (TREC) does not permit dual agency. Therefore, agents cannot modify their licenses to act as dual agents in Texas.
If you have dual agency questions or need help, call a Texas professional license defense lawyer at Bertolino LLP today for a free consultation.
Understanding the Purpose of Dual Agency
The idea behind dual agency was to streamline the buying and selling process. A single agent could, in theory, more efficiently handle negotiations, paperwork, and communication since they would be the point of contact for both parties. On the surface, this might also seem advantageous for clients, as they’d have a single professional guiding them through every step of the process.
The Challenges of Representing Both Parties in Texas
The primary issue is the challenge of balancing the interests of both parties. Buyers and sellers will have unique needs, priorities, and negotiation points.
An agent is supposed to advocate for their client’s best interests. When they have two clients with opposing goals in the same transaction, it would be challenging, if not impossible, to fairly serve both sides.
Confidentiality Concerns of Dual Agency
In addition, there are confidentiality concerns. In typical transactions, buyers and sellers share information with their agents that they might not want the other party to know, such as their highest bid or lowest acceptable selling price. With dual agency, the line of confidentiality can become blurred.
TREC’s Stance on Dual Agency
Due to these challenges, the Texas Real Estate Commission (TREC) does not allow dual agency. Agents in Texas must work exclusively on behalf of either the buyer or the seller in any given transaction. This ensures clear advocacy, transparent communication, and the absence of conflicts of interest.
Potential Legal Issues with a Dual Agency Situation in Texas
You risk repercussions if you inadvertently or intentionally try to act as a dual agent. This would violate TREC guidelines, and you may be subject to disciplinary action. It could also lead to a TREC investigation, resulting in penalties, license suspension, or revocation.
Furthermore, potential legal challenges may arise, holding you liable for damages the buyer or seller may incur due to the dual agency representation model. Staying informed about the intricacies of TREC regulations is not just good practice; it’s essential for safeguarding your career and the trust of your clients.
Addressing Accidental Dual Agency with Immediate Compliance
In real estate, multiple transactions can be underway concurrently, creating a scenario where dual agency happens unintentionally. These situations can pose risks, both in terms of ethical considerations and compliance with Texas law. If a dual agency relationship forms, whether by oversight or unforeseen circumstances, the Texas Real Estate License Act (TRELA) mandates the license holder address the situation promptly. There’s no room for delay or contemplation.
The primary recourse is to adhere to the notice and consent requirements detailed in Texas Occ. Code §§ 1101.558-561. Once these requirements are met, the agent has two clear paths to remedy the situation:
- Act as an intermediary: The broker can take on a neutral role, facilitating the transaction without advocating for the interests of either principal over the other. This means the broker won’t provide guidance or advice to either party but ensures the transaction progresses smoothly.
- Represent only one principal: If choosing this option, the broker will continue representing one of the parties, treating them as the principal. The other party, in this case, becomes merely a customer. This distinction is crucial as the agent owes fiduciary duties to the principal but not to a customer.
In either scenario, the overarching goal is to maintain transparency, uphold professional standards, and protect both parties’ rights and interests. As with many aspects of real estate practice in Texas, swift action and adherence to the guidelines laid out by TRELA are vital.
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Representation Models in Texas Beyond Dual Agency
In Texas, the real estate landscape is shaped by a dedication to maintaining clear lines of representation and avoiding conflicts of interest. While dual agency is off the table, Texas Realtors can adopt several other representation models to facilitate real estate transactions.
- Single agency: This is the most straightforward model. In a single agency, the agent represents the buyer or the seller, but never both in the same transaction. This allows the agent to focus solely on the interests of one party, ensuring undivided loyalty and advocacy.
- Intermediary representation: This model comes into play when a broker agrees to represent the buyer and seller without assigning different agents to each party. In this scenario, the broker assumes a neutral position, facilitating the transaction without offering advice or opinion that benefits one party over the other. Both parties must give written consent for this type of representation, acknowledging the broker’s limited role.
- Transaction brokerage: This model doesn’t involve formal representation of either party. Instead, the agent or broker acts as a facilitator in the transaction. Their primary role is to handle the administrative aspects of the sale, ensuring that both parties meet their obligations for a smooth closing.
- Customer vs. client relationship: Not every interaction between an agent and an individual requires a formal representation agreement. Agents can work with individuals as customers, offering limited services without the fiduciary responsibilities that come with client representation.
As a Texas real estate agent or broker, you should understand these models and communicate them clearly to potential clients. This ensures transparency, informed decision-making, and high ethical standards.
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More About Intermediary Relationships in Texas
According to TREC, an intermediary is a real estate broker who handles a real estate transaction between two parties. This scenario arises when a broker or a sales agent sponsored by the broker secures written consent from both parties: the buyer and the seller. In certain situations, a broker acting as an intermediary can appoint other agents to represent each party.
Here are reminders for brokers considering working with buyers and sellers:
- Written consent is essential: Before acting as an intermediary, ensure you’ve received written consent from both parties. This should be clearly detailed in your written representation agreement.
- Distinguishing documents: It’s crucial to understand that the Information About Brokerage Services (IABS) form and a mere “Notice” do not equate to a representation agreement.
- Valid documents for intermediary consent: Two primary documents fit this description:
- A buyer or tenant representation agreement
- A listing agreement
- Indicating an intermediary transaction: When drafting your contract, the Broker Information page provides an option to highlight the nature of the transaction. Under the section “Listing Broker Firm” on the right, brokers should check the box stating “represents Seller and Buyer as an intermediary.” Subsequently, input details for the listing broker and associated sales agents.
- Understanding appointments: In situations where advice or opinions need to be given to respective clients, appointments can be made. However, this is feasible only when a broker and two distinct agents or associated brokers are involved. If there’s only a broker or a broker with one agent involved, the transaction can remain an intermediary but without the appointments.
- Dealing with unrepresented buyers: If an unrepresented buyer expresses interest in a listing from you or your broker, the transaction can still move forward, but not as an intermediary one. Your primary responsibility to the buyer in this situation is to maintain fairness. Offering opinions or advice to the buyer isn’t allowed.
For information about intermediary relationships or other representation models, consult a professional license defense attorney.
Ways to Avoid Conflicts of Interest
Maintaining clear professional boundaries in real estate is crucial. Dual agency arrangements and other conflicts of interest can jeopardize individual transactions and your real estate license.
To ensure transparency and trustworthiness in every deal, there are measures you can adopt. The following are strategies to avoid conflicts of interest and ensure you uphold the highest standards of integrity.
Real Estate Training and Education
Training programs tailored to conflicts of interest teach agents to identify, avoid, and address situations that could compromise their duty to clients. They offer practical scenarios, case studies, and simulations to help agents visualize and navigate potential pitfalls in real-world transactions.
Texas-based real estate courses often delve into the specifics of the Texas Real Estate License Act and how it deals with issues like dual agency and intermediary relationships. A deeper understanding of these regulations helps prevent inadvertent breaches, ensuring that agents provide transparent, conflict-free services to their clients.
Real Estate Documentation and Record-Keeping
Maintain accurate documentation and records of all real estate transactions. This includes copies of written agreements, consent from both parties, and other documents related to your transactions. Accurate record-keeping can help prevent misunderstandings and disputes and serve as evidence in the event of a legal dispute.
Consulting with a Professional License Defense Attorney
It is highly recommended that you consult with legal professionals in real estate to ensure you are operating within the bounds of the law. A real estate or professional license defense attorney can review your representation model and provide guidance on potential legal issues or conflicts of interest.
You Cannot Modify Your License and Act as a Dual Agent in Texas
In Texas, dual agency is not permitted. This means you cannot represent the buyer and the seller in the same transaction. While it may seem beneficial from a communication and financial standpoint, it poses inherent conflicts of interest that Texas regulations aim to avoid.
If you find yourself in a situation where dual representation inadvertently occurred, or if you have questions about the intricacies of representation in Texas, consult a professional license defense lawyer.
Bertolino LLP’s team of attorneys understands TREC regulations and can provide valuable guidance to ensure you protect your license and your career. Contact a professional license defense attorney today to schedule a complimentary consultation.