Comprehensive Study Guide
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Overview
Agency and representation is one of the most heavily tested topics on the Texas Real Estate Salesperson Exam. This guide covers the types of agency relationships recognized under Texas law, the fiduciary duties agents owe to their clients, mandatory disclosure requirements, how agency is created and terminated, and the rules governing buyer and seller representation. Mastery of these concepts is essential not only for passing the exam but for practicing real estate ethically and legally in Texas.
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Types of Agency
Summary
Texas uses unique terminology for agency relationships that differs from many other states. Understanding the distinctions between types of agents — and Texas-specific terms like "intermediary" — is critical for the exam.
Key Concepts
• Intermediary Relationship: Texas does NOT use the term "dual agency." When a broker represents both the buyer and seller in the same transaction, it is called an intermediary relationship, governed by TRELA and TREC rules. Written consent from BOTH parties is required.
• Appointed Licensees: When a broker acts as an intermediary, they may appoint different licensed associates to work with each party. These are called appointed licensees (or appointed associates). They may communicate negotiating positions on behalf of their respective parties, provided written consent was obtained in advance.
• Special Agent: Authorized to perform only one specific act or transaction for the principal. Most real estate brokers function as special agents — they are hired for one transaction, not broad business dealings.
• General Agent: Has broad authority to act on behalf of the principal across a range of matters. A property manager overseeing all aspects of a property is a classic example.
• Subagent: A licensee who works under a broker who is acting as agent for a principal. The subagent effectively becomes an agent of the principal through the broker, sharing the same duties and liabilities.
• Ostensible Agency (Apparent Agency): Arises when a principal's actions or conduct lead a third party to reasonably believe someone is their agent — even without an express agreement. Also called apparent agency.
Key Terms
• Intermediary – Texas term for broker representing both buyer and seller
• Special agent – Limited to one specific transaction
• General agent – Broad, ongoing authority
• Subagent – Agent of the principal through the broker
• Appointed licensee – Associate designated to represent one party in an intermediary transaction
• Ostensible/Apparent agency – Agency created by conduct, not express agreement
Watch Out For
> ⚠️ "Dual agency" does NOT exist in Texas. If an exam question uses the term "dual agency," the correct Texas equivalent is "intermediary relationship." Never confuse these terms.
> ⚠️ Appointed licensees can communicate negotiating positions — this distinguishes them from the broker in a pure intermediary situation, who cannot favor either party.
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Fiduciary Duties
Summary
When an agent represents a client, they owe that client a set of elevated legal and ethical duties known as fiduciary duties. These duties prioritize the client's interests above all others.
The OLDCAR Acronym
| Letter | Duty | What It Means |
|--------|------|---------------|
| O | Obedience | Follow all lawful client instructions, even if you disagree |
| L | Loyalty | Place the client's interests above your own and all others |
| D | Disclosure | Share all material information that could affect the transaction |
| C | Confidentiality | Protect the client's private information |
| A | Accounting | Safeguard all money and property (e.g., earnest money) |
| R | Reasonable Care | Exercise competent, professional judgment |
Deep Dive on Each Duty
• Loyalty: The duty of loyalty prohibits an agent from taking actions that benefit themselves or third parties at the client's expense. This is why a licensee with a personal financial interest in a property must disclose it in writing before any offer is made.
• Disclosure: Agents must share all material information with their principal. Example: If a seller's listing price is significantly below market value, the agent must inform the seller — not keep it quiet to benefit a buyer.
• Confidentiality: This duty survives the termination of the agency relationship indefinitely. An agent may never disclose confidential client information, even long after the listing has expired or the transaction has closed.
• Obedience: Agents must follow lawful client instructions. However, agents are never required to follow illegal or unethical instructions. Example: A seller instructing an agent to exclude buyers of a particular nationality must be refused — this violates the Fair Housing Act.
• Accounting: Agents must properly handle all funds entrusted to them, including earnest money deposits, and provide an accurate accounting when required.
Key Terms
• OLDCAR – Mnemonic for the six fiduciary duties
• Material information – Information that could influence a party's decision
• Earnest money – Deposit requiring proper accounting
• Fair Housing Act – Federal law prohibiting discrimination; cannot be overridden by client instructions
Watch Out For
> ⚠️ Confidentiality is permanent. Many students mistakenly believe fiduciary duties end when the listing expires. Confidentiality does NOT end — ever.
> ⚠️ Obedience has limits. Agents must follow lawful instructions only. Illegal or unethical instructions (like Fair Housing violations) must be refused, regardless of client direction.
> ⚠️ Disclosure of personal interest is mandatory. A licensee with a financial stake in a property must disclose this in writing BEFORE an offer is made — not after.
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Texas Disclosure Requirements
Summary
Texas law imposes specific disclosure obligations on licensees to ensure transparency between all parties. Knowing which forms are required, when they must be provided, and who is responsible for completing them is essential.
Information About Brokerage Services (IABS) Form
• Texas licensees must provide the IABS form to prospective buyers or sellers before entering into a representation agreement.
• It must be delivered at the first substantive dialogue about a specific property or at the first in-person meeting.
• The IABS explains the types of agency relationships available in Texas (seller's agent, buyer's agent, intermediary, etc.).
Intermediary Disclosure
• A broker who wishes to act as an intermediary must obtain written consent from BOTH the buyer and the seller.
• The written consent must:
- State that the broker may act as an intermediary
- Identify who the broker represents in the transaction
Seller's Disclosure Notice
• Completed by the seller (not the listing agent or broker).
• The seller must disclose known material defects about the property's physical condition.
• Uses the TREC-promulgated notice form.
Psychological Stigmas
• Texas law does NOT require disclosure of a property's psychological stigmas, including:
- Deaths on the property
- Occupancy by a person with HIV/AIDS
• Exception: If the buyer directly asks, the agent must answer honestly.
Personal Financial Interest
• A licensee with a personal financial interest in a property being purchased by their client must:
- Disclose this interest in writing
- Make this disclosure before any offer is made
- Failure to disclose violates TREC rules and fiduciary duty
Key Terms
• IABS form – Information About Brokerage Services; required before representation begins
• Seller's Disclosure Notice – Seller-completed form disclosing known material defects
• Psychological stigma – Events like deaths or disease occupancy; generally not required to be disclosed
• Material defect – A physical condition that could affect the value or desirability of the property
• Written consent – Required from both parties for an intermediary relationship
Watch Out For
> ⚠️ The IABS must come BEFORE signing a representation agreement, not after. Timing matters on the exam.
> ⚠️ The Seller's Disclosure Notice is the seller's responsibility — not the agent's. The agent does not fill it out.
> ⚠️ Deaths and HIV/AIDS occupancy do NOT require disclosure in Texas unless the buyer specifically asks.
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Creation & Termination of Agency
Summary
Agency relationships in Texas can be created in multiple ways and can end for a variety of reasons — some of which may still carry legal consequences for the terminating party.
How Agency Is Created (4 Ways)
| Method | Description |
|--------|-------------|
| Express Agreement | Written or oral agreement between principal and agent (most common) |
| Implied Agreement | Created by the conduct of the parties, even without a formal agreement |
| Ratification | Principal approves an unauthorized act after the fact, creating agency retroactively |
| Estoppel (Apparent Agency) | Principal's conduct leads a third party to reasonably believe agency exists |
How Agency Is Terminated
Agency ends by:
• Completion of the transaction
• Expiration of the agreement
• Mutual agreement of both parties
• Death or incapacity of the agent or principal
• Bankruptcy of either party
• Revocation by the principal or renunciation by the agent
• Destruction of the property that is the subject of the agreement
> ❗ Does NOT terminate agency: An agent taking a vacation or being temporarily unavailable.
Revocation vs. Right to Revoke
• A seller has the power to revoke a listing agreement before expiration.
• However, they may NOT have the legal right to do so without liability.
• If a seller revokes without just cause, the broker may sue for damages, including the commission that would have been earned.
Types of Listing Agreements
• Exclusive Right to Sell: Broker earns commission regardless of who finds the buyer — even if the seller finds their own buyer. Most protective for brokers.
• Exclusive Agency: Seller can find their own buyer without paying commission, but only one broker is authorized to represent them.
• Open Listing: Multiple brokers may be used; only the procuring broker earns commission.
• Net Listing: Broker's commission is any amount received above the seller's set net price. TREC strongly discourages net listings due to conflict of interest, though they are not outright illegal in Texas.
Key Terms
• Express agreement – Formal written or oral agency contract
• Ratification – Retroactive approval of an unauthorized act
• Estoppel – Agency created by a principal's misleading conduct
• Exclusive Right to Sell – Broker earns commission no matter who sells the property
• Net listing – Broker keeps everything above seller's net price; TREC discourages it
• Revocation – Principal cancels the agency agreement
Watch Out For
> ⚠️ Exclusive Right to Sell ≠ Exclusive Agency. In an Exclusive Right to Sell, the broker earns commission even if the seller finds the buyer. In an Exclusive Agency, the seller can avoid paying commission by finding their own buyer.
> ⚠️ Net listings are discouraged but NOT illegal in Texas. The exam may try to trick you into saying they are prohibited.
> ⚠️ Revocation ≠ no liability. A seller can revoke a listing, but they may owe the broker damages.
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Buyer & Seller Representation
Summary
Understanding how buyer and seller representation works — including formal agreements, agent duties, commission disputes, and special situations like vicarious liability — is essential for the exam.
Buyer Representation
• Buyer/Tenant Representation Agreement (TREC or TAR form): The primary document establishing the broker as the buyer's agent. Outlines terms of representation, compensation, and duration.
• Without a signed buyer representation agreement, a salesperson showing a listed property may legally be representing the seller as a subagent of the listing broker.
Seller Representation
• Created through a listing agreement (most commonly an Exclusive Right to Sell).
• The listing agent owes full fiduciary duties to the seller.
• In an intermediary situation, the broker must keep seller confidences — including:
- That the seller will accept less than the listing price
- The seller's motivation for selling
- Any other information the seller has instructed to keep confidential
Procuring Cause
• Procuring cause: The broker whose efforts directly resulted in the consummation of the sale.
• Used to determine which broker is entitled to a commission when there is a dispute between brokers.
• Simply introducing a buyer to a property is not always enough — the broker must be the direct cause of the completed transaction.
Vicarious Liability
• A sponsoring broker can be held legally responsible for the negligent or wrongful acts of their sponsored agents committed within the scope of their employment.
• This underscores the broker's duty to properly supervise all agents working under their license.
Material Defects
• A buyer's agent who discovers a material defect must disclose it to the buyer (their client).
• Agents also have a general duty to disclose known material defects to all parties — not just their own client.
Key Terms
• Buyer/Tenant Representation Agreement – Contract establishing broker as buyer's agent
• Procuring cause – The broker whose efforts directly caused the sale to close
• Vicarious liability – Broker's legal responsibility for sponsored agents' actions
• Material defect – Known property condition that affects value; must be disclosed
• Confidential information – Seller's bottom-line price, motivation, etc.; must not be disclosed in intermediary relationships
Watch Out For
> ⚠️ No buyer's rep agreement = no buyer representation. Without a signed agreement, a salesperson showing a listed property is likely representing the SELLER.
> ⚠️ Procuring cause determines commission in disputed cases — it is not simply about who showed the property first.
> ⚠️ Brokers are vicariously liable for their agents' actions. The exam may ask whether a broker can be held responsible for a sponsored salesperson's misconduct — the answer is yes.
> ⚠️ Material defects must be disclosed to ALL parties, not just the agent's own client.
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Quick Review Checklist
Use this checklist to confirm you are ready for exam day:
• [ ] I can explain the difference between an intermediary and a "dual agent" — and why Texas doesn't use the term dual agency
• [ ] I know what appointed licensees are and when a broker can appoint them
• [ ] I can distinguish between special agents and general agents with real estate examples
• [ ] I can define ostensible/apparent agency and explain how it is created
• [ ] I can recite and explain all six OLDCAR fiduciary duties
• [ ] I know that the duty of confidentiality survives termination of the agency relationship
• [ ] I understand that agents must refuse illegal instructions, even from their own clients
• [ ] I know when and how to deliver the IABS form (before representation agreement, at first substantive dialogue)
• [ ] I know the Seller's Disclosure Notice is completed by the seller, not the agent
• [ ] I know Texas does NOT require disclosure of psychological stigmas (deaths, HIV/AIDS) unless asked
• [ ] I can list the four ways agency is created in Texas (express, implied, ratification, estoppel)
• [ ] I know the difference between Exclusive Right to Sell, Exclusive Agency, Open, and Net listings
• [ ] I understand that revoking a listing may create broker liability for damages
• [ ] I can explain procuring cause and why it matters in commission disputes
• [ ] I understand vicarious liability and the sponsoring broker's responsibility for agent conduct
• [ ] I know that without a buyer's representation agreement, a salesperson likely represents the seller
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Good luck on your Texas Real Estate Salesperson Exam! Focus on Texas-specific terminology (intermediary, IABS, appointed licensees) and always remember: fiduciary duties to your client come first.