← Agency Relationships – Texas Real Estate Salesperson Exam

Texas Real Estate Salesperson Exam Study Guide

Key concepts, definitions, and exam tips organized by topic.

25 cards covered

Agency Relationships: Texas Real Estate Salesperson Exam

Complete Study Guide


---


Overview


Agency relationships define the legal and ethical obligations between a real estate license holder and the parties they represent. In Texas, agency law has unique terminology and requirements — most notably the intermediary framework — that differ from other states. Mastering these concepts is critical for both the exam and ethical practice, as violations can result in license suspension, lawsuits, and fair housing penalties.


---


Types of Agency


Summary

Agency relationships vary by the scope of authority granted to the agent and the number of parties represented. Texas law recognizes several forms of agency, each with distinct rules about who the agent serves and how broadly they may act.


Agency Types at a Glance


| Agency Type | Authority Level | Common Use in Real Estate |

|---|---|---|

| Universal Agency | Broadest — all matters | Rare; general power of attorney |

| General Agency | Multiple acts for principal | Property manager |

| Special (Specific) Agency | One specific act | Listing broker finding a buyer |

| Intermediary | Represents both parties | Texas dual representation |


Key Definitions


  • • Special Agency (Specific Agency): Created when a seller lists a property. The broker is authorized to perform one specific act — finding a buyer — but cannot bind the principal to a contract. This is the most common type in real estate.
  • • Universal Agency: Grants the agent authority to act in all matters on behalf of the principal. Established through a general power of attorney. Rarely used in real estate.
  • • Intermediary Agency: The Texas-specific term for representing both buyer and seller in the same transaction. Requires written consent from both parties. This replaces what other states call "dual agency."
  • • Designated Agent: A license holder appointed by an intermediary broker to represent one party exclusively within the same transaction. Allows each party to receive full, undivided representation despite the broker serving both.
  • • Subagent: A license holder who works for the listing broker and owes fiduciary duties to the seller, even while physically working with the buyer. Subagency is largely obsolete but still tested.
  • • Implied Agency: An agency relationship created by conduct and actions rather than a written agreement. Neither party formally agreed, but the behavior of the parties suggests an agency exists.

    • Key Terms

  • • Principal – The party who hires and authorizes the agent to act on their behalf
  • • Fiduciary – A person who holds a position of trust and confidence with legal obligations to another
  • • Power of Attorney – A legal document authorizing one person to act for another
  • • Sole Practitioner – A broker with no sponsored license holders

    • Watch Out For

    > ⚠️ Texas says "intermediary," not "dual agency." The exam will use Texas-specific terminology. If you see "dual agency" in a question, recognize it as the concept but know Texas law calls it intermediary.


    > ⚠️ A subagent works WITH the buyer but FOR the seller. This is a classic trick question — the subagent's fiduciary duty runs to the listing broker's client (the seller), not the buyer they are assisting.


    > ⚠️ A sole practitioner CANNOT act as a true intermediary because there are no other license holders in the brokerage to be appointed as designated agents for each party.


    ---


    Fiduciary Duties


    Summary

    When a license holder represents a client, they owe that client the highest standard of care under the law — fiduciary duties. In Texas, these are remembered using the acronym OLDCAR. These duties apply to the agent's client, though some disclosure obligations extend to all parties.


    OLDCAR — The Six Fiduciary Duties


    | Letter | Duty | Core Meaning |

    |---|---|---|

    | O | Obedience | Follow all lawful instructions of the principal |

    | L | Loyalty | Place client's interests above all others, including your own |

    | D | Disclosure | Share all known material facts with the client |

    | C | Confidentiality | Protect the client's sensitive information |

    | A | Accounting | Accurately track and report all funds and property |

    | R | Reasonable Care | Apply professional knowledge and skill diligently |


    Duty Deep Dives


    Loyalty

    The agent must never profit at the client's expense or take actions that benefit the agent over the principal. Self-dealing, secret profits, and conflicts of interest all violate this duty.


    Disclosure

    Requires sharing all known material facts that could affect the client's decision-making — including defects the seller has not disclosed. The disclosure duty runs to your client; however, material facts affecting property value must be disclosed to all parties (see Texas Disclosure section).


    Confidentiality

    Must protect the client's motivations, financial position, and negotiating strategy from the opposing party.

  • • Example: If a seller is divorcing and must sell quickly, the agent may not share this with the buyer, as it reveals the seller's motivation and weakens their negotiating position.
  • • Important: Confidentiality about the client's situation does NOT override the duty to disclose material defects to the opposing party.

    • Obedience — The Key Exception

    The agent must follow lawful instructions but is never required to follow illegal or unethical instructions. Instructions to violate fair housing laws, misrepresent property condition, or discriminate must be refused.


    Accounting

    The agent must maintain accurate records of all funds and property entrusted to them — including earnest money, security deposits, and closing proceeds. Commingling (mixing client funds with personal funds) is a serious violation.


    Reasonable Care

    The agent must apply their professional knowledge and skill to protect the client, including:

  • • Recommending appropriate inspections
  • • Advising on market conditions
  • • Reviewing contracts for the client's benefit
  • • Not making promises or representations outside their expertise

    • Key Terms

  • • Commingling – Illegally mixing client funds with the agent's personal or business funds
  • • Material Fact – Any fact that would affect a reasonable person's decision to buy, sell, or lease a property
  • • Self-Dealing – Acting in one's own financial interest at the expense of the client

    • Watch Out For

    > ⚠️ Obedience is not absolute. An agent who follows an illegal instruction is personally liable. "My client told me to" is never a defense for violating fair housing law or other statutes.


    > ⚠️ Confidentiality ≠ concealment of defects. You protect your client's motivations and strategy, but you cannot use confidentiality as an excuse to hide material defects from other parties.


    > ⚠️ Disclosure runs to your CLIENT; material defects must be disclosed to EVERYONE. These are two different obligations. Know the distinction.


    ---


    Texas Disclosure Requirements


    Summary

    Texas law requires license holders to clearly communicate the nature of the agency relationship to all consumers. The IABS form is the primary tool for this, and specific rules govern when and how it must be delivered.


    The IABS Form


  • • Full Name: Information About Brokerage Services
  • • Purpose: Explains the types of agency relationships available in Texas so consumers can make informed decisions
  • • When to Provide: At the first substantive dialogue about a specific property

    • - ✅ Required: First meeting to discuss a specific listing

    - ❌ Not Required: Initial phone call asking about general office hours or market conditions


    Intermediary Written Consent Requirements


    When a broker wishes to act as an intermediary, the written consent from each party must include:

    1. Who is paying the broker

    2. A statement that the broker may act as an intermediary


    This consent is typically embedded in:

  • • The listing agreement (from the seller)
  • • The buyer representation agreement (from the buyer)

    • What Must Be Disclosed to ALL Parties


    Regardless of who the agent represents, the following must always be disclosed to all parties in the transaction:

  • • Known material defects affecting value or desirability
  • • Environmental hazards or other conditions affecting habitability
  • • Any fact a reasonable person would want to know before completing the transaction

    • Key Terms

  • • IABS Form – Information About Brokerage Services; mandatory disclosure document
  • • Substantive Dialogue – A meaningful, property-specific conversation triggering the IABS requirement (as opposed to casual or general inquiries)
  • • Written Consent – Required document for intermediary relationships; must be signed by both buyer and seller

    • Watch Out For

    > ⚠️ "First substantive dialogue" is the trigger — not the first contact. A consumer calling to ask if the office is open on weekends does NOT require an IABS form. A consumer touring a specific home does.


    > ⚠️ Intermediary consent must be written. Verbal agreement to intermediary representation is not sufficient under Texas law.


    ---


    Creation and Termination of Agency


    Summary

    Agency relationships are formally created through written agreements and can be ended in multiple ways — some by choice, some by operation of law. Understanding how agency ends is just as important as knowing how it begins.


    How Agency Is Created


    | Method | Description | Example |

    |---|---|---|

    | Express (Written) | Formal written contract | Listing agreement; Buyer Representation Agreement |

    | Express (Oral) | Verbal agreement | Generally enforceable but not recommended |

    | Implied | Created by conduct | Acting as though representing a party without a formal contract |

    | Ratification | Principal approves unauthorized act after the fact | Broker acts without authority; seller accepts the result |


    Primary Creation Documents:

  • • Listing Agreement – Written employment contract; creates the broker as the seller's agent
  • • Buyer Representation Agreement – Written contract; creates the broker as the buyer's agent

    • How Agency Is Terminated


    | Method | Description | Notes |

    |---|---|---|

    | Completion of purpose | Transaction closes | Most common; natural end |

    | Expiration | Agreement term ends | Listing expires with no sale |

    | Mutual agreement | Both parties agree to end it | Clean termination |

    | Revocation | Principal fires the agent | May trigger liability for broker's expenses |

    | Renunciation | Agent withdraws from representation | May breach contract |

    | Death or incapacity | Either party dies or becomes incapacitated | Automatic termination |

    | Destruction of subject matter | Property is destroyed | Listing automatically voids if property is destroyed by fire |

    | Bankruptcy | Principal files bankruptcy | May terminate agency by operation of law |


    Implied Agency — Special Risk


    Implied agency creates an unintended agency relationship through actions rather than agreement. Texas license holders are at risk when they:

  • • Offer advice and counsel to a party without a signed agreement
  • • Act protectively toward one party's interests without disclosing the relationship
  • • Perform tasks typically associated with representation (writing offers, advising on price)

    • Risk: The license holder may have created fiduciary duties — and potential liability — without a formal contract or compensation agreement.


    Key Terms

  • • Listing Agreement – Contract creating seller representation
  • • Buyer Representation Agreement – Contract creating buyer representation
  • • Revocation – Principal's right to terminate agency (may trigger damages)
  • • Renunciation – Agent's act of withdrawing from representation
  • • Operation of Law – Termination that happens automatically by legal rule, not by choice

    • Watch Out For

    > ⚠️ Revocation ≠ no consequences. A seller CAN revoke a listing agreement at any time, but they may owe the broker commission or reimbursement for expenses depending on the circumstances.


    > ⚠️ Destruction of property automatically voids the listing. No formal cancellation is needed — the subject matter no longer exists, so the contract is void by operation of law.


    > ⚠️ Implied agency is created by behavior, not intent. An agent doesn't have to intend to represent someone — if the conduct implies representation, the duties may attach anyway.


    ---


    Intermediary Rules (Texas-Specific)


    Summary

    Texas's intermediary framework is unique and heavily tested. It allows one broker to represent both buyer and seller in the same transaction, but only under strict conditions designed to protect both parties from conflicts of interest.


    Requirements to Become an Intermediary


    1. ✅ Written consent from both the buyer and the seller

    2. ✅ Disclosure of who is paying the broker

    3. ✅ Statement that the broker may act as intermediary

    4. ✅ At least two license holders in the brokerage (to allow designated appointments)


    Intermediary Without Appointments


    When the broker does not appoint designated agents:

  • • The broker and all associated license holders must remain neutral
  • • May only provide limited, ministerial assistance to both parties
  • • Cannot advocate for either party's position
  • • Cannot advise either party on price, terms, or strategy

    • Intermediary With Designated Agent Appointments


    When the broker appoints designated agents:

  • • Designated Agent A → advocates fully for the seller
  • • Designated Agent B → advocates fully for the buyer
  • • The broker remains neutral and supervises both
  • • Each party receives the equivalent of full, exclusive representation

    • What an Intermediary Broker Is PROHIBITED From Doing


    The intermediary may NOT (without that party's explicit permission):

  • • ❌ Tell the buyer that the seller will accept less than the asking price
  • • ❌ Tell the seller that the buyer will pay more than the offered price
  • • ❌ Disclose confidential information of either party to the other side
  • • ❌ Disclose motivations, financial urgency, or negotiating limits of either party

    • Rules for Designated Agent Appointments


  • • Only licensed agents (not unlicensed assistants) may be appointed as designated agents
  • • The broker may not appoint designated agents if the broker is a party to the transaction
  • • A sole practitioner (broker with no sponsored license holders) cannot act as intermediary, because there is no one to appoint

    • Comparison Chart


    | Feature | Intermediary Without Appointments | Intermediary With Appointments |

    |---|---|---|

    | Advocacy for parties | ❌ Must stay neutral | ✅ Each designated agent advocates fully |

    | Advice on price/strategy | ❌ Not permitted | ✅ Permitted by each designated agent |

    | Requires additional agents | ❌ No | ✅ Yes — must have two license holders |

    | Client protection level | Limited | Full for each party |


    Key Terms

  • • Intermediary – Texas term for a broker who represents both parties in the same transaction with written consent
  • • Designated Agent – A license holder appointed by the intermediary broker to exclusively represent one party
  • • Neutral – The required stance of an unappointed intermediary; no advocacy for either side
  • • Ministerial Acts – Routine acts that do not require the exercise of judgment (scheduling showings, delivering documents)

    • Watch Out For

    > ⚠️ Texas says "intermediary" — never "dual agent." Using the wrong term on the exam may cost you the question.


    > ⚠️ A sole practitioner CANNOT be an intermediary — there is no one to appoint. This is a frequently tested concept.


    > ⚠️ The prohibition on disclosing price flexibility goes BOTH ways. The intermediary cannot tip off the buyer or the seller about the other side's flexibility.


    > ⚠️ Without designated appointments, ALL agents in the brokerage must be neutral — not just the broker. The neutrality requirement is firm and applies brokerage-wide.


    ---


    Quick Review Checklist


    Use this list to confirm you are exam-ready:


  • • [ ] I can name and define all five types of agency (universal, general, special, intermediary, implied)
  • • [ ] I know that Texas uses "intermediary" instead of "dual agency"
  • • [ ] I can recite and explain all six OLDCAR fiduciary duties
  • • [ ] I know that obedience does not require following illegal or unethical instructions
  • • [ ] I understand the difference between confidentiality (protect client's motivations) and disclosure (reveal material facts)
  • • [ ] I know the IABS form must be provided at the first substantive dialogue about a specific property
  • • [ ] I can explain what intermediary written consent must include
  • • [ ] I know the three things an intermediary broker is prohibited from disclosing
  • • [ ] I understand the difference between intermediary with and without designated agent appointments
  • • [ ] I know that a sole practitioner cannot serve as intermediary
  • • [ ] I can identify the primary documents that create agency (listing agreement; buyer representation agreement)
  • • [ ] I can list at least five ways an agency relationship can be terminated

    • -

    📝

    Take a Practice Test

    Test yourself with multiple choice questions
    📇

    Study with Flashcards

    Flip through all 25 cards

    Want more study tools?

    Subscribe for $7.99/mo and turn your own notes into personalized flashcards and study guides.

    View Pricing