Yesterday I was teaching a class to some of our agents called Understanding Agency for the Investor Agent and we were reviewing the Texas Real Estate License Act as it relates to agents as principals in the transaction. Most of us know that the Act prescribes that agents disclose their license status to the other party prior to entering into a contract. But, there is an additional subsection (c) at the tail end of RULE §535.144.
It states: (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.
As the Broker of Sales Persons who routinely invest and act as principals in sales transactions this is extremely interesting to me and poses an almost philosophical question…How can a licensed investor NOT use their expertise to the disadvantage of the other party? It’s not possible to turn off the part of your brain that holds this knowledge when negotiating a contract with the seller.
Some real estate investor gurus might even use this as an argument NOT to get your license. However, I think differently and I think this actually sets the Investor Agent apart from the unlicensed Investor in a way that is more beneficial to the seller and yet still allows for success on the part of the Investor.
TREC and TAR are not trying to make it impossible for Realtors to act as principals or creative real estate investors. And, they don’t expect you to not negotiate for yourself. They do, however, want to make sure that the public is protected from unscrupulous activities by agents.
So, what does it look like for an agent to use their expertise to the disadvantage of the other person. I can tell you this…I know it when I see it.
Several years ago a distressed seller called me and my husband, Dan, about his deceased mother’s estate. It was in an up and coming area of Austin so although the house was in disrepair and needed significant repairs and updates it still had a good chunk of equity. The seller had never bought or sold real estate, wasn’t particularly sophisticated and was really overwhelmed by the whole thing.
Here’s the thing…he had already signed a contract to sell but was feeling uncomfortable with his decision. He showed me the contract. It was written by a licensed agent as principal and the proper disclosure was made regarding the agents licensed status. The offer was for about $100,000 which seemed like a fair price to me. But…the problem was in special provisions which went something like this: The price of the house will reduced by the amount of the repair estimates.
Whoa! This is the way the Broker in me reads that provision “Buyer can solicit as many bids for as many repairs as they want and essentially reduce the sales price down to Zero.”
The seller had no idea the implications of this special provision and by agreeing to it he put himself in a very precarious position. Any good agent will tell you that special provisions should be very specific such that nothing is left to interpretation. The agent that wrote these provisions not only didn’t follow that rule but likely knew very well that they had the seller over a barrel with this special provision. I felt like this was an excellent example of how an agent can use their expertise to the disadvantage of another person.
My husband, Dan, used to give a talk called “How to Make a Million Dollars in a Year”. He started giving this talk after the Lease Purchase laws in Texas changed which made them very risky for sellers. Essentially, the law put a host of requirements on the seller which included monthly reports in a specific font size, etc. etc. If the seller slipped up on ANY of the special requirements the buyer could demand ALL monies paid to seller to be returned.
So, Dan’s talk warning about the dangers of selling properties via lease options argued that to make a Million Dollars you would just need to convince a bunch of sellers to sell you their home via lease option (then rent it out) knowing they wouldn’t be able to satisfy the statutory requirements and you could recoup all the money you paid to them and keep the rents you collected. We would never do this but he was using a tongue in cheek method to get his point across but it does show that knowledge is power and can be used against those with less knowledge to their detriment.
Bottom line to Investor Agents…don’t hoodwink, be in cahoots, trick, scam, dupe, deceive, con or bamboozle. Negotiate for yourself, yes. But keep it fair…pay a fair price, treat the other party with respect and be proud of the problem solving services you are offering to your community.
StepStone Realty and our agents pride ourselves on practicing with the highest level of honesty and integrity. Not because TREC and TAR makes us, but because that’s who we are and how we do business.