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 always work under a sponsoring broker, and specific rules under TRELA (Texas Occupations Code Chapter 1101) and TREC's rules govern representation, disclosure, and the state's 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 updated periodically, so confirm current requirements with TREC before relying on any specific procedure.
Creating Agency and Key Parties
An agency relationship is a legal arrangement in which one party, the agent, is authorized to act on behalf of and in the best interest of another, the principal or client. In real estate, the agency belongs to the broker; a Texas sales agent acts for the broker's clients, not for clients of the agent's own. Understanding exactly who is a client and who is a customer is the foundation of everything else, because it determines what level of duty is owed. A client (principal) is the person who has hired and authorized the broker, usually by signing a written representation agreement, and to whom the broker owes full fiduciary duties. A customer is a party the license holder deals with in a transaction but does not represent, for example the unrepresented buyer who calls the listing agent about the seller's home; a customer is owed honesty, fair dealing, and disclosure of known material defects, but not loyalty or advocacy. Agency is most often created expressly through a written agreement: a listing agreement creates agency with a seller, and a buyer representation agreement creates agency with a buyer. These writings define the scope of authority, the compensation, and the duration of the relationship, and in Texas the buyer representation agreement must be in writing to be enforceable for compensation. Agency can also arise by implication from conduct, or by ratification when a principal accepts the benefit of unauthorized acts, but relying on implied agency is risky and can lead to unintended duties or disciplinary exposure. A defining feature of Texas practice is the sponsorship requirement: a sales agent must be sponsored by an active Texas broker and may perform brokerage activity only for and under the supervision of that broker. The agent cannot accept compensation directly from a client, cannot advertise independently of the broker, and cannot operate as an independent brokerage. All client funds, files, and agreements ultimately belong to and are controlled by the sponsoring broker, who is responsible for supervising the agent's conduct. Because these relationships carry legal consequences, agents should document representation clearly and provide the required disclosures at the outset.
Fiduciary Duties Owed to the Client
A fiduciary is a person in a position of trust who owes the highest standard of care recognized in law, and a real estate broker (and the agents acting for the broker) owes fiduciary duties to the client. A useful memory device is OLD CAR: Obedience, Loyalty, Disclosure, Confidentiality, Accounting, and Reasonable care and diligence. Loyalty means placing the client's interests above the agent's own and above everyone else's, and avoiding undisclosed conflicts such as secretly buying the client's property, steering the client to a business the agent secretly owns, or accepting an undisclosed referral fee. Obedience means following the client's lawful instructions promptly, but the duty stops at anything unlawful; an agent must never obey an instruction to conceal a material defect, misrepresent facts, or discriminate, because obedience never overrides the law or the duty of honesty to third parties. Confidentiality means protecting the client's private and financial information, such as their true motivation to sell, their lowest acceptable price, or a pending divorce, and in Texas this duty generally survives the end of the relationship indefinitely. Disclosure (sometimes called notice) means keeping the client informed of all material facts the agent knows that could affect the client's decisions, including the existence of every offer, which must be presented promptly unless the client has instructed otherwise in writing. Accounting means safeguarding and accurately reporting all money and documents that pass through the agent's hands; earnest money and other trust funds must be handled through the proper escrow account and never commingled with the broker's operating funds or converted to personal use, which is a serious violation. Reasonable care and diligence means using the skill and competence expected of a licensed professional, being accurate, meeting deadlines, and not exceeding one's expertise, for example recommending inspections, surveys, or an attorney when appropriate rather than guessing. Breaching any of these duties can expose the license holder to civil liability for damages and to TREC disciplinary action, including fines, suspension, or revocation of the license.
Texas Disclosure and the IABS
Texas law requires license holders to make representation clear to consumers before things get serious, so that no one is confused about whose side the agent is on. The central tool is the Information About Brokerage Services form, universally called the IABS. TREC requires that a license holder provide the IABS to a prospective client at the first substantive communication about a specific property, with limited exceptions such as a transaction involving a residential lease of a defined short term or when the party is already represented. The IABS is not a contract and does not create agency; it is a written explanation that describes the types of representation available in Texas (seller's agent, buyer's agent, and the intermediary relationship) and summarizes a broker's minimum duties, including putting the client's interests first, informing the client of material information, treating all parties honestly, and telling the client if the broker or its agents have a material relationship or interest in the transaction. Along with the IABS, TREC requires the Consumer Protection Notice to be displayed. A related and frequently tested concept is the difference between lawful sales talk and unlawful misrepresentation. Puffing is a statement of opinion or obvious exaggeration, such as calling a home the best value in the neighborhood, and it is generally permitted because a reasonable person would not rely on it as fact. Misrepresentation, by contrast, is a false statement of a material fact, such as claiming the roof is new when it is fifteen years old, or concealing a known defect; misrepresentation, whether deliberate or negligent, can lead to civil liability and license discipline. Honesty and disclosure of known material defects are owed to every party, including customers the agent does not represent. Finally, any arrangement more complex than single-party representation, such as acting as an intermediary or making agent appointments within a brokerage, requires informed, written consent from the parties involved, which is why the underlying listing and buyer representation agreements contain intermediary authorization language. Because the forms and required notices are periodically revised, always use the current TREC versions.
The Texas Intermediary Relationship
Texas is distinctive because it does not permit traditional dual agency, in which one agent fully represents both the buyer and the seller in the same deal. Instead, TRELA created the intermediary relationship, and this is one of the most heavily tested topics on the Texas exam, so learn the mechanics precisely. An intermediary situation arises when a single broker represents both the buyer and the seller in one transaction, for example when a listing broker's own buyer client wants to purchase that broker's listing. The broker may act as an intermediary only if both parties have consented in writing, and that consent is normally obtained in advance through language in the listing agreement and the buyer representation agreement. The intermediary is the broker, not any individual agent, and the broker must act fairly, impartially, and lawfully, and may not favor one party over the other. The intermediary is legally prohibited from disclosing certain confidential information: specifically, the intermediary may not reveal that the seller will accept a price lower than the asking price, may not reveal that the buyer will pay a price higher than the price submitted in a written offer, may not disclose that a party will agree to financing terms other than those offered, and may not reveal any confidential information a party has instructed be kept confidential, unless disclosure is authorized in writing or required by law. When a brokerage is large enough, the broker (or a person the broker authorizes) may make appointments, assigning one associated license holder to communicate with and advise the buyer and a different associated license holder to communicate with and advise the seller. When appointments are made with the parties' written consent, each appointed agent may provide more individualized advice and opinions to the party they are appointed to, while the broker remains the impartial intermediary overseeing the whole transaction. If appointments are not made, no agent may offer advice or opinions to either party on price or terms. Because the rules and required consents can change, verify the current intermediary procedures and forms with TREC.
Listing Agreements and Commissions
A listing agreement is a written employment contract between a property owner and a broker that both creates agency and sets out how and when the broker earns compensation. Understanding the listing types is important because they determine whether a commission is owed and to whom. Under an exclusive right to sell listing, the broker earns the agreed commission if the property sells to anyone during the listing term, regardless of whether the broker, the seller, or another agent found the buyer; this is the most common and most protective listing for the broker and is standard for residential work. Under an exclusive agency listing, the broker is the only agent authorized, but the seller reserves the right to sell the property personally without owing a commission, which can create tension over who really produced the buyer. Under an open listing, the seller may engage several brokers at once and owes a commission only to the broker who actually procures a ready, willing, and able buyer, and owes nothing if the seller sells it personally. A net listing, in which the broker keeps everything above a net figure the seller wants, is heavily restricted and discouraged because it creates a serious conflict between the broker's interest and the seller's; Texas permits it only under narrow, protective conditions and it is a frequent source of discipline, so most brokers avoid it. Commissions are always negotiable and are never set by law, by TREC, or by an association; any suggestion of a standard or fixed rate risks violating antitrust law, which prohibits competitors from fixing prices. A commission is generally earned when the broker produces a buyer who is ready, willing, and able to purchase on the seller's terms, though most contracts tie actual payment to closing. When two brokers each claim they earned the commission on the same sale, the dispute is analyzed under the doctrine of procuring cause, which asks which broker set in motion the unbroken chain of events that led to the sale. Because a commission claim is a legal matter, keep listing terms clear and in writing.
Last updated: September 2026
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