Governor Rick Perry signed the legislation that enacted this ill-advised rule. To get an idea of just how ill-advised, click here to see what the DOJ and the FTC had to say about it. The passage of this rule is just another example of special interest groups (the Realtor® trade associations) “supporting” a politician with campaign contributions and lobbyist perks to sign legislation favorable to their cause. This cause is to keep real estate commissions and transaction costs high at the expense of consumers and to the delight of the 6% brokers. Trade associations, including the National Association of Realtors® and the Texas Association of Realtors®, don’t deny the fact that they act in the best interests of their members, and not the public. Influencing politicians is one of their functions. This “influence” and “support” is called bribery in businesses other than politics, but politicians get away with it because they get to write the laws.
The purpose of the new rule is to prevent for-sale-by-owners from doing too much on their own, and to force discount real estate agents who list homes to do more work. This is supposed to force discount real estate agents to charge more so they are less of a competitive threat to the 6% real estate agents. It’s a good thing nobody ever formed a big trade association of gas pumping attendants, otherwise there would be a law to protect us from the dangers of pumping our own gas, and we’d all have to pay 50 cents more per gallon.
Misinterpretation of the actual rule
We have encountered a number of agents who have been rather creative in their interpretation of the new Texas rule, either to further their own agendas or due to simple ignorance. The text of the new rule is provided below so that buyers and sellers can have the correct information, and to avoid being misled by unscrupulous or uninformed agents.
UPDATE: As of 5/15/06, 9 1/2 months after this new rule took affect, not a single agent has been disciplined in any way for a violation of this rule. However, the Texas Real Estate Commission has been busy answering many questions about misperceived ideas of violations, highlighting the confusion of many agents.
The following is the exact text of the new regulations and related code section:
Sec. 1101.557. ACTING AS AGENT; REGULATION OF CERTAIN TRANSACTIONS.
(a) A broker who represents a party in a real estate transaction or who lists real estate for sale under an exclusive agreement for a party is that party’s agent.
(b) A broker described by Subsection (a):
(1) may not instruct another broker to directly or indirectly violate Section 1101.652(b)(22);
(2) must inform the party if the broker receives material information related to a transaction to list, buy, sell, or lease the party’s real estate, including the receipt of an offer by the broker; and
(3) shall, at a minimum, answer the party’s questions and present any offer to or from the party.
(c) For the purposes of this section:
(1) a license holder who has the authority to bind a party to a lease or sale under a power of attorney or a property management agreement is also a party to the lease or sale;
(2) an inquiry to a person described by Section 1101.005(6) about contract terms or forms required by the person’s employer does not violate Section 1101.652(b)(22) if the person does not have the authority to bind the employer to the contract; and
(3) the sole delivery of an offer to a party does not violate Section 1101.652(b)(22) if:
(A) the party’s broker consents to the delivery;
(B) a copy of the offer is sent to the party’s broker, unless a governmental agency using a sealed bid process does not allow a copy to be sent; and
(C) the person delivering the offer does not engage in another activity that directly or indirectly violates Section 1101.652(b)(22).
Sec. 1101.652. GROUNDS FOR SUSPENSION OR REVOCATION OF LICENSE.
(b) The commission may suspend or revoke a license issued under this chapter or take other disciplinary action authorized by this chapter if the license holder, while acting as a broker or salesperson:
(22) negotiates or attempts to negotiate the sale, exchange, or lease of real property with an owner, landlord, buyer, or tenant with knowledge that that person is a party to an outstanding written contract that grants exclusive agency to another broker in connection with the transaction;
(27) aids, abets, or conspires with another person to circumvent this chapter;
As anyone can plainly see, it is not against the law for a buyer’s agent to ask a seller questions about their property, nor is it against the law to deliver an offer directly to a seller.
Code section 1101.652(b)(22) was written over 20 years ago, and was intended to prevent one broker from negotiating a deal with another broker’s client without that other broker’s knowledge and consent. If he did negotiate a deal with the client behind the other broker’s back, that other broker would have the right to file a complaint with the Texas Real Estate Commission (TREC), who would then do an investigation and start a series of steps that could eventually lead to disciplinary action against the offending broker. If TREC were to find out that a client’s broker gave consent to the negotiations and then filed a complaint about it, it is highly doubtful that they would take any disciplinary action.
But today the real estate agent associations and the majority of real estate agents want to keep commission rates as high as possible, and want to prevent the inevitable changes that technology and innovation bring about. They pay lobbyists and politicians for favorable legislation, and intentionally misinterpret any laws already on the books as much as they can get away with to serve their own agendas. They point to 1101.652(b)(22) and use it as an excuse not to deal direct with a seller in an attempt to force discount brokers to do more work and ultimately have to charge more, and force discount brokers’ clients to pay more. It’s all a game to limit competition, and the FTC and DOJ have spoken out publicly on this issue on numerous occasions. (See FTC/DOJ Letter to TREC)
If the lawmakers of 20 years ago had anticipated the current intentional misuse of that rule, they would have added the words, “. . . without the other broker’s consent”. Unfortunately, they assumed basic integrity and common sense would be employed by the people affected by this regulation.
In past 20 years, there has not been a single disciplinary action taken by TREC against any broker for negotiating with another broker’s client, when that client’s broker gave consent to such negotiations. TREC takes action only on the basis of written complaints. So the question a person with common sense would ask is, if there is no aggrieved party because the client’s broker gave consent, who is going to file the complaint?
TREC told us that they only take action against an agent or broker after a written complaint is filed. This can be verified with a phone call to TREC, at 800-250-8732 or 512-459-6544. The TREC legal dept is at 512-465-3900, and the enforcement division is at 512-465-3960.
The Federal Trade Commission and Department of Justice Anti-Trust Division have made a pretty accurate assessment of the attitude of the real estate agent associations, actions of Texas state lawmakers, and the new Texas rule. For the complete text of their letter to the Texas Real Estate Commission, blasting them for their anti-consumer new rule, click here