Chapter 2 of 618% of exam

Agency Law and Fiduciary Duties in Texas

Agency law defines the relationship between a real estate license holder and the people they serve. In Texas, sales agents work under a sponsoring broker, and specific rules govern representation, disclosure, and the unique intermediary relationship. This chapter explains fiduciary duties, how agency is created, and the Texas-specific disclosure and intermediary framework. TREC forms and rules are periodically updated, so confirm current requirements.

Creating Agency and Key Parties

An agency relationship gives one party (the agent) authority to act on behalf of another (the principal or client). Agency is usually created by an express written agreement. Understanding who is a client versus a customer determines what duties are owed.

Principal (client)
The party who hires and authorizes the broker and to whom full fiduciary duties are owed.
Customer
A party the agent deals with but does not represent; owed honesty, fair dealing, and disclosure of known material defects.
Written agreements
Listing and buyer representation agreements create agency and define scope, compensation, and duration.
Sponsoring broker
A Texas sales agent must be sponsored by an active broker and acts on that broker's behalf; the agent cannot operate independently.

Fiduciary Duties Owed to the Client

A fiduciary owes the highest standard of care and must place the client's interests above their own. These duties guide day-to-day conduct and protect consumers. Breaching them can lead to civil liability and license discipline.

Loyalty
Put the client's interests first and avoid undisclosed self-dealing, such as secretly buying the client's property.
Obedience
Follow the client's lawful instructions; the duty never extends to fraud or concealing material defects.
Confidentiality
Protect the client's private information, such as their bottom-line price, and this duty typically survives the relationship.
Disclosure and diligence
Communicate material facts, present all written offers unless waived in writing, and act with reasonable care.
Accounting
Safeguard and accurately report all funds and documents, and never commingle client funds with the broker's own accounts.

Texas Disclosure and the IABS

Texas requires license holders to give consumers a clear explanation of representation before substantive discussions. Proper disclosure prevents confusion about who the agent represents. Written consent underlies the more complex representation arrangements.

Information About Brokerage Services (IABS)
Generally must be provided at the first substantive communication and explains representation types and duties.
Honesty to all parties
Even a customer is owed honesty, fair dealing, and disclosure of known material defects.
No misrepresentation
Puffing (opinion or exaggeration) is allowed, but false statements of material fact are misrepresentation and may be actionable.
Written consent
Representing both parties or making appointments requires informed, written consent from the parties involved.

The Texas Intermediary Relationship

Texas does not use traditional dual agency; instead it uses the intermediary structure when one brokerage represents both sides. The intermediary must act fairly and impartially and cannot disclose certain confidential information. With written permission, the broker may appoint different associated agents to each party.

When it arises
Intermediary status occurs when the same broker represents both the buyer and seller in one transaction, with written consent from both.
Appointments
The broker may appoint separate associated license holders to advise each party, allowing more individualized service.
Confidentiality limits
The intermediary may not reveal that a party will accept a price different from what was offered, unless authorized.
Fair and impartial
The intermediary must treat both parties honestly and not favor one over the other.

Listing Agreements and Commissions

Listing agreements are employment contracts that establish agency and set the broker's compensation. The type of listing determines when and whether a commission is earned. Commission disputes are often resolved using procuring cause analysis.

Exclusive right to sell
The broker earns a commission if the property sells during the term, regardless of who finds the buyer.
Exclusive agency
One broker is the sole agent, but the seller may sell independently without owing a commission.
Open listing
Multiple brokers may be engaged, and only the one who procures the buyer earns a commission.
Net and procuring cause
Net listings are heavily restricted due to conflicts of interest, and procuring cause identifies which broker earned a disputed commission.
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Last updated: July 2026

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