Monday, February 29, 2016

Rule #1: DISCLOSE

So, you've decided to add a real estate license to your investor tool belt! Good for you! But now, as they say, with great power comes great responsibility! And the foremost responsibility is Disclosure of your status as a real estate agent!

There is a lot of confusion about what kind of disclosures are required, when and in what circumstances so let's clear some of that murky water.  


First and foremost, who makes the disclosure requirements?
 The Texas Real Estate Commission addresses it in the Texas Real Estate Act and it is further addressed in the National Association of Realtors Code of Ethics and Standards of Practice.  I've included the full transcript of both rules at the end of this blog should you want to read further.  

But, to be sure, the goal of both of these organizations addressing disclosure requirements is to ensure that a license holder acting on his or her own behalf or in a similar capacity should not use the license holder's expertise to the disadvantage of a person with whom the license holder deals.  By making sure that the person you are dealing with knows you are a licensed agent and you are not acting on their behalf ensures that they have a fair understanding of their position. 

So then... when do you disclose and how do you do it?

Advertising:

Are you marketing yourself as an investor who wants to buy houses? As long as that marketing is as a buyer/investor/principle you DO NOT HAVE TO disclose that you are an agent or your brokerage affiliation on your marketing.  However, if that marketing is as a Realtor offering licensed services you need to disclosure your license and brokerage information.  That being said, you may choose to include information about your license status on investor marketing if you choose to but it is not a requirement.

On the Phone: 

While you are not required to make the disclosure on the phone I often do it anyway.  I often say, "I'm a real estate investor as well as a real estate broker.  However, in this case, I am acting as a potential buyer for your property, not as a real estate agent" 

When Buying Property

Ok, here is where you need to perk up! 

From the Texas Real Estate Act:
A license holder engaging in a real estate transaction on his or her own behalf or in a capacity described by subsection (a), is obligated to disclose in writing that he or she is a licensed real estate broker or sales agent acting on his or her own behalf or in a capacity described by subsection (a) in any contract of sale or rental agreement


From NAR Code of Ethics:
REALTORS® shall not acquire an interest in or buy or present offers from themselves, any member of their immediate families, their firms or any member thereof, or any entities in which they have any ownership interest, any real property without making their true position known to the owner or the owner’s agent or broker. In selling property they own, or in which they have any interest, REALTORS® shall reveal their ownership or interest in writing to the purchaser or the purchaser’s representative

So to follow disclosure requirements you must disclose, in writing, your licensee status. The most effective way is to disclose this in Section 4 of the newest version of the TREC Resale contract:

4. LICENSE HOLDER DISCLOSURE: Texas law requires a real estate license holder who is a party to a transaction or acting on behalf of a spouse, parent, child, business entity in which the license holder owns more than 10%, or a trust for which the license holder acts as a trustee or of which the license holder or the license holder’s spouse, parent or child is a beneficiary, to notify the other party in writing before entering into a contract of sale. Disclose if applicable:_____

But what if my unlicensed partner writes up the contract in the name of our LLC... do I still need to disclose? Yes! Instruct your partner, your spouse or anyone else who is in a position to make offers in the name of any entity you are a part of that they must make the disclosure.  As an example, here is what I write on my offers:
One or more members of Riveter Realty, LLC is a licensed real estate agent in the state of Texas and does not represent the seller. 

When Selling:

You finished a flip and you are ready to list! Congrats! Don't forget to disclosure your status as a licensed seller.  You will need to disclose that you are the owner/listing agent on the MLS listing, any other advertisements and again on the sales contract as outlined above. 

It's easy to stay in compliance if you consistently disclose your status on your contracts and make sure your investor partners do the same.  Disclosing our status as real estate agents will keep you out of trouble and serves to alert the people that we work with that we are knowledgeable, vetted and practicing our profession with honesty and integrity. In my opinion, this is the best way to practice real estate!


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APPLICABLE TEXT FROM TEXAS REAL ESTATE ACT and NAR CODE OF ETHICS:


The Texas Real Estate Act states:§535.144 When Acquiring or Disposing of Own Property or Property of Spouse, Parent or Child (a) For purposes of §1101.652(a-1)(1) of the Act "license holder" includes a license holder acting on behalf of: (1) the license holder's spouse, parent or child; (2) a business entity in which the license holder is more than a 10% owner; or (3) a trust for which the license holder acts as trustee or of which the license holder or the license holder's spouse, parent or child is a beneficiary. (b) A license holder engaging in a real estate transaction on his or her own behalf or in a capacity described by subsection (a), is obligated to disclose in writing that he or she is a licensed real estate broker or sales agent acting on his or her own behalf or in a capacity described by subsection (a) in any contract of sale or rental agreement or in any other writing given before entering into any contract of sale or rental agreement. (c) A license holder acting on his or her own behalf or in a capacity described by subsection (a) shall not use the license holder's expertise to the disadvantage of a person with whom the license holder deals.

The National Association of Realtor Code of Ethics states: Article 4 REALTORS® shall not acquire an interest in or buy or present offers from themselves, any member of their immediate families, their firms or any member thereof, or any entities in which they have any ownership interest, any real property without making their true position known to the owner or the owner’s agent or broker. In selling property they own, or in which they have any interest, REALTORS® shall reveal their ownership or interest in writing to the purchaser or the purchaser’s representative. 
  • Standard of Practice 4-1
For the protection of all parties, the disclosures required by Article 4 shall be in writing and provided by REALTORS® prior to the signing of any contract.(Adopted 2/86)


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