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Enforcement Frequently Asked Questions . . .
concerning licensee compliance with the Real Estate License Act and TREC Rules,
and the use of TREC contract forms, answered often by the Enforcement Division.

Advertising Complaint Procedures Listing Agreements
Agent Acting as Principal Consumer Problems Option Periods/Option Fees
Applications/MCDs Contracts & Contract Forms Out-Of-State Brokers
Attorneys Disclosure of Agency Property Management
Auctions Earnest Money Rebates
Bankruptcies/Judgments Escrow or Trust Accounts Referrals
Branch Office Exemptions Residential Rental Locators
Broker Supervision Fiduciary Responsibility Residential Service Companies
Business Entities Inspectors - General Timeshare
Buyer Representation Agreements Inspectors - Standards of Practice Unlicensed Brokerage Activity
Commissions Intermediary  

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Advertising


Q:  What is considered an advertisement?

A:  Under Rule 535.154(a), an advertisement is defined as a “written or oral statement or communication which induces or attempts to induce” a person to use the services of a real estate license holder. It includes, but is not limited to, all publications, radio or television, all electronic media including emails, texts, web sites, blogs and tweets, business cards, letterhead, signs, and billboards. Once a person has agreed to use the services of a license holder, subsequent communication from the license holder is not considered an advertisement.


Q:  What is the required information that must be provided in advertisements such as signs, email and business cards?

A:  All advertisements must comply with TRELA sect.1101.652(b)(23) and Rule 535.154. At minimum, subsection (c) of this rule requires an advertisement placed by a license holder must "clearly and conspicuously contain the name of the broker, either a business entity or an individual." A broker's assumed name may be used if it is registered with the Commission. The name of a salesperson sponsored by the broker may also be included in the advertisement, but in no case shall a broker or salesperson place an advertisement which in any way "implies that the salesperson is the person responsible for the operation of a real estate brokerage business." Advertisements must include a designation such as "agent," "broker," or a trade association name that serves to clearly identify the advertiser as a real estate agent. There is no requirement that a phone number or email address included in an advertisement belong to the broker. A license holder must comply with all advertising requirements and we suggest a careful review of all sections of Rule 535.154.


Q:  Are signs permitted which display the word "broker" or "agent" in very small print, on the reverse side of the sign, or vertically on the wooden stake supporting the sign?

A:  No. An advertisement placed where it is likely to attract the attention of passing motorists or pedestrians must contain language that clearly and conspicuously identifies the publisher as a real estate broker or agent. The Commission considers the required language to be clear and conspicuous if it is at least half the size of the largest contact information on the sign.


Q:  Are there any restrictions on the placement of a license holder's signs?

A:  Yes. TREC may suspend or revoke a license if the license holder places a sign on a property offering it for lease or rental without the written permission of the owner or the owner's authorized agent. [TRELA §1101.652(b)(18)]. Also, although TREC does not regulate where a license holder places a sign, a license holder is responsible for compliance with any rules, restrictions, or regulations covering placement of a sign in their local area. Placement of signs in violation of city ordinance could be considered an act of negligence or incompetence that authorizes disciplinary action against the license holder as well as subject the license holder and possibly even their principal to enforcement actions by the appropriate authorities. [TRELA §1101.652(b)(1)] Typically, sign ordinances prohibit placing a sign on a utility pole, traffic signal box, or in a road median.


Q:  Can I use the TREC seal on my business card or in my advertisements?

A:  No. The seal is for use by the Commission only.


Q:  I am a real estate broker, can I use the term “REALTOR” on my business card?

A:  No, unless you have the legal right to use this copyrighted trade name. See Rule 535.154(i). Check with your local board to find out if membership in the board will grant you the right to use the term “REALTOR.”


Q:  I am a salesperson, Sally White. I am sponsored by a broker but own my own business. Can I use “Sally’s Spectacular Properties” or “White Real Estate” for my business name on my advertising?

A:  TREC Rules prohibit you from using your name or your assumed name alone in advertisements. Your advertisement can not in anyway imply that a salesperson is the person responsible for the operation of a real estate brokerage. [Rule 535.154 (g) ] You can not use either company name because each implies that Sally, a salesperson, is in charge. A salesperson may use her name with the term “Team” or “Group” however, so long as the advertisement also includes the broker’s name. You can use the name “Spectacular Properties” if your broker sends written notice to the Commission within 30 days of the start of the use of that name [Rule 535.154 (c) and (e)] and you add additional designations such as “agent” to the advertisement to readily identify that the advertisement was placed by a salesperson. [Rule 535.154(f)] For example, the advertisement might state “call 123-1234, agent, Spectacular Properties” or “call Sally at 123-1234, agent, Spectacular Properties.” If your company is a corporation, limited liability company, or partnership, a real estate broker license for the business entity would be required. [TRELA §1101.351(a-1)]


Q:  If I represent the seller, can I advertise that I will rebate part of my commission to the buyer?

A:  Yes, but the ad must disclose that payment of the rebate is subject to the consent of the seller and if the rebate is contingent upon certain restrictions, such as the use of a particular service provider, the ad must contain a disclosure that payment of the rebate is subject to restrictions. [Rule 535.154(m)] A salesperson must also have their sponsoring broker's authorization to offer a rebate. Also, see the answer to the next question regarding notice to the buyer’s lender.


Q:  I only represent buyers. Can I advertise that I will rebate a part of my commission to the buyer?

A:  Yes, as long as the advertisement complies with Rule 535.154(m) regarding any restrictions that might apply. However, a rebate to a buyer from a license holder may be subject to restrictions by the buyer’s lender. You should contact your broker or private attorney to find out how you should notify and obtain the consent of the buyer’s lender to address any impact the rebate may have on the determination regarding the buyer’s creditworthiness.


Q:  Can I advertise service providers such as inspectors, moving companies, or repair contractors on my web site?

A:  Yes, but if you offer, recommend, or promote the use of a service provider and expect to receive compensation from the service provider if a party uses those services, the ad must disclose that you may receive the compensation. [Rule 535.154(n)] Also, acceptance of fees from service providers may violate the Federal Real Estate Settlement Procedures Act (RESPA), which prohibits certain referral fees and kick-backs.


Q:  Can a license holder who is a rental locator advertise that they will pay a prospective tenant a portion of their fee received from an apartment complex if the tenant uses the locator’s services?

A:  Yes, as long as the ad complies with Rule 535.154(m) stated above. In general, a locator is required to obtain the consent of the apartment complex first, as they do not normally represent the tenant. It is misleading advertising to advertise a rebate for an apartment complex that the locator knows has a “no rebate” policy and they do not represent the tenant.


Q:  Is a license holder required to put their license number on a sign or other advertising?

A:  No.



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Agent Acting as Principal


Q:  When does a license holder dealing in property in the license holder's own name have to disclose the fact that they have a real estate license?

A:  It is best to disclose it as early as possible but it must be disclosed in the contract, lease, or in another written document given to the other principal before the agreement is signed. [Rule 535.144] The disclosure is required even if the license holder is on inactive status.


Q:  If I am buying, selling or leasing property for a relative, do I need to disclose that I have a real estate license?

A:  Yes. If you are acting on your own behalf or on behalf of your spouse, parent or child, you must inform any person with whom you deal that you are a licensed broker or salesperson acting on that relative’s behalf. This notice must be in writing as described in the previous question. [Rule 535.144] A license holder shall not use the license holder’s expertise to the disadvantage of a person with whom the license holder deals. [Rule 535.144(b)]


Q:  I am a 25% stockholder in a corporation that holds title to a number of investment properties. I typically negotiate the resale of the properties for the corporation. Must I disclose my licensed status?

A:  Yes. If you participate in a transaction and hold more than a 10% interest in the corporation or other business entity, you are subject to the disclosure requirements and shall not use your expertise to the disadvantage of others with whom you deal as described in the previous questions. [Rule 535.144(b)]



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Applications/MCDs


Q:  What kind of criminal matters will prevent an applicant from obtaining a real estate license?

A:  To be eligible for a real estate license, applicants must prove to TREC that they have the required honesty, trustworthiness & integrity. [TRELA §1101.354(2)] Each applicant is evaluated individually and TRELA does not contain a list of crimes or number of crimes that would automatically disqualify an applicant from obtaining a license. However, Rule 541.1(a) does list the types of criminal offenses that TREC considers directly relate to the duties and responsibilities of a license holder and tend to demonstrate a person’s inability to represent the interest of another with honesty, trustworthiness and integrity. Rule 535.52(b) also addresses conduct that tends to demonstrate that an applicant does not possess the requisite honesty, trustworthiness or integrity. In addition, pursuant to Chapter 53 of the Texas Occupations Code (http://www.statutes.legis.state.tx.us/) and Rule 541.1(c), TREC will consider evidence of certain mitigating factors and rehabilitation. It is the responsibility of the applicant to provide that evidence to TREC. [Rule 541.1(d)] Before applying for a license, a person may request TREC to determine whether the person’s moral character complies with the requirements for licensing by filing a Moral Character Determination (MCD). This form is on our website.


Q:  What is the estimated time frame to process an Moral Character Determination (MCD) form?

A:  After an MCD request is filed and all required documentation is obtained (either initially or following subsequent requests for additional information), TREC will investigate the information and make a determination. Once TREC makes a determination, TREC has 30 days to notify the person of the determination. Providing a complete form and promptly sending any requested documentation will decrease the processing time of an MCD.


Q:  If someone’s criminal history has been expunged, can the information still appear on the background check?

A:  The information is not supposed to appear on a background check; however it still may by mistake. If it does, TREC will ask you to provide a copy of the Order of Expungment or Non-disclosure and upon receipt will not consider that offense in determining a person's fitness for licensure.


Q:  When a license holder files a reinstatement application and answers “yes” to the criminal questions, does TREC require the license holder to resubmit legal documents that have already been submitted in the past?

A:  A “yes” answer to the criminal questions on a reinstatement application requires an applicant to submit a Background History form along with copies of the offense court records and a written explanation. If the required documents were previously submitted in a prior application, the applicant may explain this fact. However, because TREC must dispose of certain documents in accordance with a records retention plan, TREC may no long have those documents and an applicant should be prepared to resubmit documents and the explanation previously submitted.



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Attorneys


Q:  Is a licensed attorney required to hold a real estate license to act as a broker?

A:  No as long as the attorney is licensed in Texas, they are exempt from the licensure requirements. [TRELA §1101.005(1)] The Texas licensed attorney can do everything a broker can do except sponsor salespersons, participate in a commission split [TRELA §1101.651(a)], or act as the designated broker for a business entity licensed by TREC. [TRELA §1101.355(b)]


Q:  Can an attorney get a broker license without first being licensed as a salesperson?

A:  No. A licensed attorney will need to meet all the standard requirements, including education, examination and experience, for issuance of first a real estate salesperson license and then a broker license. However, many of the college and law school courses completed by the attorney could count toward the education requirements. Transcripts would need to be evaluated to determine whether the attorney may receive credit for any applicable courses.


Q:  I am the listing broker. An attorney has presented an offer from a buyer that the attorney represents and wants me to share my commission. Can I do this?

A:  No. A licensed broker is prohibited from sharing a commission with anyone who acts in the capacity of a broker but is not licensed as a broker [TRELA §1101.651(a) and §1101.652(b)(11)]. In cases such as this, the listing broker still needs to present the offer to the seller. The listing broker should inform the seller that the broker is prohibited from sharing the commission with the attorney. Assuming the attorney is licensed in Texas, the seller and buyer may work something out between themselves regarding any compensation to be paid to the Texas attorney. The listing broker can agree to reduce the commission if requested by the seller without violating the prohibition on splitting. For further detail, see the article “Can brokers share their fees with an attorney?” under Special Topics on our website page for News & Public Data.


Q:  Can a broker share a commission with an attorney when the attorney is a principal in the transaction?

A:  Yes. However, this is because the attorney is a principal to the transaction, not because he or she is an attorney. It is not a violation of TRELA or the Rules for a license holder to rebate a portion of a commission to a party in the transaction. If the rebate is to a party the license holder does not represent, the license holder must obtain the consent of the party the license holder represents. This must be done before making the payment. [Rule 535.147(d)]



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Auctions


Q:  Is a real estate broker's license required to call an auction involving real property?

A:  No. A real estate license is not required for a person who calls an auction of real property, provided the person is licensed as an auctioneer by the Texas Department of Licensing and Regulation. [TRELA §1101.005(4)] However, it is clear from the statute that an auctioneer may not perform any act of a broker or salesperson, such as the preparation of a written agreement for the transaction.



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Bankruptcies/Judgments


Q:  I loaned Broker Smith $10,000 to build his real estate office and now he won't repay me. Can you help?

A:  No. Failure to repay a loan constitutes a breach of your private agreement with the licensee and is not a violation of TRELA or the Rules. In addition, since it is not a violation of §1101.652(a)(3) or §1101.652(b) of the License Act, any judgment obtained would not be eligible for payment from the Real Estate Recovery Trust Account.


Q:  Can a real estate license be revoked if a licensee files for bankruptcy?

A:  No. However, a licensee's bankruptcy does not affect a pending complaint or limit disciplinary action by TREC. However, even if a licensee’s debts are discharged in bankruptcy, if the underlying conduct violates §1101.652(a)(3) or §1101.652(b) of TRELA, disciplinary action can be taken against the licensee for the underlying conduct. Further, a judgment that involves conduct that constitutes a violation of §1101.652(a)(3) or §1101.652(b) of TRELA may be eligible for payment from the Real Estate Recovery Trust Account even if the debt was discharged in bankruptcy.



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Branch Office


Q:  Is there a limit on the number of branch offices a broker can have?

A:  No. However, if a broker or the broker’s salesperson maintains more than one place of business where either meets the public to transact business, the broker must obtain a branch office license for each location. [Rule 535.112]


Q:  Can a salesperson work in a different office than the sponsoring broker’s office?

A:  A salesperson may work from an office location different from the main office of the salesperson's sponsoring broker, but the sponsoring broker is still responsible for the salesperson's actions. [TRELA §1101.803, Rule 535.2(a)] Notwithstanding this flexibility, a salesperson may not lawfully engage in brokerage activity unless the salesperson is associated with, and acting for, the sponsoring broker at all times. [TRELA §1101.351(c)] Thus, a salesperson may not work for a broker who is not the salesperson’s sponsoring broker or work for another broker or out of another broker's office. If the salesperson was not working from the broker’s main office, the broker would also need to obtain a branch office license for the second office location. [Rule 535.112]



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Broker Supervision


Q:  Is a broker responsible for the actions of a salesperson who transacts business from a separate location?

A:  Yes. The sponsoring broker is still responsible for the salesperson's actions, even when the salesperson does not work out of the broker’s main office. [TRELA §1101.803, Rule 535.2(a)] A salesperson may not lawfully engage in brokerage activity unless the salesperson is associated with, and acting for, a sponsoring broker at all times. [TRELA §1101.351(c)] The broker will also need to obtain a branch office license for the office location from which the salesperson transacts business. [Rule 535.112]


Q:  Is a broker responsible for the actions of a salesperson who owns his or her own real estate company?

A:  Yes. The sponsoring broker is still responsible for the salesperson's actions, even when the salesperson owns his or her own real estate company. [TRELA §1101.803, Rule 535.2(a)] A salesperson may not lawfully engage in brokerage activity unless the salesperson is associated with, and acting for, a sponsoring broker. [TRELA §1101.351(c)] If the salesperson’s company engages in business under an assumed name, the broker would need to notify TREC in writing within 30 days after the salesperson or the sponsoring broker starts or stops using the assumed name. [Rule 535.154(c)]


Q:  Does a broker have to supervise the daily activities of a salesperson?

A:  A broker is not required to directly supervise sponsored salespersons; this responsibility may be delegated to another person with the required level of experience and expertise to provide proper supervision under the law. [Rule 535.2(e)] However, the broker remains responsible for the authorized acts of the broker’s salespersons [TRELA §1101.803, Rule 535.2(a) ] and has many affirmative duties regarding written policies, record keeping and advising, training, approving advertising for and responding to salespersons. Brokers should be familiar with and follow the duties set out in Rule 535.2 . A broker should also be aware that a complaint filed against a sponsored salesperson is also a complaint against the broker for the purpose of determining the broker’s involvement in the alleged violation and whether the broker properly supervised the salesperson. [Rule 535.141(c) and (d)] A business entity can only provide the proper supervision by the personal involvement of the broker or by the broker’s delegation to a qualified supervisor.



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Business Entities


Q:  Can a broker be the designated officer for more than one company?

A:  Yes


Q:  Can a licensed salesperson own his or her own real estate company?

A:  Yes, a licensed salesperson can own his or her own real estate company. The salesperson must, however, have a sponsoring broker through whom all transactions must be handled and who will be responsible for the salesperson’s actions. The specific details of the supervision that the salesperson’s sponsoring broker exercises over the salesperson’s actions should take into consideration the salesperson’s experience and ability, acknowledging the fact that the broker remains ultimately responsible for the salesperson’s actions, and should be described in a written agreement between the salesperson and the salesperson’s sponsoring broker. The salesperson’s agreement should also address how commissions will be handled with your broker. If a salesperson engages in business under an assumed name that includes the salesperson’s own name, the salesperson’s sponsoring broker's name or assumed name must also be used. If a salesperson is going to engage in real estate brokerage under an assumed name, the salesperson’s broker would need to notify TREC in writing within 30 days after the salesperson or the salesperson’s sponsoring broker starts or stops using the name. [Rule 535.154(c) and (e)]


Q:  May a licensee use an assumed name in business (DBA)?

A:  Yes. However, TREC must be notified in writing by the broker of the broker’s or sponsored salesperson’s use of an assumed name in business within 30 days of starting or stopping use of the name. [Rule 535.154(c)] Notification can be made to TREC using the Notice of DBA or Assumed Name for Broker's License form (DBA-1) that is available on our website. Licensed entities, such as corporations and limited liability companies are also required to give TREC written notice if the entity engages in business under an assumed name. An “assumed name” is any name other than the name in which the person or entity is licensed. In addition, a licensee may NOT use the name of a salesperson in advertising unless the sponsoring broker’s name or assumed name also appears. [Rule 535.154]


Q:  I am the sponsoring broker for a salesperson, John Smith, who owns an LLC. We are co-managers of the LLC. The name of the LLC is John Smith Realty, LLC. Can my salesperson use John Smith Realty, LLC in general and in his advertising?

A:  Under current TREC Rules and policies, forming an LLC or corporation with the name of a salesperson in the entity name is not prohibited as long as the entity identifier (e.g. “LLC”, “Inc.”, or “Corp.”) is always displayed as part of the company name in a type size, color and style that is visible and as noticeable as the rest of the entity name; and the entity obtains a broker’s license from TREC.


Q:  I know LLC’s and corporations need to be licensed but do partnerships need to be licensed if real estate brokerage activity is performed under the partnership name?

A:  Yes. All business entities engaged in real estate brokerage activity, including partnerships, need to be licensed. [TRELA §1101.002] Further to receive or maintain a license, a business entity must designate an individual holding an active Texas real estate broker license who is an officer, manager, or general partner of the entity to act for it. [TRELA §1101.355 and Rules 535.50(5) and §535.53(a)]


Q:  If I have a licensed limited partnership, can the general partner be an LLC if a manager of the LLC is a designated broker?

A:  No. The designated broker acting as a general partner must be an individual, not another business entity. [See TRELA §1101.355 and Rules 535.50(5) and §535.53(a)]


Q:  Does the designated broker own 10% or more of a licensed business entity if the designated broker owns 10% or more of another business entity that owns 100% of the licensed business entity?

A:  No. The designated broker must own 10 % or more of the licensed business entity directly.


Q:  What qualifies as proof of ownership of the business entity?

A:  A resolution, minutes or other official record of the business entity. We also accept copies of tax records which indicate ownership.


Q:  Does TREC determine which brokerage business names may be registered with the agency if a name is similar to others already registered?

A:  In Texas, business names and "DBA"s are regulated under common law (deceptively similar names may give rise to a private cause of action) and "notice" laws which may provide certain presumptions or tacit protections to names recorded at the local county clerk's office or with the Secretary of State. The agency's sole interest in requiring all brokerage business names to be disclosed to TREC and reflected in the agency's database is to provide a resource to consumers who need to know which individuals and licenses are associated with any particular business name; therefore all names are "searchable" from our agency website. TREC leaves the determination of "similar" names to the Secretary of State's rules or to common law remedies.



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Buyer Representation Agreements


Q:  If a broker does not have a written agreement to represent the buyer, what recourse does the broker have if another broker “steals” a client?

A:  A buyer can choose the broker with whom the buyer wants to work. TREC does not determine what constitutes "procuring cause" or who is entitled to a commission. Like a listing agreement, the buyer representation agreement must be in writing and signed by the buyer to be binding.


Q:  Does TREC have a promulgated buyer representation agreement?

A:  No. A buyer representation agreement is a private contract between a real estate broker and a buyer and is not promulgated or regulated by TREC. You should consult with a private attorney. The Texas Association of Realtors (TAR) provides certain forms to its members. If you are a member, TAR may have a form that fits your needs.


Q:  I signed a buyer representation agreement, but I want to work with a different Broker. Can I cancel the agreement?

A:  A buyer representation agreement is intended to be a legal and binding contract. You can ask the broker to release you from the buyer representation agreement. However, TREC does not have the authority to require a broker to release you from the agreement. If the broker refuses to release you from your buyer representation agreement, you should seek the advice of a private attorney.


Q:  I’m changing sponsoring brokers. Can I take the buyers I represent with me to the new broker if the buyers signed buyer representation agreements?

A:  No. A buyer representation agreement is a private contract between the buyer and the real estate broker, not the salesperson. As such, the buyer would still be represented by the salesperson’s previous broker. The buyer may, however, seek to be released from the buyer representation agreement. See answer to the question above.



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Commissions


Q:  What is the definition of a “commission”?

A:  A commission or fee includes any form of compensation received for engaging in an act for which a license is required, essentially anything of value. [E.g., Rules 535.1(4) and 535.20(a)]


Q:  Can an unlicensed person own a real estate company and receive all or a portion of a commission paid to a licensed broker?

A:  Yes within certain limitations. The unlicensed person may share in the income earned by a real estate brokerage IF the person engages in no acts for which a license is required. [Rule 535.147]


Q:  Can a broker pay all or a portion of a commission or fee to an unlicensed person?

A:  In general, no. However, a licensee may rebate all or a portion of the fee or commission to the party being represented in the transaction, or, with consent of the party being represented, the licensee can also pay all or a portion to a party the licensee does not represent in the transaction. [Rule 535.147(d)]


Q:  Can a salesperson receive or pay a commission to a party in a real estate transaction?

A:  No. A salesperson may not accept compensation for a real estate transaction from anyone other than the broker the salesperson was associated with at the time the commission was earned and may not pay a commission to a person except through the salesperson’s sponsoring broker. [TRELA §1101.651(b) and (c)]


Q:  Can a licensee be disciplined for paying a commission or a fee to or dividing a commission or fee with an unlicensed person for services as a real estate agent?

A:  Yes. The Commission may suspend or revoke or take other disciplinary action against a licensee who pays any portion of a commission or fee to anyone other than a licensed Texas broker or a broker licensed in another state. [TRELA §1101.652(b)(11)]


Q:  Can a listing broker share a portion of the listing broker’s commission with an attorney who represented the buyer in a real estate transaction?

A:  No. A broker is prohibited from sharing fees with or otherwise compensating the attorney acting as a buyer’s agent unless the attorney holds an active real estate license. [TRELA §1101.651(a)] However, if the attorney is a party to the real estate transaction, the broker can pay the attorney a rebate. [Rule 535.147(d)]


Q:  Can TREC obtain reimbursement of commissions paid by buyers and sellers to brokers and salespersons for compensation in real estate transactions?

A:  No, unless a refund is ordered by TREC in conjunction with an agreement resulting from an informal settlement conference or an administrative order. However, the amount ordered may not exceed the amount the consumer actually paid to the licensee for the services subject to TREC regulation and may not require payment of other damages or estimate harm. [TRELA §1101.659] In addition, TREC has no jurisdiction or authority to enforce collection of such amounts.


Q:  Can a salesperson have a commission check written to the salesperson’s own corporation or Limited Liability Company? If so, does that entity have to be licensed as a real estate broker?

A:  All commissions must be paid through the agent’s sponsoring broker.[TRELA §1101.651(b)] Further, effective September 1, 2011, a business entity that receives compensation on behalf of a license holder must be licensed as a broker. [TRELA §1101.355(c)]



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Complaint Procedures


Q:  How do I file a complaint with TREC?

A:  There are instructions and a complaint form on our website under the “Complaints, Consumer Info” tab. Simply click on that tab and then click the link to “filing a complaint” at the top of the page. Please note that although the complaint form is in a fillable pdf format, once you have completed the form, you need to print it and sign it before sending it to TREC.


Q:  What happens after I file a complaint with TREC?

A:  You will be notified by email or mail that your complaint has been received. If an investigation is opened, each person against whom the complaint is filed will receive a copy of the complaint. After the investigation is concluded, the information obtained will be reviewed to determine whether there is sufficient evidence to take disciplinary action for a violation of the applicable statute or Commission’s rules. Disciplinary action could include a formal reprimand, the suspension or revocation of a license, payment of an administrative penalty, or other appropriate action. Investigations and the disciplinary process differ in complexity and duration, so providing a time of completion is not possible.


Q:  What types of complaints can be filed with TREC?

A:  Written and signed complaints are accepted against the following types of businesses: real estate brokers and salespersons, real estate inspectors, TREC-approved education providers for real estate and inspection courses, TREC-approved instructors for real estate and inspection courses, residential service companies, timeshare developers, easement and right-of-way agents, and unlicensed persons engaging in any of these activities. TREC does not regulate and accept complaints against: Real Estate Developers (not regulated), Home Builders (not regulated), Appraisers (see the Texas Appraiser Licensing & Certification Board at www.talcb.state.tx.us), Mortgage Brokers and Loan Officers (see the Texas Dept. of Savings & Mortgage Lending at www.sml.state.tx.us), Property Tax Consultants (see the Property Tax Consultant Board of the Texas Dept. of Licensing and Regulation at www.license.state.tx.us/PTC/PTC.HTM), Title Insurance Companies (see the Texas Dept. of Insurance at www.tdi.state.tx.us/), Auctioneers (see the Texas Dept. of Licensing and Regulation at www.license.state.tx.us/auc/AUC.HTM), Manufactured Housing (see the Texas Department of Housing and Community Affairs at www.tdhca.state.tx.us/mh/), or Wood Destroying Insect Inspectors (see the Texas Department of Agriculture at www.tda.state.tx.us/spcs/).


Q:  What do I need to send with my complaint to TREC?

A:  Complete the complaint form on our website by answering each question. Attach additional sheets as needed to fully explain your complaint. When applicable attach clear and complete copies of all related documents. Do not send originals. For example, if your complaint is about an inspection report, attach a copy of the report or state why it is not available. Or, if your complaint is regarding a promise made by your buyer’s agent, attach a copy of your buyer representation agreement, if the promise was made in writing, and the sales contract and HUD closing statement. If the promise was made at closing in front of the title company closing agent, you could include this witness’ name and contact information and describe what this witness may know.


Q:  Do I need to file a complaint with TREC first before I can obtain funds from the Real Estate Recovery Trust Account or the Real Estate Inspection Recovery Fund?

A:  No, filing a complaint with TREC is not a prerequisite to obtaining funds from one of the two recovery accounts maintained by TREC for paying judgments taken by consumers against real estate licensees or inspectors. See FAQ topic above under Bankruptcies/Judgments. For more information about the two recovery accounts maintained by TREC go to our website under the “Complaints, Consumer Info” tab and click on that tab and then click on the link to the Real Estate Recovery Trust Account or the Real Estate Inspection Recovery Funds.


Q:  I’ve been harmed by a licensee. Can TREC recover damages for me?

A:  No, TREC does not have the authority to require a licensee to pay another person for monetary damages. Recovery of these losses is a civil action and should be discussed with a private attorney. In limited circumstances, TREC may order a licensee or registrant or certificate holder to pay a refund to a consumer. The refund cannot exceed the amount paid by the consumer to the licensee or registrant or certificate holder for a service or accommodation regulated by TREC. The order must be the result of a complaint matter that resulted in an agreement with the licensee or registrant or certificate holder from an informal settlement conference or an enforcement order.


Q:  Does TREC mediate contested complaint matters?

A:  TREC offers an informal settlement conference for any contested matter involving a licensee or registrant or certificate holder. The process is voluntary and must include the licensee, registrant or certificate holder, at least one public member of the Commission, and two staff members of TREC. While the complainant may be present at the conference, they are not a party to the proceeding. At the conclusion of the informal conference, the Commission member or TREC staff may propose an informal settlement. The licensee, registrant or certificate holder may accept or reject the settlement offer. A final agreed order based on the settlement recommendation would conclude a contested case matter. If an agreement is not reached, the case is referred to the Director of Standards & Enforcement for appropriate action. Also, a party to a contested matter filed with the State Office of Administrative Hearings (SOAH) may, prior to a hearing, request that the matter first be heard by a SOAH mediator.


Q:  Does TREC mediate complaint matters between a complainant and a licensee?

A:  Once a complaint is opened, if the Mediator with the Commission’s Standards & Enforcement Services determines the case is a good candidate for alternative dispute resolution, the Mediator will offer a complainant and licensee the opportunity to participate in informal telephone dispute resolution. The Mediator, acting as a facilitator between the complainant and licensee, assists the parties in trying to reach an agreed settlement. If the parties reach an agreement, the Commission closes the complaint without further investigation. The agreed settlement may or may not include some form of disciplinary action against the licensee. If the process does not result in an agreed settlement, the case proceeds through the normal complaint process. The dispute resolution process is kept confidential from each party and from other Commission staff.



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Consumer Problems


Q:  I am a tenant and having problems with my landlord getting him to make repairs. Also, I sent the landlord the rent on time but the landlord is still threatening me with eviction and late charges. What are my rights as a tenant?

A:  Landlord and Tenant disputes are not within our jurisdiction. You may want to call one of the tenant assistance associations for help or contact a private attorney. The Real Estate Center at Texas A & M has a Landlord-Tenant Guide that you can view for free at http://recenter.tamu.edu/pdf/866.pdf.


Q:  I bought a house from a builder and the builder gave me a 12-month warranty. I have given the builder a list of things that need to be repaired but the repairs have not been made and my warranty is about to expire. How can I make the builder do the repair work?

A:  TREC does not have jurisdiction over builders. You may wish to file a complaint with the Better Business Bureau or the Texas Attorney General’s Office, Consumer Protection Division. You may also wish to consult with a private attorney before any possible warranties or other legal remedies expire.


Q:  I bought a house from Sam Seller through broker Bob Brown three months ago. I did not get it inspected since the seller and the broker said everything was in good shape. Yesterday I discovered a big problem with the house that was never disclosed to me. What can I do?

A:  If you feel the broker knew about the problem with the house and didn't tell you about it, you can file a written complaint with TREC. A licensee who makes a knowing misrepresentation or fails to disclose a latent defect can be disciplined by the Commission. [TRELA §1101.652(b)(3)] Should you want to take legal action against the seller and/or the broker for damages, you will need to consult with a private attorney.


Q:  I just bought a house and noticed that the title company I used made a mistake at closing.

A:  TREC does not have jurisdiction over title companies. If you wish to file a complaint against a title company in Texas, you need to contact the Texas Department of Insurance.


Q:  I am having a dispute with my Homeowner Association (HOA) regarding violating neighborhood restrictions.

A:  TREC does not have jurisdiction over Homeowner Associations or Association Management Companies. You may wish to consult with a private attorney regarding your legal rights as a homeowner. See also Chapter 209, Property Code.


Q:  When I purchased my house there were repairs made prior to closing that I requested. After moving into the house, I discovered that the repairs were not performed properly. The seller gave me the receipts of the licensed repair people who performed the repairs. I asked them to come correct the work but they refused. What can I do?

A:  TREC does not have jurisdiction over licensed repair providers. You may want to check with Texas Department of Licensing and Regulation to see if they regulate the providers. You may also want to consult with a private attorney regarding your legal rights as a homeowner.


Q:  I discovered that a real estate licensee is also a licensed mortgage broker. Is this legal? With what agency should I file a complaint?

A:  TRELA and the Rules do not prohibit an individual from having other licenses. If the individual is acting in both capacities, he or she should have informed you in writing and obtained your consent prior to receiving any compensation from another party involved in the transaction. If the individual was acting in both capacities, you could file a complaint with both TREC and Texas Department of Savings and Mortgage Lending. If the individual was only acting in one capacity, you should file the complaint with the agency that regulates that function.


Q:  I am having problems with a manufactured home that I purchased recently and wish to file a complaint against the manufacturer and broker/dealer.

A:  TREC does not have jurisdiction over manufacturers or dealers of manufactured homes. You may file a complaint with the Texas Department of Housing and Community Affairs. TREC only has jurisdiction in situations where the manufactured home is attached to the real estate when you purchased it and your complaint is against a real estate licensee that was involved in that purchase.


Q:  How long does a licensee have to keep financial and real estate transactions on file?

A:  If a licensee maintains a trust account, documentary records of each deposit or withdrawal for that account must be retained for four years. [Rule 535.146(d)] TREC requires a broker to maintain for at least four years from the date of a closing or termination of a contract eight specific types of records in a format that can be readily made available to the Commission. [Rule 535.2(h)]


Q:  Can I find out online if there have been any disciplinary actions against an agent?

A:  Yes. At the top of TREC’s homepage go to “Licensee Search” and type in the licensee’s name and click. Then click on the licensee’s name from the list that you are given. Under the result box that you receive will be a line entitled “Disciplinary Search”. Click on this to see what disciplinary actions have been taken. If no “Disciplinary Search” line appears under your name search result, then there have not been any disciplinary actions taken against that licensee.


Q:  Can TREC provide legal advice?

A:  TREC attorneys can advise with regard to the applicability or interpretation of the provisions of The Real Estate License Act and TREC Rules but cannot give advice pertaining to other laws or civil matters.



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Contracts & Contract Forms


Q:  Does TREC have an improved commercial earnest money contract form?

A:  No. You must use a form drafted by an attorney or a form supplied by either the buyer or seller. [Rule 537.11(a)] If you are a member of The Texas Association of Realtors (TAR), you may use a form prepared by TAR attorneys.


Q:  Must the earnest money check be deposited to create a binding contract?

A:  The formation of a real estate contract requires "consideration" for the contract to be binding. In general, the buyer's promise to buy and seller's promise to sell is consideration. Although the TREC contract forms include a provision for the deposit of earnest money, if the buyer fails to deposit the earnest money the buyer is considered in default of the contract, and the other party may then exercise the remedies under paragraph 15 of the contract. However, TREC is unable to make a determination as to whether your contract is binding. You should discuss the validity of your contract with a private attorney. Once a binding agreement has been created, a licensee handling the check must deposit the earnest money in a timely fashion in accordance with the contract terms. In addition, a licensee’s failure to deposit the earnest money within a reasonable time is a violation of §1101.652(b)(30) of TRELA.


Q:  My wife and I signed an offer to buy a house over the weekend. Now we have changed our minds and don't want to buy the house after all. Can we get out of the deal?

A:  If the seller has accepted your offer, you may have a binding contract. There is no automatic three-day or 72 hour cooling off period for you to change your mind like in some other consumer contract situations. Any rights that you have to terminate the contract will be contained in the contract. For example, you may have paid a fee to obtain an “option” period in the contract. You should consult with a private attorney for advice regarding termination of your contract.


Q:  Does a lease for a term of longer than one year and a contract for the sale of real estate need to be in writing to be enforceable?

A:  Yes. The Statute of Frauds, as defined by Chapter 26 of the Business and Commerce Code, requires that certain agreements be reduced to writing to be enforceable. However, you should consult with a private attorney for advice on this matter.


Q:  Does a license holder have to use TREC's contract forms? Does TREC ever discipline a license holder who fails to use an adopted form?

A:  Yes and yes. A license holder is required to use contract forms adopted by TREC. [TRELA §1101.155, Rule 537.11, etc.] Some exceptions for when a license holder does not have to use a form are in Rule 537.11(a). A license holder should also be familiar with Rules 537.11(f)-(g). Those rules prohibit a license holder from adding anything except factual matters or business details to a form adopted by TREC for mandatory use. Contract forms adopted for mandatory use are on our website.


Q:  Would it be permissible to use a promulgated contract form as a contract for deed or contract of sale by making appropriate changes in Paragraph 11?

A:  No. None of the forms promulgated by TREC are intended for use as a contract for deed. An attorney will need to prepare an appropriate form.


Q:  May non-licensees use the promulgated contract forms?

A:  Yes. The contract forms are available for public use.


Q:  What should I do if TREC doesn’t promulgate a form that I need?

A:  The Texas Association of Realtors (TAR) provides certain forms to its members. However, if you are not a member of TAR, you should have an attorney draft the necessary documents. It is a violation of the law for a licensee to draft an instrument that transfers or otherwise affects an interest in real property. [TRELA §1101.654]


Q:  My broker did not fill out our contract properly and the effective date is blank. Does this mean that the contract is invalid or void?

A:  The Commission can not make a determination about the validity of your contract. You should consult a private attorney regarding this issue. A licensee’s failure to properly complete a TREC promulgated form completely and accurately could be considered negligence and subject the licensee to disciplinary action. [TRELA §1101.652(b)(1)]


Q:  My client does not want to accept the property “as is” and wants to wait until after the inspection to list specific repairs that he wants the seller to fix. Can I just leave both boxes in Paragraph 7D of the One to Four Family Residential Contract (Resale) blank or can I check 7D 2 and write in “repairs to be listed following inspection”?

A:  Neither option is permissible. Leaving both boxes in blank in Paragraph 7D or altering the contract terms by adding language that does not enumerate specific repairs in Paragraph 7D2 could be considered to be acting negligently or incompetently if a complaint were to be filed in connection with the transaction [TRELA §1101.652(b)(1)]. The buyer should only choose Paragraph 7D2 if there are specific repairs known at the time of the contract that the buyer wants the seller to pay for. Otherwise, the buyer should check Paragraph 7D1. Most buyers in your client’s situation will then also elect to pay an option fee pursuant to Paragraph 23 in exchange for the right to terminate for any reason within a negotiated number of days. During this option period, an inspection can be performed and if specific repairs are identified, the parties can negotiate to amend the contract to address these items, or the buyer can terminate the contract.


Q:  How are days counted in a TREC contract?

A:  Starting with the effective (final execution) date of the contract, the first day of the period starts the next day and runs to midnight of the last day of the agreed to number of days in the contract. The days are counted as calendar days.



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Disclosure of Agency


Q:  What are the agency disclosure requirements for real estate licensees?

A:  A license holder must disclose the fact that he or she represents a party upon the first contact with another party or a licensee representing another party. This disclosure may be oral or in writing.


Q:  Are licensees required to provide parties with written information relating to agency?

A:  Yes. A licensee is required to provide the parties with a copy of a written statement that contains statutory information relating to brokerage services at the first substantive dialogue with a client or prospect. The form of the statement may be varied, so long as the text of the statement is in at least 10 point type. [TRELA §1101.558]. TREC publishes a form entitled Information About Brokerage Services that most licensees use to comply with the statute.


Q:  What is considered a substantive dialogue?

A:  A substantive dialogue can occur at a face-to-face or telephone meeting or by written communication (including email) that involves a substantive discussion relating to specific real property. If the substantive dialogue occurs at other than a face-to-face meeting, the required written statement should be sent to the party promptly.


Q:  Are there exceptions when the statutory written statement is not required?

A:  Yes. The statement is not required for either of the following:
(1) a transaction which is a residential lease no longer than one year and no sale is being considered; or
(2) a meeting with a party represented by another licensee.


Q:  Are the disclosure and statutory information requirements applicable to commercial transactions, new home sales, farm and ranch sales or transactions other than residential sales?

A:  Except as noted in Q.4. above, the requirements are applicable to all real estate transactions. Licensees dealing with landlords and tenants are permitted by the law to modify their versions of the statutory statement to use the terms "landlord" and "tenant" in place of the terms "seller" and "buyer". [TRELA §1101.558(e)]


Q:  Is the licensee required to provide the "written statement" to buyer prospects at an open house?

A:  No. A licensee would not be required to provide the statutory written statement at the open house. However, at the first substantive dialogue thereafter with the buyer regarding a specific property and during which substantive discussions occur, the licensee will be required to provide the statement.


Q:  If a buyer's agent is required to disclose his or her status as the buyer’s agent to a listing broker when setting up a showing appointment, must the listing broker also disclose to the buyer's agent that the listing broker represents the seller?

A:  Yes, on the first contact with the licensee representing the buyer.



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Earnest Money


Q:  I am a seller and I signed a contract with a buyer. Before the earnest money was deposited, the buyer backed out. Am I entitled to the earnest money?

A:  The Commission does not have jurisdiction to decide which party is entitled to the earnest money. However, a real estate licensee's failure to deposit earnest money in accordance with the terms of the contract could form the basis of a complaint. Please note that TREC cannot order a licensee to pay money damages. You will need to consult a private attorney about monetary damages or other civil remedies.


Q:  We tried to buy a house but our loan application was not approved. Our $500 earnest money had been deposited with a title company and they said they wouldn't return it without a release signed by the seller, which the seller won't sign. What can you do to help us?

A:  The Commission does not have jurisdiction over title companies. You will need to contact the Texas Department of Insurance if you believe the title company is acting improperly. While licensees are encouraged to assist the parties in the exchange of the necessary earnest money release and need to sign the release as appropriate, there is nothing in TRELA or the Rules to determine who is entitled to the earnest money. You will need to consult a private attorney.


Q:  I was trying to buy a house and the earnest money was deposited in the broker's escrow or trust account. The transaction has fallen through and now the broker won't return the earnest money.

A:  If the broker used a Commission promulgated form, it contains provisions permitting the broker to require the buyer and seller to agree on who gets the earnest money and to sign a release before the money is disbursed. See Rule 535.146(c), (d) and (e) for proper procedures for handling earnest money disputes where the broker is holding the money in a trust or escrow account.


Q:  How long does an agent have to deposit the earnest money once a binding contract has been negotiated?

A:  The earnest money must be deposited by the close of business of the second working day after execution of the contract by the principals, unless a different time is agreed upon in writing by the principals to the transaction. [Rule 535.159(i)]


Q:  When a contract falls through, can part of the earnest money be held to pay the commission fee for the other real estate licensee?

A:  No, unless the parties agree in writing otherwise.



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Escrow or Trust Accounts


Q:  Is a broker required to have a trust or escrow account?

A:  No, not unless the broker agrees to hold money belonging to others or acts as an escrow agent. [Rule 535.146(a)]


Q:  Is a broker required to act as an escrow agent or hold the money of others?

A:  No, not unless the broker agrees to do so. [Rule 535.159(a)]


Q:  Can a salesperson have an escrow account?

A:  No. Rule 535.159(f) prohibits a salesperson from having an escrow account. The salesperson must turn all monies received over to the salesperson's sponsoring broker.


Q:  If a real estate broker has an escrow account, can the broker keep any interest that is earned on the monies on deposit?

A:  Not unless the person depositing the money has signed an agreement authorizing the broker to keep the interest. Otherwise, the interest must be treated in the same manner as the deposited funds. The broker is responsible for accounting for the interest and disbursing it to the person whose funds are being held by the broker. [Rule 535.159(e)] Accounting would be simpler if the broker put all escrow funds into a non-interest bearing account.


Q:  Does a trust or an escrow account have to have a special name?

A:  Yes. If a broker maintains a trust or an escrow account, it must be identified as such.


Q:  As a broker, am I the only person who can sign checks written on my escrow account?

A:  No. While a broker is responsible for proper handling of escrow and other monies placed with the broker, TREC has no requirements about who can sign the checks. [Rule 535.2(c)]


Q:  Does TREC require trust or escrow records to be maintained for a specific period of time?

A:  Yes, for four years from the deposit or withdrawal from the account. [Rule 535.146(d)]



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Exemptions


Q:  Do I need a license to sell or lease cemetery lots?

A:  No.


Q:  Do I need a license to sell or lease mineral or mining interests?

A:  No.


Q:  Do I need a license to act as an on-site manager of an apartment complex?

A:  No, but this exemption only applies to apartments; managers of condominiums or town homes need to be licensed. Note, also, that the "on-site" requirement means that you have an office at the apartment complex, not that the manager has to live there.


Q:  Do I need a license to sell a builder's new houses?

A:  No, provided you are an employee of the new home builder (being an independent contractor is not enough). Rule 535.34 provides guidelines to determine if evidence of an employer/employee relationship exists.


Q:  Do I need a license to lease or rent real property if I am an employee of the property owner?

A:  No, provided the requirements for being an employee listed in the previous question are met.


Q:  Do I need a license to sell a mobile home or a manufactured home?

A:  The sale of mobile or manufactured homes requires a separate license from the Texas Department of Housing and Community Affairs (TDHCA); however a TREC licensee is not required to be separately licensed by TDHCA if the manufactured or mobile home is attached to real property that is being offered for a sale, exchange, or lease transaction. “Attached” means that the manufactured or mobile home is permanently affixed to the real estate and its separate title document has been surrendered.


Q:  My corporation owns property. Does an employee of the corporation need a license to sell or lease the property?

A:  No. A real estate license is not required for an individual employed by a property owner for the purpose of buying or selling real property on behalf of the owner. [Rule 535.5(d)]


Q:  Do I need a real estate license to sell a campground membership?

A:  No. Campground membership sales are regulated by the Texas Secretary of State’s Office, Statutory Documents Section, under the provisions of the Texas Camping Membership Resort Act [Chapter 222, Texas Property Code] and you should check with that agency regarding its requirements.



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Fiduciary Responsibility


Q:  Can a license holder who negotiates a transaction also be employed by a lender and direct a purchaser to that lender to get a loan?

A:  Only with appropriate disclosure and consent. If the license holder is an agent of the buyer, the license holder owes a fiduciary duty to the buyer. The license holder can work for a lender without breaching that duty, but the license holder can't direct a purchaser to any one lender. The license holder should inform the purchaser that the license holder is employed by the lender and give the names of several institutions to the purchaser. The primary duty of the agent is to represent the interests of the agent’s client, not the agent's own interests. [Rule 531.1]


Q:  We put in an offer to buy a house. The agent held the offer and then another offer came in on the same house. Isn't it illegal or unethical for an agent to present two offers to the seller at the same time? Shouldn't an agent present the first offer received so that the seller accepts or rejects it before presenting the second offer?

A:  The listing agent represents the seller and has a duty to present all offers in a timely manner to the seller. There is no prohibition against a licensee presenting more than one offer at a time to a seller. A seller may receive, review and negotiate several offers simultaneously.


Q:  Is the use of a “net” listing agreement a breach of the broker’s fiduciary duty?

A:  It could be. The use of net listing agreement places the broker’s interest above the principal’s interest with regards to obtaining the best possible price. A broker may not enter into a net listing agreement unless the principal requires a net listing and the principal is clearly familiar with the current market values of real property. [Rule 535.16(b)]



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Inspectors - General


Q:  What requirements does TREC impose on inspectors/consultants who perform maintenance consultations? For example, if a homeowner wanted to hire a consultant to perform a cursory, major defect visual inspection, including the foundation, roof, plumbing, electrical, and major appliances, would TREC require any written report?

A:  TREC's jurisdiction over real estate inspections is limited to inspections performed for a buyer or seller of real property in connection with a transaction. If the inspection you are proposing relates to a purchase or sale transaction, then TREC's Standards of Practice would apply, and a written report would be required. If the inspection you are proposing is not in anticipation of a purchase or sale, then TREC's requirements would not apply, and the parameters of the inspection would be governed by the agreement between the inspector and his or her client. For further information, please see §§1102.001 and 1102.002 of the Texas Occupations Code and Rule 535.223. You may find these laws and the rule on our web site here: http://www.trec.state.tx.us/formslawscontracts/default.asp.


Q:  I am licensed as a real estate salesperson and as a professional home inspector. Can my broker's real estate office offer my inspection services to their clients?

A:  Under §1102.303 of the Texas Occupations Code, an inspector may not act in a transaction in the dual capacity of inspector and either (1) broker or salesperson or (2) an undisclosed principal. Therefore, it would be a violation of §1102.303 for you to inspect any property your broker has listed or where you were personally involved. Under Rule 535.156, real estate licensees have a duty to disclose to their clients any relationship they have with an inspector performing an inspection on property that is the subject of a transaction involving the licensee. If you were to perform an inspection in connection with a transaction in which your broker was involved, your broker would need to disclose your relationship (as the broker’s sponsored agent), and if you were paid or received compensation or anything of value from anyone in your office in connection with the inspection, you would also need to disclose this fact and obtain the client’s prior permission. You may find the referenced law and rules at our web site here: http://www.trec.state.tx.us/formslawscontracts/default.asp.


Q:  As a licensed inspector in the State of Texas, am I supposed to charge a sales tax on the amount of my inspection fee?

A:  TREC only handles the licensing and discipline of real estate inspectors, you would need to contact the state agency in charge of collecting state sales tax which is the Texas Comptroller of Public Accounts. The web site for that agency is www.window.state.tx.us and their toll free number is 800.252.5555.


Q:  Can I perform mold inspections under my TREC inspector license?

A:  No. The Texas Department of Health regulates mold inspections. You can contact them at www.dshs.state.tx.us/mold for information on the requirements to obtain a license to inspect for mold.


Q:  I wish to file a complaint with TREC regarding a home inspector. What must I do?

A:  TREC cannot accept unsigned email or oral complaints against inspectors. All complaints must be in writing and signed by the person making the complaint. Any person may file a complaint whether or not they are a party to the inspection transaction. The TREC web site contains a complaint form that may be downloaded, signed and either faxed, scanned and emailed, or mailed in. The web address is http://www.trec.state.tx.us/complaints/complaint_instructions.asp. You may also submit a letter outlining your complaint issues and including copies of relevant documentation (such as repair estimates, receipts, and other inspection reports) or photographs. Please do not send original documents as they will not be returned to you.


Q:  I recently purchased an older home that was inspected prior to purchase. After living in the home a few weeks, I smelled a gas leak just outside the home. A plumber who dug up the gas line told me that it was corroded and needed to be replaced. Do I have any recourse against the inspector for failing to note this in his report?

A:  Probably not. TREC licensed inspectors are required to follow Standards of Practice when inspecting property. These may be found on our web page about Rules Governing Inspectors at http://www.trec.state.tx.us/inspector/rules_governing_inspectors.asp. The Standards of Practice do not require an inspector to dig up gas lines in order to determine their condition. They are only required to conduct a visual inspection of the property, and buried gas lines are not required to be inspected.


Q:  I recently purchased an older home that was inspected prior to purchase. After living in the home a few weeks, the dishwasher started leaking and had to be replaced. Shouldn’t the inspector have told me this unit was about to fail?

A:  Mechanical components like dishwashers can and will break down. A home inspection tells you the condition of the component at the time of the home inspection. The inspector is not required to determine life expectancy of any system or component. [Rule 535.227(b)(3)(C)(i)]


Q:  It appears that the inspector who inspected my home prior to my purchase missed major termite infestation. The damage from the termites has cost me thousands of dollars to repair. Shouldn’t the inspector have noted this problem on his report?

A:  In Texas, any person who reports on wood destroying insects in a home must be licensed by the state as a wood destroying insect inspector. These licenses are issued by the Texas Structural Pest Control Service of the Texas Department of Agriculture at www.texasagriculture.gov. Some TREC licensed home inspectors are also licensed wood destroying insect inspectors, and therefore, may inspect a home for termites, etc. if hired for that purpose. However, under the home inspector license issued by TREC, the inspector MAY NOT comment on whether termite infestations exist. They should comment on visible damage regardless of the underlying cause and note it as a deficiency on their report, but may not assess that the damage was specifically caused by wood destroying insects.


Q:  On my inspection report, the inspector reported certain things in the house as “safety hazards” or “code violations”. Can TREC give me information about what codes the inspector is referring to?

A:  There are many different codes that can figure into the construction of a house, depending on when it was built and local amendments. TREC does not require inspectors to inspect to any of the various building codes and cannot assist you in determining what code provisions were applied in a particular situation. Instead, TREC has established Standards of Practice for inspectors to follow. [Rule 535.227-535.233] However, an inspector is free to inspect to a higher standard (such as to various codes or based on recognized safety hazards), as long as they do so competently. If you have questions about your inspection report, you should ask your inspector for the basis of his statement. You may also wish to contact your local code enforcement authority for more information about relevant codes.


Q:  Does TREC require the use of a “contract” for inspections which would outline the responsibilities of the parties to the contract or have a form inspectors can use?

A:  No. TREC does not require a pre-inspection or employment contract to be signed by the parties to the inspection. Inspectors are free to use or not use a contract. You may want to have a private attorney create a contract for you, or you may check with some of the inspector trade associations to see if they provide templates of pre-inspection contracts.


Q:  I am a licensed home inspector in Texas, and I have been told that home inspectors cannot inspect plumbing in a home, nor report any deficiencies in the plumbing in my TREC inspection report. I was also told to remove any reference to inspecting plumbing from my advertising. Can this be true?

A:  It depends. Under the Standards of Practice found in Rules 535.227 - 535.233, a home inspector is required to perform a visual check of plumbing fixtures and associated items and report as in need of repair deficiencies in the type and condition of all accessible and visible water supply and waste-water and vent pipes, as well as others listed in Rule 535.231. Please see the Texas State Board of Plumbing Examiners (TSBPE) web site at www.tsbpe.state.tx.us to determine whether any of your activities may be in violation of their statutes or rules governing plumbers, such as advertising that you specifically inspect aspects of plumbing systems that may require a license from the TSBPE. Also, please review the advertising rule for inspectors found at Rule 535.221.


Q:  I am a licensed professional inspector. I am also a licensed real estate salesperson. May I both inspect the home for and sell to the same person?

A:  No. The Texas Occupations Code, Real Estate Inspectors, Chapter 1102, §1102.303 specifically prohibits an inspector from acting in the capacity of an inspector and real estate agent in the same transaction.


Q:  I am a licensed inspector and would like to advertise that my company performs wood destroying insect inspections. Neither I nor anyone in my company is a licensed wood destroying insect inspector, but we recommend or provide one if requested by the client.

A:  Under inspector advertising Rule 535.221, an inspector may not engage in false or misleading advertising. Including such information in your advertisement could be construed to be misleading in that a consumer may believe that you or members of your company are licensed to inspect for wood-destroying insects. Additionally, such advertising may also be in violation of the Structural Pest Control Service advertising rules.


Q:  If a licensed professional inspector is conducting a commercial inspection, is he or she required to use the inspection report form promulgated by TREC? Do the Standards of Practice apply?

A:  A licensed TREC inspector is not required to use the promulgated form or the Standards of Practice when inspecting property other than one to four family residential. A TREC licensed inspector may perform inspections on commercial property, as long as no other laws prohibit the inspector from doing so (please check with the Texas Board of Professional Engineering to determine when a Professional Engineer license is required). All inspections would be subject to §1102.301 et seq. of the License Act (Subchapter G, Prohibited Acts), as well as 22 TAC § 535.220, Professional Conduct and Ethics.


Q:  I am a licensed inspector. I would like to use the TREC seal (logo) on my business cards and advertisements. Is this permissible?

A:  No. The TREC seal is for use by the Commission only.


Q:  I think my inspector was negligent in performing the inspection. My brother-in-law says I might be able to recover a judgment. Do I have to file a complaint first?

A:  Disciplinary action by TREC is not a prerequisite for pursuing a lawsuit against a licensee. Your rights against the licensee may be subject to a two-year statute of limitations. You should consult with a private attorney to determine whether you have a claim and what deadlines may apply to your claim.


Q:  As an inspector, when do I have to show proof of E&O insurance?

A:  A Certificate of Insurance form (promulgated by TREC), signed by the insurance agent, must be filed with TREC at the time the license is issued and with each renewal of the license. In addition, an inspector must retain sufficient records of professional liability insurance coverage, or any other insurance that provides coverage for violations of Subchapter G of Chapter 1102, to document to the commission continuous coverage for the preceding two year license period.


Q:  I am not currently performing inspections, but I'd like to maintain my license. Is there a way for me to do that without going to the expense of obtaining insurance?

A:  An inspector may request inactive status in writing at any time. An inspector who meets all other renewal requirements but does not show proof of insurance will receive an inactive license (which does not permit the inspector to perform inspections). To become active, a professional inspector would need to send in the Return to Active Status form (or, for apprentice or real estate inspectors, the sponsorship form) along with the applicable fee and the required proof of insurance.



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Inspectors - Standards of Practice


Q:  Do the Standards of Practice require inspectors to report as deficient the presence of a transite pipe to be reported?

A:  Inspectors are not required to report the presence of transite pipe as a deficiency.


Q:  Is an inspector required to report as deficient an electronic sensor in a garage door that is more than six inches above the garage floor even though the general limitations section states that an inspector is not required to inspect a photoelectric sensor?

A:  Yes. The specific requirement to report the deficiency takes precedence over the general limitation against inspecting an photoelectric sensor.


Q:  Are inspectors required to inspect underground drainage systems or to test gutters or downspouts?

A:  Inspectors are not required to inspect anything buried, hidden, latent, or concealed. Accordingly, the requirement that inspectors report deficiencies in installed gutter and downspout systems applies only to visible deficiencies in above-ground gutter and downspout systems and not to underground drain piping, cisterns, or other buried components. Furthermore, there is no requirement that inspectors test gutters or downspouts (by pouring water into them or through other means).


Q:  Do the Standards of Practice require inspectors to report as deficient a gas log fireplace with a damper that has not been blocked open? If so, what is the minimum distance the damper should be open?

A:  The lack of a damper clamp is required to be reported as a deficiency when a gas appliance or artificial gas logs (but not merely a log lighter pipe) is present. The Standards of Practice do not establish a minimum distance that the clamp should hold the damper open.


Q:  Do the Standards of Practice require inspectors to report as deficient the absence of weep holes along the bottom course of brick and above steel lintels?

A:  Lack of weep holes is only required to be reported as a deficiency when there is visible evidence of water penetration or a structural issue that may be related to the lack of weep holes.


Q:  Do the Standards of Practice require inspectors to report as deficient evidence of a past attic fire?

A:  Evidence of a past fire is not, in itself, a deficiency. Accordingly, inspectors are not required to report mere evidence of a past fire or the presence of paint in the attic. If there are any deficiencies due to fire or other causes, those deficiencies must be reported.


Q:  The Standards of Practice require inspectors to report as deficient the lack of a 1-3/8” solid wood or fire-rated door between a house and garage. How should an inspector positively identify fire-rated doors when the markings are covered by paint?

A:  Information regarding fire ratings of doors is often obscured by paint. In that case, inspectors are required to do their best to determine whether the door is fire-rated and to report accordingly. In some instances, the inspector will only be able to report that he or she was not able to determine whether the door was fire-rated or that the door appeared to be (or did not appear to be) fire-rated.


Q:  Do the Standards of Practice require inspectors to determine the headroom clearance on stairs or to report inadequate clearance as a deficiency?

A:  Inspectors are not required to measure the headroom clearance of every flight of stairs. The Standards of Practice do not establish a minimum headroom clearance height. Whether to report inadequate headroom clearance as a deficiency is up to the reasonable judgment of the inspector.


Q:  The Standards of Practice require inspectors to inspect attic ventilators and report deficiencies but do not require that they be operated. How should an inspector identify deficiencies in the power ventilators without operating them?

A:  In inspecting an attic with a powered ventilator, which is not required to be operated, the inspector should perform a visual inspection and consider the totality of the ventilation system.


Q:  Do the Standards of Practice require inspectors to report double-tapped neutral wires on a panel box terminal as deficient?

A:  Yes, double-tapped grounded conductors (neutrals) are a deficiency and must be reported as such, unless otherwise approved and listed by the manufacturer.


Q:  Do the Standards of Practice require inspectors to report as deficient the lack of a dishwasher power receptacle in an adjacent cabinet (for example, under a kitchen sink)?

A:  No.


Q:  Do the Standards of Practice require inspectors to report as deficient a plumbing fixture that does not fully drain, retaining a slight amount (such as a few cups) of residual water?

A:  A properly constructed and properly functioning bathtub or shower should drain virtually all water (with the exception of minimal amounts that remain due to the surface tension of the water). Amounts beyond this that remain due to indentations or improper slope in the tub or shower (including shelves, ledges, etc.) constitute deficiencies and should be reported as such.


Q:  Do the Standards of Practice require inspectors to report as deficient the presence of a commingled water heater drain pan drain line and a temperature/pressure relief drain line?

A:  While this configuration does not comport with current codes, the Standards of Practice do not require inspectors to inspect to today’s code. A single drain line for a temperature/pressure relief valve and the pan is not required to be reported as a deficiency.


Q:  The Standards of Practice require inspectors to report as deficient the lack of exhaust ventilators in required areas. What are the required areas for exhaust ventilators?

A:  At a minimum, bathrooms and water closets that that do not have an operative window must be reported as deficient if they lack an exhaust fan that vents to outside air.


Q:  Do the Standards of Practice require inspectors to report copper gas lines as deficient?

A:  Inspectors are not required to determine utility sources or to research codes and ordinances related to this issue. As copper gas line material is only a concern in areas where there may be corrosive additives in the gas supply, the presence of copper gas line material is not required to be reported as deficient.


Q:  Do the Standards of Practice require inspectors to comment on the way a gas pipe enters a crawl space?

A:  The Standards of Practice require only that the pipe entry be reported as deficient when the gas piping is concealed in a duct, plenum, or chase. See Section 535.230(d)(4).


Q:  Is the inspector required to determine the presence of Chinese drywall? Is the inspector required to report the symptoms of Chinese drywall? Is the inspector required to warn of the risk of Chinese drywall?

A:  Pursuant to the general limitations in the Standards of Practice, inspectors are not required to determine the presence of “Chinese drywall” or to report its symptoms or risks. As an example, if corrosion to copper tubing lines or copper wires were found, that could in the opinion of the inspector constitute a deficiency, the inspector is not required to determine or report the cause of the corrosion, such as from “Chinese drywall."


Q:  Is the inspector required to inspect a water metering device to determine if a leak may exist? Is the inspector required to perform any inspection of the meter?

A:  Pursuant to Section 535.227(b)(3)(A)(vi) of the Standards of Practice, an inspector is not required to inspect or test metering devices.


Q:  What are inspectors required to report regarding gas supply lines?

A:  Section 535.231(a)(2)(E)(ix) requires inspectors to report deficiencies in the condition of the gas distribution system. Section 535.231(a)(3)(D)(iii) does not require inspectors to inspect inaccessible gas supply system components for leaks. Section 535.231(a)(3)(A) states that inspectors are not required to operate any main, branch, or shut-off valves.


Q:  What are inspectors required to report regarding AFCI’s?

A:  Section 535.229(a)(1)(G)(vii) requires an inspector to report a deficiency in the operation of an installed ground-fault or arc-fault circuit interrupter device. Section 535.229(a)(2)(B) states that an inspector is not required to test an arc-fault circuit interrupter device when the property is occupied or when damage to personal property may result, in the inspector’s reasonable judgment. While TREC recognizes that the building codes have not always required AFCIs, the agency believes that it is important for consumers to be made aware of these safety devices when they are not present and functioning in a home as a consumer protection issue.


Q:  1. Is the definition of accessible, as applied to gas appliance connections, left to the reasonable judgment of the inspector? 2. Are gas ranges, built-in wall ovens, or clothes dryers considered to be large, heavy, fragile objects which could be damaged or cause damage while being moved, and an undue hazard and risk to the inspector? 3. Is the inspector required to comment on or report as deficient those gas appliance shut-off valves and connectors not visible or accessible without moving the gas appliances? 4. Is olfactory detection of methane/natural gas odorant the only reasonable method of discovering gas leaks when the connectors are not accessible? 5. Is observance of gas shut-off valves and connections with a digital camera placed behind or under appliances considered a reasonable method for discovering deficiencies in inaccessible areas?

A:  Pursuant to Section 535.227(a)(1) of the Standards of Practice, inspectors are not required to move appliances in order to inspect behind them. However, it is often possible to locate gas shut-off valves either behind or near appliances (such as in the cabinet next to the range). If a gas shut-off valve cannot be located, this should be reported. As the question suggests, it is sometimes also possible to use a digital camera to “see” in areas that are not otherwise accessible and there are multiple means of detection of gas leaks in existence, such as through the use of hand held detectors (however, these would be considered specialized tools and are not required to be used in performing inspections).


Q:  Is an egress window with a sill greater than 44 inches from the floor a required reporting item and deficient? Will advising the client to place a climbable object (such as the chest) supersede the need to identify the item as deficient?

A:  The answer to the first question is “No”. The standards of practice are not based on a specific requirement such as those promulgated by model building codes. The requirements for emergency escape and rescue openings in sleeping rooms and the sill heights and sizes of the emergency escape openings in sleeping rooms have varied through the years. The inspector must use “reasonable judgment” in determining if the emergency escape and rescue openings are sufficient for the intended purpose of the openings for the inspector’s client. In response to the 2nd question, an inspector must keep in mind that his role is primarily to document the condition of the home at the time of the inspection per §535.227(b)(1). An inspector is not required to recommend “fixes”.


Q:  Is the inspector required by the Standards to state or explain a condition as a hazard to the consumer?

A:  It is up to the “reasonable judgment” of the inspector to determine if the situation encountered during the inspection is or is not a hazard for the inspector’s client.


Q:  Does TREC consider a roof with roofing felt ending short of the drip edge and the rake not overlapped over the drip edge a required reporting deficiency? If yes, is the inspector required to inspect 100% of the materials under the edge of the roof? If no, is the inspector allowed to inspect in a representative manner?

A:  Section 535.228(c)(3)(D) of the Standards of Practice requires inspectors to report as deficient deficiencies in flashing details. Drip and rake edge flashing materials are recommended by most shingle manufacturers but are not required. If installed and if visible, the installation described in your question is required to be reported as a deficiency. However, the inspector is not required to inspect every inch of the material under the roof and may “spot check” for this condition.


Q:  Is the absence of weather-strip on the door a required reporting deficiency?

A:  Yes, Section 535.228(f)(2)(E)(i) requires inspectors to report deficiencies in weather stripping.


Q:  1. Is the inspector required to be report the mere presence of an FPE panel as deficient? 2. Is the inspector required to warn or advise of the alleged risks if TREC determines the panel is not required to be reported as deficient?

A:  No. The standards of practice do not address this condition.


Q:  Is the presence of a gas shut off valve that requires a tool to turn off deficient?

A:  Question is not clear. Some gas shut off valves are safety or emergency shut off devices and some are not. As the type of valve in question is not defined, no answer can be provided.


Q:  Is the absence of a dirt or drip leg, 1. a deficiency? 2. a required reporting item? 3. unsafe?

A:  No. The SOP does not address the absence of a “trap” in a gas line. Please note that the Texas Real Estate Commission does not have authority to declare conditions as “safe” or “unsafe.”


Q:  Are inspectors required to mark and or comment as deficient the absence of tamper resistant receptacles?

A:  No. The Standards of Practice do not address tamper-resistant receptacles.


Q:  Is a starter course tab that is not sealed material, deficient and a required reporting item per TREC?

A:  We assume you are referring to composition shingle roofing. Section 535.228(c)(3) of the Standards of Practice do require inspectors to report as a deficiency a starter course tab that is not sealed material. However, it is important to keep in mind that fastening of shingles is required to be checked by random sampling, so this condition is only required to be reported as identified though such sampling.


Q:  1. Is the inspector required to inspect to manufacturer requirements, specifications or instructions? 2. What is the definition of an “accepted industry practice”? 3. Is the inspector required by the SoP to be knowledgeable of local requirements? 4. Is the inspector required to move items such as personal items, furnishings, decorative items, stored items, floor or wall coverings, ceiling tiles, window coverings, equipment, plants, ice, snow, water, soil, landscaping materials, foliage or pets to gain access? 5. Is the inspector required to inspect to trade or industry association standards? For example, ASTM, UL or ARMA?

A:  1. Pursuant to Section 535.227(b)(3)(C)(i) of the Standards of Practice, inspectors are not required to report manufacturer requirements except as specifically required by the Standards. Section 535.227(b)(3)(H) further provides that inspectors are not required to review installation instructions. 2. The definition of “accepted industry practice” is situation-specific and may depend on the context in which the question is being asked. We are unable to provide a general definition. 3. Pursuant to Section 535.227(b)(3)(C)(i), inspectors are not required to determine code compliance, utility sources, or regulatory requirements except as specifically required by the standards. 4. Inspectors are required to inspect accessible systems and components. Section 535.227(a)(1) defines accessible as “in the reasonable judgment of the inspector, capable of being approached, entered, or viewed without (A) hazard to the inspector; (B) having to climb over obstacles, moving furnishings or large, heavy or fragile objects;…” Accordingly, the determination of whether the items you have listed must be moved for the inspection may depend on whether they pose a hazard to the inspector or are large, heavy, or fragile and must be made on a case-by-case basis. Inspectors are expected to use reasonable judgment in making this determination. 5. Inspectors are not required to inspect to trade or industry association standards. However, an inspector who advertises or represents that he or she will inspect to a higher standard could be subject to disciplinary action for failure to do so.


Q:  How shall an inspector ascertain with any degree of accuracy if the fire separation between a residence and its attached garage is in place?

A:  The Standards of Practice require inspectors to perform a visual inspection. If it is not visibly apparent whether proper fire separation is present, the inspector must make clear to the client that he or she was not able to ascertain whether proper fire separation was in place.


Q:  Is the presence of carpet on an attached garage floor deficient and a required reporting item per TREC?

A:  The presence of carpet in a garage is not required to be reported as a deficiency.


Q:  Is a keyed deadbolt on the interior of an exterior egress door deficient and a required reporting item per TREC?

A:  The Standards of Practice do not require double-cylinder deadbolts to be reported as deficient unless such a deadbolt would impede functional emergency escape from a sleeping room.


Q:  Is an inspector required to determine if a light fixture is approved for its location over a bathtub or shower?

A:  The Standards of Practice do not require inspectors to determine if light fixtures are approved for wet locations or to report such installations as a deficiency.


Q:  Is a hand rail that is not continuously deficient a required reporting item per TREC?

A:  Section 535.228(h)(1)(B) of the Standards of Practice requires inspectors to report deficiencies in steps, stairways, landings, guardrails, and handrails as deficient. In some circumstances, a break in a handrail would be considered a deficiency; however, this would depend on the specific design of a particular set of stairs (e.g., a landing in the middle of a flight of stairs would not be considered deficient simply because it lacked a continuous handrail).


Q:  Is a receptacle on a garage ceiling that is not GFCI protected deficient and a required reporting item per TREC?

A:  Pursuant to Section 535.229(b)(3)(A)(ii), a garage receptacle that does not have GFCI protection is deficient and must be reported as such. Note, however, that the Inspector Committee may consider a change to the Standards to create an exception for garage ceiling receptacles serving garage door openers.


Q:  1. Is a water heater covered by an insulation cover deficient and a required reporting item? 2. Is removal of the blanket required by TREC for inspection reasons? 3. Is the inspector required to report water heaters that are covered with an insulation blanket as obstructed if they did not remove the blanket?

A:  The answers to questions 1 and 2 is “No”. The answer to question 3 is “Yes”. The Standards of Practice do not address insulating covers or blankets on water heaters. Inspectors are not required to remove water heater covers to inspect the water heater. However, if the cover is not removed, and its presence interferes with the inspection of any part of the water heater, the inspector must advise the client and report the resulting limitations of the inspection in accordance with the departure provision, Section 535.227(b)(5).


Q:  Is a corroded bathroom fixture that remains operable a defect and required reporting item per TREC?

A:  Purely cosmetic corrosion is not required to be reported as a deficiency.


Q:  1. Is the absence of an anti-entrapment cover in a spa deficient and a required reporting item per TREC? 2. Is the presence of a single drain or suction opening in a pool spa deficient and a required reporting item per TREC?

A:  The absence of an anti-entrapment cover in a spa is not a required reporting item. Section 535.233(2)(B)(i), however, requires an inspector to report as deficient the presence of a single blockable main drain.


Q:  Is the absence of gutters a defect and required reporting item per TREC?

A:  No. Unless specifically indicated otherwise, the Standards of Practice only address items that are present at the time of the inspection. If gutters are present, they are required to be inspected under §535.228(b)(1)(C).


Q:  1. Is wrinkled loose carpet a defect and required reporting item per TREC? It is considered a trip hazard. 2. Presuming an upstairs floor or the ceiling below does not exhibit obvious evidence of failure, is a squeaky floor a defect and required reporting item per TREC?

A:  Section 535.228(e)(3)(A) of the Standards of Practice states that inspectors are not required to report cosmetic damage or the condition of floor, wall, or ceiling coverings. Neither loose carpet nor floor squeaks, without further evidence of deficient conditions, is required to be reported as deficient.


Q:  1. What level of precision is expected for the “approximation” of average insulation depth? 2. Would TREC consider all of these examples to be acceptable reporting methods to meet the SOP requirements? (a) About 6 inches (b) Approximately 4 to 8 inches (c) Varies from 4 to 10 inches (d) 8-10 inches (e) 4 ½ to 12 ½ inches

A:  Section 535.228(d)(1)(B) requires an inspector to report “approximate average depth of attic insulation.” We are unable to prescribe a certain "level of precision” that would satisfy this requirement; any of the examples you presented would satisfy the requirement to report the depth of insulation, as long as they accurately reflect the conditions.


Q:  Is a TREC inspector required to report the presence of CSST as a deficiency? Is the TREC inspector required to inform the client of the CSST litigation history? Is the TREC inspector required to advise the client of the potential dangers inherent in the use of this product?

A:  The mere presence of corrugated stainless steel tubing (CSST) is not, in itself, required to be reported as a deficiency, nor are inspectors required to notify the client of the litigation history or the risks associated with CSST. However, if the inspector observes any adverse conditions with regard to the materials, etc., that must, of course, be reported in accordance with the Standards of Practice.


Q:  Is the absence of combustion air in the bottom of the closet a required reporting deficiency? Is a screen combustion air opening a required reporting deficiency? Is the proximity of the return to the gas fired appliances a required reporting deficiency?

A:  Section 535.230(2)(J)(vi)(I)of the Standards of Practice requires inspectors to report as deficient, in gas HVAC units, deficiencies in combustion, and dilution air. None of the issues you listed would necessarily be required to be reported as deficiencies; this determination depends on several factors, such as the design of the system.



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Intermediary


Q:  What is an intermediary?

A:  An intermediary is a broker who negotiates the transaction between the parties when the broker or a salesperson sponsored by the broker has obtained consent from the parties to represent both the buyer and the seller. The broker intermediary may, with the written consent of the parties, appoint separate individual licensees associated with the broker to work with and advise the party to whom they have been appointed. [TRELA §§ 1101.558-1101.561 and §1101.651(d)]


Q:  What are the steps to formation of an intermediary relationship?

A:  If a broker or salespersons under the same sponsoring broker represent both the buyer and seller in a transaction, the sponsoring broker must ensure that all of the following steps are followed:
a. Both the buyer and seller are presented with the Information About Brokerage Services by their respective salesperson at the time of the first substantive dialogue;
b. The seller executes a Listing Agreement or other written document with the sponsoring broker that authorizes the broker to act as intermediary and specifies in conspicuous bold or underlined print the conduct that is prohibited under TRELA §1101.651(d) ;
c. The buyer executes a Buyer Representation Agreement or other written document that authorizes the broker to act as intermediary and specifies the conduct that is prohibited under TRELA §1101.651(d) in conspicuous bold or underlined print; and
d. Both the buyer and seller represented by the sponsoring broker or the broker’s salespersons execute an agreement regarding notice of intermediary before the contract is negotiated.
For further information about the proper formation of an intermediary relationship, see the Intermediary section of the MCE Ethics Student Course Manual on our web site.


Q:  What if a licensee does not comply with the requirements for forming an intermediary relationship?

A:  Failure of the intermediary broker or the sponsored salespersons to comply with the Intermediary Provisions of TRELA §§ 1101.558-561 may subject them to disciplinary sanctions by the TREC, including but not limited to, revocation, suspension, reprimand and/or an administrative penalty.


Q:  What is the difference if a broker makes appointments of salespersons to represent the buyer and the seller or if the broker makes no appointments to the principals in a real estate transaction?

A:  If the broker makes appointments of an associated licensee to represent the seller and another associated licensee to represent the buyer, the individual agents may offer advice and opinions regarding the real estate transaction to the party each has been appointed to represent. If the broker does not make appointments of associated licensees to represent the buyer and seller respectively, then the broker and/or agent may not offer advice and opinions relevant to the real estate transaction to either party and must not favor one principal in the transaction over the other principal. Appointments provide the agents the opportunity to provide a higher level of service to their clients.


Q:  May a broker act as a dual agent?

A:  No. Texas law does not permit dual agency. A licensee may not represent both principals as a dual agent under the revisions to TRELA, effective September 1, 2005. Under the current law, a broker must agree to act as an intermediary in accordance with the statute if the broker agrees to represent more than one party in a transaction. [TRELA §1101.561(b)] To the extent a dual agency relationship is created by accident or otherwise, a licensee must resolve the matter by immediate compliance with the notice and consent requirements under TRELA §§1101.558-561 and act as either an intermediary or represent only one of the principals in a transaction while working with the other principal only as a customer.


Q:  Can the intermediary delegate to another licensee the authority to appoint licensees associated with the broker intermediary?

A:  The intermediary may delegate to another licensee the authority to appoint licensees. If the intermediary authorizes another licensee to appoint associated licensees to work with the respective principals, that licensee cannot designate himself/herself as one of the appointed licensees. This is an improper combination of the different functions of intermediary and appointed licensee. It is important to remember that there will always be a single intermediary broker even if another licensee has been authorized to make the specific appointments. The intermediary is prohibited from acting so as to favor one principal over the other, and may not reveal confidential information obtained from one principal without the written instructions of that principal, unless disclosure is required by TRELA, court order, or the information materially relates to the condition of the property. The intermediary and any associated licensees appointed by the intermediary broker are prohibited from disclosing, without the written authorization from the seller, that the seller will accept a price less than the asking price or that the buyer will pay a price greater than the price submitted in a written offer. [TRELA § 1101.558]



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Listing Agreements


Q:  Does TREC have a promulgated listing agreement form?

A:  No. A listing agreement is a private contract between a real estate broker and a property owner and is not promulgated by TREC. The Texas Association of Realtors (TAR) provides certain forms to its members. If you are a member, you may find a listing agreement form that meets your needs through TAR. Otherwise, you should consult with a private attorney.


Q:  Can listing agreements be extended?

A:  Listing agreements are private contracts between a real estate broker and a seller. The terms of the contract and/or desires of the parties would determine whether the listing agreement can be extended. You should contact a private attorney if you have any questions about extending a listing agreement.


Q:  I listed my property for sale with a broker and the broker has done nothing about selling the house. Can I break my contract and list with someone else?

A:  Your listing contract with the broker is a private legal contract. TREC is unable to advise you on private contractual matters. If you feel that the broker has not fulfilled the broker's part of the agreement, i. e. advertising, holding open houses, etc., then you may have grounds to terminate the contract but you would need to contact a private attorney for help in making that determination. You could also ask the broker to agree to cancel or release the listing. If the broker agrees, then the contract can be mutually rescinded.


Q:  If a broker has an exclusive listing with a seller, may another broker solicit a listing from the same seller that would begin after the other listing expired?

A:  Yes. Rule 535.153 states that §1101.652(b)(22) of TRELA does not prohibit a licensee from soliciting a listing from the owner while the owner's property is subject to an exclusive listing with another broker, provided the listing does not commence until after the current listing expires.


Q:  I am changing sponsoring brokers. Do I get to take my listings with me?

A:  No. Listing agreements are private contracts between the property owner and the real estate broker, not the salesperson.


Q:  My agent moved to another broker’s office and I want them to continue to handle my listing. Can I switch my listing to the new broker’s office?

A:  No. Listing agreements are private contracts between the property owner and the real estate broker, not the salesperson. You can ask the original broker to release you from the agreement or contact a private attorney to advise you if you can terminate the listing agreement in some other fashion. TREC does not have the authority to require a broker to release you from a listing agreement.


Q:  I signed a listing agreement with a broker and don’t understand some of the terms in the agreement. Can you explain the terms to me?

A:  No. TREC is unable to advise you in private contractual matters. You should discuss the terms of the listing agreement with a private attorney.


Q:  I am a salesperson and am not sure how to fill out the listing agreement form. Can you help me?

A:  No. TREC is unable to advise you on how to fill out a private contract form. You should direct your questions to your sponsoring broker. If your sponsoring broker is unable to help you with your questions about a Texas Association of Realtors (TAR) listing agreement form, you can direct your questions to TAR.



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Option Periods/Option Fees


Q:  I’m buying a house. Do I have to have pay for an option period to be able to buy the house?

A:  No. The termination option is a negotiable contract term. However, if you pay the seller an agreed option fee, you have the unrestricted right to terminate the contract for any reason if you give written notice to the seller during the option period. A buyer can use the option period to perform an inspection of the property and negotiate an amendment to the contract for any necessary repairs as a result of the inspection.


Q:  We are selling our house and the buyer never paid the option fee, what happens now?

A:  Typically, the buyer's agent collects the option fee upon final acceptance of the terms of the contract and delivers the option fee check to the seller's agent. Paragraph 23 in the 1-4 Family Residential Contract provides "If no dollar amount is stated as the Option Fee or if the Buyer fails to pay the Option Fee to Seller within the time prescribed, this paragraph will not be a part of this contract and Buyer shall not have the unrestricted right to terminate this contract." Under the terms of the 1-4 Family Residential Contract, the buyer (or buyer’s agent) has two days to deliver the option fee. If the fee is not paid and the parties need help interpreting this provision, they will need to consult with a private attorney.



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Out-Of-State Brokers


Q:  I am a Texas broker. Can I broker real estate located in another state?

A:  We can't say, since you will be governed by the laws in that state. You will need to check with the licensing authority in the state where the brokerage activity will be performed.


Q:  How can an out-of-state broker sell land in Texas?

A:  The foreign broker must either associate with a Texas broker who handles all the negotiations and other acts that require a license in Texas, including showing the broker’s listings or soliciting listing of real property, or obtain a Texas real estate license. No license is necessary to sell land in Texas as long as the broker does not perform any acts in Texas that require a license.


Q:  Does Texas have reciprocity with any other states with regard to real estate licensure?

A:  No, but a Texas broker may share a commission with a foreign licensee so long as the foreign licensee does not engage in activities requiring a license in Texas. [TRELA §1101.651(a)] In addition, a person actively licensed as a real estate broker or salesperson in another state may be entitled to have certain experience and educational requirements waived. [TRELA §1101.357 and §1101.362, Rule 535.63(d)]


Q:  Can all or part of the educational hours be waived in view of a person's business experience?

A:  No. A person's licensure in another state or experience in real estate brokerage or any related business will not substitute for the educational requirements. [Rule 535.63(a)] To be eligible for a Texas license, an out-of-state licensee must meet all current Texas licensing requirements found on our website under the “License application and education” tab. In addition, an applicant may not have to take the national portion of the licensing examination if the applicant maintains a license equivalent to the license being applied for and has already passed a comparable national examination that is accredited by a nationally recognized real estate regulatory association such as ARELLO.


Q:  Can an out-of-state broker conduct brokerage business from another state by mail, telephone, the Internet or other medium?

A:  If all the prospective buyers, sellers, landlords, or tenants are legal residents of Texas, and the real property concerned is located wholly or in part within Texas, the broker must obtain a Texas license or associate with a Texas broker.



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Property Management


Q:  Does a property manager have to be licensed?

A:  It depends on what the property manager is doing for the property owner. Collecting rent and seeing to the upkeep of the property do not typically require a real estate license. If the duties include showing or leasing the property for the owner for which the manager gets paid, a license would be required. See Rule 535.4. Also, a license is required for any person who controls the acceptance or deposit of rent from a resident of a single-family residential real property unit. [TRELA §1101.002 (1)(A)(x); see also Rule 535.4(g)]


Q:  I have a property management company and engage in leasing activity. May I have some of my unlicensed employees solicit business for me?

A:  No. A rental agent who solicits a prospect by phone must be licensed.


Q:  I will be holding the security deposit for an owner whose property I am managing. In what type of account should these security deposits be placed?

A:  You are prohibited from commingling these funds with your own funds. [TRELA §1101.652(b)(10)] The funds should be deposited in a trust or an escrow account where other funds from the managed property or properties are kept. The security deposits can also be deposited in an account separate from the trust or escrow account, but this is not a requirement. [Rule 535.159(g)] The Commission can take disciplinary action against you if you fail within a reasonable time to properly account for or remit money that you receive on behalf of another person. [TRELA §1101.652(b)(9)] Further, paying operating expenses or making withdrawals from a broker’s trust account for any purpose other than proper disbursement of money held in trust is prima facie evidence of commingling. [Rule 535.146(h)]


Q:  Can a salesperson be the owner of a property management company?

A:  Yes. A salesperson may own the firm but the business must be conducted through the salesperson's sponsoring broker.


Q:  I signed a Property Management Agreement and do not understand some of the terms. Can you explain them to me?

A:  No. A Property Management Agreement is a private contract and TREC is unable to advise you in private contractual matters. You should discuss the terms of the agreement with a private attorney.



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Rebates


Q:  Can a licensee rebate a portion of his commission to a seller? What about a buyer?

A:  Yes. It is not a violation of TRELA or the Rules for a licensee to rebate a portion of the licensee’s commission to a party to a real estate transaction. If the rebate is to a party the licensee does not represent, the licensee must obtain the consent of the party represented by the licensee prior to making the payment. [Rule 535.147(d)]


Q:  Can a licensee rebate a portion of the licensee’s commission to a church or other non-profit organization of the licensee’s choosing or one of the principals’ choosing?

A:  Yes. This is a donation and not a rebate.


Q:  Can a rental locator rebate a portion of the rental locator’s fee received from the apartment complex to a prospective tenant if the tenant uses the locator’s services?

A:  Yes, but a locator will be required to first obtain the consent of the apartment complex if the locator does not represent the tenant.



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Referrals


Q:  Can a licensee offer or pay cash to an unlicensed person for referring a potential lessee or buyer?

A:  No. The person who made the referral and received cash would be considered an unlicensed person engaged in the business of real estate brokerage [TRELA §1101.351(a)] and could be subject to administrative penalties and criminal charges. The licensee who offers to or actually pays cash to an unlicensed person for a referral is subject to disciplinary action. [TRELA §1101.652(b)(11) & (26)] However, a licensee may compensate an unlicensed person from a foreign country or state that does not require a license to engage in real estate brokerage activities, if the person otherwise complies with the law of the foreign country and practices there as a real estate broker. [Rule 535.131(b)]


Q:  Can a licensee offer to give a $50 gift card to an unlicensed person for referring a potential lessee or buyer?

A:  Although a license holder may not pay an unlicensed person valuable consideration for referring a potential lessee or buyer, gifts of merchandise with a retail value of $50 or less are not considered valuable consideration. [Rule 535.20(a)] Therefore, a $50 gift card that is only redeemable for certain merchandise (e.g. a gift card to a restaurant or department store) is not defined as valuable consideration and is permissible. A gift card from a bank (e.g. Visa or American Express), however, which can be converted to cash is not permissible. Any amount of cash or a credit or bonus toward rent owed is also not allowed as a reward for a referral.


Q:  Can a licensee offer to enter an unlicensed person in a drawing to win a cruise for referring a potential lessee or buyer?

A:  No. Since the cruise would have a value greater than $50, it is defined as valuable consideration. Although entering a name into a drawing may not have a cost associated with it, whoever won the drawing would be receiving valuable consideration. In addition, a “referral” drawing may be considered a contest defined as an illegal lottery under Sections 47.01(7) & 47.03(5) of the Texas Penal Code.


Q:  Can a licensee hold a gift giveaway of any prize regardless of its value as long as entry into the giveaway is not limited to only those that refer a prospect for a real estate transaction?

A:  Nothing in TRELA or the Rules would prohibit this. However, the licensee should verify that the giveaway is not considered an illegal lottery under Sections 47.01(7) & 47.03(5) of the Texas Penal Code.


Q:  Can a licensee donate a portion of his commission to a church if one of the church members refers a client to the licensee?

A:  Yes, as long as the church member who made the referral receives nothing that may be defined as valuable consideration from the church or the licensee.


Q:  My license is on inactive status with TREC. Can I receive money for referrals?

A:  No. Your license must be on active status at the time you make the referral. However, if you made the referral while you were active, you may collect that fee while you are on inactive status. In addition, if you are a licensed salesperson, referral fees must be paid through your sponsoring broker.



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Residential Rental Locators


Q:  Is a real estate license necessary in order to be an apartment locator?

A:  Yes. TREC requires licensure if the person seeks or has an expectation of compensation for offering to locate a unit in an apartment complex to a prospective tenant. [TRELA §1101.002(6)] In addition, a person may not engage in business as a residential rental locator (apartment locator) unless the person is licensed as a real estate broker or salesperson. [TRELA §1101.351(a)(2), Rule 535.4(k)]


Q:  Is TREC interested in compliance by residential rental locators?

A:  Yes. The Commission members have instructed the staff to enforce the law vigorously. Unlicensed individuals who conduct residential rental location activity are subject to administrative penalties and criminal charges. [TRELA §1101.757 & §1101.759]


Q:  Must a person be licensed to locate apartment units for prospective tenants and be paid by the owner of the apartments?

A:  Yes, unless the person is an employee of the owner of the apartments or otherwise exempt, residential rental locators are required to be licensed as either a real estate broker or salesperson.


Q:  Must the permission of the owner authorizing the agent to offer the unit for rent be in writing?

A:  No, the permission may be in writing or oral. If the permission is given over the telephone, for example, the licensee should document who gave the permission and how it was given in case that information is later requested by TREC in connection with a complaint.


Q:  Is a locator permitted to rebate a portion of the locator's fee to the tenant?

A:  Yes, as with all licensees, this can only be done with the prior consent of the person the locator represents. [Rule 535.147(d)] In addition, if advertising a rebate to the tenant of a portion of the licensee’s commission, the ad must disclose that the rebate is subject to consent of the party the licensee represents. [Rule 535.154(m)]


Q:  Is it permitted to submit an invoice to an apartment complex falsely claiming that the locator has procured a tenant for the apartment complex?

A:  No. The Commission can issue an order revoking the license of a locator found to have engaged in this practice. [TRELA §1101.652(b)(24)]


Q:  Are locators subject to the agency disclosure requirements of The Real Estate License Act?

A:  Yes. A locator representing either party would be obligated to disclose that representation on the first contact with the other party. If the transaction concerns a residential lease of not more than one year and no sale is involved, the locator would not be required to provide the tenant with a copy of the statutory information about agency (Information about Brokerage Services). [TRELA §1101.558(c)]



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Residential Service Companies


Q:  Is a “residential service contract” that same as a “home warranty”?

A:  Yes, both terms refer to the same product.


Q:  Is a residential service company required to be licensed to sell residential service contracts in Texas?

A:  Yes. See the general information and forms available on the TREC website.


Q:  I have a residential service contract and need my toilet repaired. Can TREC help me with that or should I just call a repairman?

A:  No, your contract first requires you to contact the residential service company to request service. They will instruct you on your contract procedure for obtaining repairs. If you have a problem with your residential service company’s response, then you should contact TREC’s residential service ombudsman at (512) 936-3049.



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Timeshare


Q:  Is a license required to sell a timeshare interest in Texas?

A:  It depends. If the salesperson is an employee of the owner of the timeshare, the employee would not be required to be licensed. [Rule 535.5(d)] Otherwise, the salesperson needs to be licensed.


Q:  I signed a contract to purchase a timeshare interest yesterday. Last night I reconsidered. Can I back out?

A:  Yes. You have to provide the appropriate cancellation notice to the developer before the sixth day after you signed the contract. Consult the contract or the timeshare disclosure statement you received for instructions on how to proceed.



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Unlicensed Brokerage Activity


Q:  What can unlicensed office personnel or an unlicensed assistant do?

A:  An unlicensed person may act as a host or hostess at a property being offered for sale by the broker, provided the unlicensed person does not engage in any activity for which a license is required or hold themselves out as licensees. An unlicensed person may also perform secretarial, clerical, or administrative tasks, including training personnel. [Rule 535.1(c) and (d)] You should also review our “Information for Brokers and Salespersons Regarding Use of Unlicensed Assistants in Real Estate Transactions” under “Topics of special interest” on our home page for further examples of what can and cannot be done.


Q:  I went on a tour to inspect unimproved lots. The guide was not licensed, but she showed us the lots and told us about possible developments on the land. Is this legal?

A:  It depends. If the guide is an employee of the owner of the lots, she would not be required to be licensed. [Rule 535.5(d).] Otherwise, the guide needs to be licensed in accordance with §1101.002(1) of TRELA. For example, if the owner is a parent corporation, an employee of a subsidiary corporation selling for the parent corporation would need to have a license. [Rule 535.4(i).]


Q:  What are the penalties for unlicensed brokerage activity?

A:  Practicing real estate without an active license is a criminal offense, specifically, a Class A misdemeanor punishable by confinement of up to one year in a county jail and a fine of up to $4,000.00. [TRELA §1101.756] TREC can also pursue administrative penalties not to exceed $5,000 for each violation. Each day a violation continues can be considered a separate violation for imposition of the administrative penalties.
[§1101.702 of the License Act] The Commission may also issue a “cease and desist” order. [§1101.759 of the License Act] Finally, as a State Agency represented in civil court proceedings, TREC can obtain injunctive relief, including court costs and attorneys fees incurred in obtaining such relief. [TRELA §1101.751]


Q:  Can an inactive licensee negotiate the purchase, sale, or lease of real property between third parties?

A:  No. An active real estate license is required to negotiate a real estate transaction between third parties. Conducting
real estate brokerage activity with an inactive license is considered a violation subject to sanctions. [TRELA §1101.351(c)]

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