Most real estate-related lawsuits have to do with the condition of the property.
Latent defect
Not trivial or insignificant (foundation, termites, roof, flooding,)
Not readily discernible (not easy to find) to the public
Must be disclosed, if known to seller or licensees in the transactionHow to avoid problems/lawsuits:
(1) Disclose! Disclose! Disclose! Disclose! Disclose! Disclose!
Seller must disclose any known defects. (Use Sellers Disclosure Form)
Agents/Brokers must disclose any known defects, no matter who they represent.
Disclose to the principal they represent (client)
Disclose to the other party (customer, third party)
Third party = anyone you do not represent
So not fiduciary duty, but honesty & fairness
(This whole chapter is written from OLD perspective of Sub-Agency:
If you represent the seller, what duty do you owe the BUYER?
Under sub-agency, all licensees represented the seller. The buyer was only a third party, and licensees called the buyer a customer.)
Obligations to Third Parties: (These are not fiduciary duties)
1. honesty & fairness (Canons of Ethics)
2. disclose known defects
3. disclose agency
4. do not discriminate
5. title insurance
6. tell them to consult an attorney if they dont understand contract(2) Recommend Buyer use a licensed inspector
They rely on the inspector instead of you. (think lawsuit liability)
If they refuse to get an inspection, have them sign a statement saying so.
Use of a licensed inspector is a safe harbor for real estate agents
do not recommend a specific inspector (creates liability)
illegal to do both jobs in same transaction
never conceal an old bad report (within last 4 years)
(3) If you rely on another source, say so.
Ex: 2400 square feet per HCAD
(4) Advise Buyer to verify important information
Buyers Agent has a duty to require proof from the seller/sellers agent.
examples:
buyer can pay an appraiser to measure house square footage
ask surveyor to verify extent of easement, total acreage, etc.
Tell buyer to read the restrictions.
Local ordinances
Rural property: wells, septic systems, access
seller who represented there was a warranty
Stigma a perceived defect in the property that is not physical but emotional or psychological in nature
must disclose
1. death by accident related to the condition of the property
2. murder on the property
no duty to disclose but
seller could voluntarily disclose:
death on the property due to:
1. natural causes
2. suicide
3. accident unrelated to the condition of the property
Do not disclose:
(1) race, religion, national origin, etc. (protected classes of people under federal Fair Housing laws)
(2) Aids/HIV (also protected under TRELA)
Possible Responses from Potential Buyers
A. Still want to buy
B. Want to bargain for a lower price
C. Genuinely distressed, will not buy. (better than a lawsuit)Other (Written laws dont say if disclosure is required or not.)
Cautious brokers give clients websites such as the ones below.
. allegations of child molestation in the house (p. 48)
. obnoxious/hostile neighbor
. proximity of registered sex offenders: www.txdps.state.tx.us
. reputation as a haunted house (dont list the Amityville Horror)
. still at large criminal in the neighborhood: murder, burglary, rape, robbery, abduction, assault, violence against pets
Agents: Consult your broker
Brokers: Consult your attorney
When in doubt, disclose.Class Exercise: go to www.txdps.state.tx.us and look up your home or your familys home. How close is the nearest registered sex offender?Chapter 3: DisclosureDefects
Class Exercise: each student fill out a TAR Sellers Disclosure Notice
Most real estate-related lawsuits have to do with the condition of the property.
Latent defect
Not trivial or insignificant (foundation, termites, roof, flooding,)
Not readily discernible (not easy to find) to the public
Must be disclosed, if known to seller or licensees in the transactionHow to avoid problems/lawsuits:(1) Disclose! Disclose! Disclose! Disclose! Disclose! Disclose!
Seller must disclose any known defects. (Use Sellers Disclosure Form)
Agents/Brokers must disclose any known defects, no matter who they represent.
Disclose to the principal they represent (client)
Disclose to the other party (customer, third party)Third party = anyone you do not represent
So not fiduciary duty, but honesty & fairness(This whole chapter is written from OLD perspective of Sub-Agency:
If you represent the seller, what duty do you owe the BUYER?
Under sub-agency, all licensees represented the seller. The buyer was only a third party, and licensees called the buyer a customer.)Obligations to Third Parties: (These are not fiduciary duties)1. honesty & fairness (Canons of Ethics)
2. disclose known defects
3. disclose agency
4. do not discriminate
5. title insurance
6. tell them to consult an attorney if they dont understand contract(2) Recommend Buyer use a licensed inspector
They rely on the inspector instead of you. (think lawsuit liability)
If they refuse to get an inspection, have them sign a statement saying so.
Use of a licensed inspector is a safe harbor for real estate agents
do not recommend a specific inspector (creates liability)
illegal to do both jobs in same transaction
never conceal an old bad report (within last 4 years)(3) If you rely on another source, say so.
Ex: 2400 square feet per HCAD(4) Advise Buyer to verify important informationBuyers Agent has a duty to require proof from the seller/sellers agent.

examples:
buyer can pay an appraiser to measure house square footage
ask surveyor to verify extent of easement, total acreage, etc.
Tell buyer to read the restrictions.
Local ordinances
Rural property: wells, septic systems, access
seller who represented there was a warrantyStigma a perceived defect in the property that is not physical but emotional or psychological in naturemust disclose1. death by accident related to the condition of the property
2. murder on the property
no duty to disclose but
seller could voluntarily disclose:
death on the property due to:
1. natural causes
2. suicide
3. accident unrelated to the condition of the propertyDo not disclose:
(1) race, religion, national origin, etc. (protected classes of people under federal Fair Housing laws)(2) Aids/HIV (also protected under TRELA)Possible Responses from Potential Buyers
A. Still want to buy
B. Want to bargain for a lower price
C. Genuinely distressed, will not buy. (better than a lawsuit)Other (Written laws dont say if disclosure is required or not.)
Cautious brokers give clients websites such as the ones below.
. allegations of child molestation in the house (p. 48)
. obnoxious/hostile neighbor
. proximity of registered sex offenders: www.txdps.state.tx.us
. reputation as a haunted house (dont list the Amityville Horror)
. still at large criminal in the neighborhood: murder, burglary, rape, robbery, abduction, assault, violence against pets
Agents: Consult your broker
Brokers: Consult your attorney
When in doubt, disclose.
Class Exercise: go to www.txdps.state.tx.us and look up your home or your familys home. How close is the nearest registered sex offender
Agency: What this course is about
Who does the licensee represent?
seller? buyer? both? neither?
Theory of agency seems simple.
Application is not.
What you can and cannot say, do, disclose.
Critical thinkingthink on your feet
small group work lawsuitsexamplesstories
Imagine thinkfeelreact
Licensee: dishonest?
not knowledgeable?
negligent?
honest mistake?
where did they go wrong? What
should they have done?
How fixed it w/o a lawsuit?
Agree with court? Disagree? Why?
Lawyers disagreegrey areasok disagree /me
discouragecar accidentseducation reduces riskChapter 1
The Texas Real Estate Commission (TREC) is a consumer protection agency. (To protect the public from us! )TRELA The Real Estate License Act
1939first Texas real estate licensing lawTRECTexas Real Estate Commission www.trec.texas.gov
1949TRELA (law) established TREC (the state agency)

2 levels of license:
Salesperson
Broker
Licensing requirements
Get Brokers License and degree

Canons of Professional Ethics (from TREC) see page 229 of textbook
Q: 5 articles
Q: be able to recognize the duties
Expect questions on licensing exam too. (TREC takes seriously)Good Ethics is Good Business!!! Why?