A procedural error resulted in the repeal of a Texas rule enacted by the Texas Real Estate Commission (TREC) that requires brokers to provide negotiation services to consumers. While TREC regroups, the Texas Association of Realtors (TAR) says it will encourage the commission to readopt the rule.

Spokesperson for TAR Ron Walker said, "We concurred with the repeal yesterday at the commission meeting, and we look forward to the commission establishing the same rule or close to it in the near future."

Walker says that it was TAR that was behind the movement to get the rule enacted by TREC. "Our leadership has made it clear," says Walker, "that when a person purports to be an agent of a seller, we believe it means more than placing an ad in a publication. When you say you are an agent, that has certain meeting."

TAR has investigated the services of discount and flat-fee brokers for about four years, says Walker.

The minimum level of service by companies such as Texas Discount Realty, the company that brought a lawsuit against TREC for enacting the brokers-must-negotiate-for-clients rule, is that they collect a fee to place the seller's listing in the MLS. According to Walker, an MLS is such a publication, but it is also a broker cooperative system, "a publication coupled with a unilateral offer of compensation."

"They are taking fees from unsophisticated sellers, and putting an ad in a publication," says Walker. "You don't need a real estate license to do that. You are acting as a secretary to the seller, not an agent."

In Texas, statutes outline that brokers act as fiduciaries or agents of buyers or sellers. If they represent both parties, they do so as intermediaries. The reason that TAR brought the situation to the attention of the commission was because some brokers are telling sellers they are acting as their agents, but then are performing neither fiduciary nor intermediary functions. They are providing clerical functions that don't require licensure, such as placing the seller's listing in publications.

"If I say I am your agent, I am representing you," explains Walker. "I can do a clerical function for you and charge you an advance fee for that. As long as I don't charge you a contingency fee, according to existing regulations, I don't need a license to do that."

If you don't need a license, then why do you need the MLS? "Companies like Aaron's (Texas Discount Realty) has three levels of service," explains Walker. "A level he just places the property into the MLS and gives you some materials. B level, he does a little more, and then C level is full service. He is saying, 'I'll give you these choices.' What they are trying to do is they believe there is a demand for various levels of service, and they are trying to offer them. We are saying, 'If you want to offer it, great! But don't call yourself an agent. I think that is the whole key. If they are going to purport to represent, then that has to have a certain meaning, a minimum level of service.

"Complaints stemmed from membership, that if we see a limited service listing in the MLS, the broker representing the buyer shows the property and is then instructed by the limited service broker to deal with the seller, and the seller asks help from the buyer's agent because that is the only agent involved in the transaction. They don' t know what forms to use, what to disclose, they don't know to set up a calendar of events to help them close, they don't know their rights, and so they solicit help from the buyer's broker who is put in the position of having to say, 'I don't represent you.' We have a form that the buyer gives the seller that states that. The seller then calls the limited service broker back up for help and the limited service broker says, 'You only paid me $600, and now I need you to go into a full service contract."

Bait and switch? "We are concerned for consumers," says Walker. "Sometimes these deals go through because the buyer's broker goes ahead and helps the seller."

Walker also believes that existing laws are simply not being followed. "We think that the existing rules under the commission under the statute already say this," says Walker, "but there are questions out there how they specifically apply to negotiations. We still take that position, but we are not so hard-headed not to engage in dialog, but we think the law states what the commission adopted."

Our old-time brokers merely objecting to a new business model? "If you want to be a discount broker and provide a secretarial service, the MLS that gives the limited service broker additional value. That's why they get licensed, so they can use the MLS. The MLS is a cooperative system among brokers, not among the public, so brokers are agents in the state of Texas. Aaron (Texas Discount Realty) can place ads in other publications and he is free to do so.

"Farmer tells the MLS he is the seller's agent, but he tells the seller he isn't going to do the things an agent is required to do," says Walker.

So if the law is clear, and the commission adopted a rule that is already law, what went wrong?

"The commission did a procedural error, an oversight," explains Walker. "The commissioners when they published the rule failed to include a reasonable justification for the rule. Under the Administrative Procedures Act, that governs how agencies adopt rules and enforce orders, you have to include a statement of justification, and the Texas Commission failed to do this. It got left out of the final order, and that is why the judge granted the restraining order requested by Texas Discount Realty. The rule was adopted without objection. Last September when it was proposed, it went into the Texas Register, and no one made any negative comments. It laid out there between 30 and 60 days, and the commission adopted the rule because no negative comments were made. Then Aaron filed his request one day before the order was to go into effect. At the hearing, the judge heard the arguments of the parties, and she looked at the order and said, 'Where is the justification statement?', and the attorney general for the commission said, 'It isn't here and the judge said, 'On procedural grounds, she must grant the TRO. Meantime, the attorney general for the commission and Aaron's attorney agreed that if they could resolve this without a hearing then they would. The commission has reconsidered a number of things - repeal, republish, and now they are making sure they follow the proper steps. Yesterday, they decided they needed to repeal the rule."

What will happen next? "The rule will be taken one step at a time," says Walker. "I know for sure that commissioners will repeal the rule, and they can't take other steps we are encouraging them to do until that's done. We want them to publish a substantially similar rule, and they have to make that decision, but that is what we would like them to do."

Published: February 26, 2003

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