The Texas Real Estate License Act requires that you be advised that there are agency relationships that govern how a real estate salesperson may deal with you when purchasing, selling or leasing real property. Before you enter into a substantive discussion with Cherokee Real Estate Company, Inc., or any other brokerage, be sure you have an agreement with the broker as to what your relationship with him will be and even how it may change from time to time. You should not disclose any personal information or disposition to a broker until you have established your relationship with him. The broker will be happy to discuss and explain agency relationships with you.

What is a Real Estate Agent?

One of the most misused words in the English Language is “agent”.  Have you ever heard the phrase “He’s my insurance agent.”?  Well, guess what.  He’s not; he represents the insurance company.....not you.  So, what exactly is an agent?  An agent is an individual who has a duty of faithfulness and loyalty to a person or entity.  He is a fiduciary or a representative.  This person or entity is a client, not a customer.  An agent has to place the client’s interest above his own.  Having given this explanation, let’s now discuss the kinds of agency that exist in the real estate profession, in the state of Texas.

Texas real estate law recognizes two kinds of agency: seller agency and buyer agency.  When an individual lists his house with a real estate company, the company becomes the seller’s fiduciary.  That means the agent must do the best possible job he can for the seller.  He has to work on getting the best price for the seller and he needs to advise the seller as to the best way to negotiate with a prospective buyer.  The agent has to advise the seller as to the best price to list his house for and not some higher price just to have a better chance of securing the listing.  The agent also needs to advise the seller to be completely forthright when it comes to disclosing known defects in the property.  Concealing defects can result in a civil suit and triple damages.  An agent who represents a seller will never disclose to a prospective buyer that the seller will accept less money than the property is listed for.  A seller can authorize the agent to let a prospect know that the seller is negotiable, but that will result immediately in a lower first offer.  It’s best not to let a buyer know that a seller is negotiable.

When a prospective buyer is ready to start his property search he needs to find a licensee (an agent) who can represent his best interests.  When an agent represents a buyer his job is to help the buyer negotiate the purchase of a property.  An agent could conceivably tell a buyer that a property is way over-priced.  If the buyer reduces his offer based on the agent’s advice, the agent makes a smaller commission, but this gets back to placing the buyer-clients interests above his own.  There are also rare occasions where an agent may even tell a buyer that a property is under-priced and, that if the buyer does not offer more money some other buyer could outbid him.  If a buyer wants to be properly represented he must use the services of a brokerage that does not represent the seller, i.e., the listing broker.  If I have a buyer who comes to my office has an interest in one of my company’s listings I must disclose to him that I represent the seller and can provide no negotiating assistance to the buyer.  Even though it can cost me commission money I will tell the buyer that, if he feels that he really needs assistance in negotiating the purchase, he must go to a real estate broker who can provide him representation.

Texas law permits a practice, called “Intermediary”, that allows a licensee to work with both the buyer and seller.  Unfortunately, this practice does not allow the licensee to look out for the best interests of either the buyer or seller.  A broker can appoint one licensee to work with both the buyer and the seller, but, all he can do is convey information from one party to the other; he can’t give any significant guidance to either party.  There is another kind of intermediary where the broker can appoint one licensee to work with the seller and another one to work with the buyer.  The law says that, under that scenario, the licensee can give “opinions and advice” to the buyer or seller he is assigned to.  The law fails to define opinions and advice.  Does it mean that the licensee assigned to the buyer can say “The seller needs to sell; he’s about to be foreclosed on.”

The bottom line is this: If you sign a listing agreement to sell your property or, if you sign a buyer representation agreement, do not check the “Intermediary Status” box; check the “No Intermediary Status Box”.  By doing this you will always have the agent who signed you up obligated to represent only you.  Just to give some perspective, attorneys are not allowed to work with opposing parties in a legal transaction.  One of the parties has to acknowledge that he or she will receive no representation.  The main purpose of intermediary is to keep both sides of the commission under one roof, and this is always to the detriment of the buyer and the seller.  An attorney for the Texas Association of Realtors® defined intermediary as a “legal fiction”.