Texas Law of Agency

Bottom Line Up Front (BLUF)

Agency in Texas real estate is the legal relationship where a broker represents a client’s interests under the Texas Real Estate License Act (TRELA). License holders owe absolute fiduciary duties to their clients, which strictly require putting the client’s financial and legal interests above the agent’s or broker’s own. Understanding these statutory boundaries is one of the most heavily tested subjects on the Texas State portion of the licensing exam.

The Information About Brokerage Services (IABS) Disclosure

Under TRELA §1101.558, license holders must provide a prospective client with a copy of the mandatory Information About Brokerage Services (IABS) form at the first “substantive dialogue” regarding a specific real property.

A substantive dialogue is any written or verbal communication where a discussion about a specific, identifiable property occurs. This disclosure does not create an agency relationship; it is an informational brochure explaining the options for representation under Texas law.

Substantive Dialogue Exceptions:

• Open Houses: No IABS is required unless the attendee begins discussing a specific purchase scenario or terms outside of a casual walk-through.
• Leases ≤ 1 Year: No IABS is required if the transaction is for a residential lease of one year or less and no sale is contemplated.
• Already Represented: No IABS is required if the consumer is already known to be represented by another active license holder.

Intermediary Relationship: The Only Dual Representation

In Texas, dual agency is strictly illegal. The only legal method to represent both a buyer and a seller in the same transaction is through Intermediary Status under TRELA §1101.559.

                         [ Sponsoring Broker ]
                       (Acts as the Intermediary)
                                   |
                +------------------+------------------+
                |                                     |
         [ Appointed Agent A ]                 [ Appointed Agent B ]
         (Represents Seller)                   (Represents Buyer)
         - Full advice & opinions              - Full advice & opinions

To act as an intermediary, the broker must obtain written consent from both parties (typically through the listing agreement and the buyer representation agreement) that details how the broker will be compensated.

Comparison: Intermediary with vs. without Appointments

Fiduciary Duties under Texas Common Law

Texas real estate agents owe clients six absolute fiduciary duties, commonly memorized by the acronym OLD CAR:

1. Obedience: Carry out all lawful instructions of the client. If an instruction is unlawful (e.g., violating Fair Housing laws), the agent must refuse and terminate the relationship.
2. Loyalty: Put the client’s interests first. Never negotiate a transaction to favor your own commission or a preferred partner.
3. Disclosure: Reveal all material facts about the property, market conditions, or the other party’s financial ability to perform.
4. Confidentiality: Safeguard the client’s private details indefinitely (e.g., lowest price accepted, urgency to move). This duty survives the expiration of the agency agreement.
5. Accounting: Safeguard and account for all trust funds, earnest money deposits, and contractual deeds.
6. Reasonable Care: Perform professional duties with the skill and diligence of a licensed specialist.

Worked Texas Scenario: The Silent Intermediary Trap

Consider a licensed sales agent, Sarah, who is sponsored by Apex Realty. Sarah has a listing at 104 Bluebonnet Lane in Austin, Texas. A prospective buyer, David, calls Sarah directly to view the house. David is unrepresented.

David loves the home and asks Sarah to write an offer. Sarah agrees and explains she will handle both sides. However, Sarah fails to obtain a signed Intermediary Relationship Notice (IABS is NOT enough) before drafting the contract. During negotiations, David asks Sarah, “How much should I offer to guarantee the seller accepts?” Sarah replies, “They are in a rush to move, so an offer $10,000 under list will probably work.”

The Violations & Consequences:

• Illegal Dual Agency: By acting on behalf of both parties without a written Intermediary agreement, Sarah has engaged in illegal dual agency, risking immediate license revocation under TRELA.
• Breach of Loyalty and Confidentiality: Squeezing the seller’s price limit by telling the buyer they are in a “rush to move” is a severe breach of fiduciary duty to her listing client.
• No appointments, yet giving advice: Since Apex Realty did not appoint separate agents to represent each side, Sarah was legally forbidden from giving any advice or opinions to either party.