Texas Real Estate Commission proposes many changes at its August meeting

Proposed advertising rules

TREC proposed repealing and replacing Section 535.154, Advertising, to align with statutory changes adopted by the 85th Legislature and splits the current rule into two separate rules. Here are some highlights of the proposed rules:

Registration of alternate, team, and assumed business names with TREC. Before using an alternate, team, or assumed name in advertising, the license holder, broker sponsoring a team, or broker using an assumed business name must first register the name with TREC on a TREC-approved form. Registration is not a change from the current rule, but the new rules define and distinguish between these names.

New provisions about team names. The proposed rules define team names and explain how they can be used in advertising. The proposed rules mention the following:

  • A team name may not include any terms that could mislead consumers into thinking the team is offering brokerage services independent of the sponsoring broker. Team names can’t use certain terms, such as realty, brokerage, company, and associates.
  • A team name must end with the word “team” or “group”.
  • An ad needs to include the broker’s name—which is not a change from the current rule—but a team name is not considered a broker’s name.

Social media and texting clarification. Proposed Section 535.155(c) states, “For an advertisement on social media or by text, the information required by this section may be located on a separate page or on the account user profile page of the license holder, if the separate page or account user profile is:

  • readily accessible by a direct link from the social media or text; and
  • readily noticeable on the separate page or in the account user profile.”

The “information required by this section” means the name of the license holder placing the ad and the broker’s name.

Addition to what is considered deceptive or misleading. The proposed rules add that sales agents’ advertisements that use titles such as owner, president, CEO, COO, or other similar titles would be considered a deceptive or misleading ad.

Proposed clarification about posted IABS forms

Texas law generally requires all agents and brokers to provide written notice regarding information about brokerage services to a party at the first substantive communication about a proposed transaction involving a specific property. The Information About Brokerage Services form is the required method to provide that information to those parties. Although you’re required to deliver the form in person, by mail, or via email, you must also post a link to an IABS form titled “Texas Real Estate Commission Information About Brokerage Services” in at least 10-point type in a readily noticeable place on the homepage of your business website.

TREC proposed an amendment to prohibit placing the link to the IABS form in the footer of a business website’s homepage. The amendment also calls for an increase in the size of the link to 12-point type. TREC defines a “business website” in the proposed rule as “a website on the internet” that the public can access, has information about a license holder’s real estate brokerage services, and content on the website is controlled by the license holder.

The proposed change also clarifies that you must link to a “completed” IABS form. “Completed” means that all applicable fields are filled out with your information—blank forms don’t count.

When it comes to social media, the proposed amendment says the IABS link may be located on the account holder profile or “on a separate page or website through a direct link from the social media platform or account holder profile.”

See agenda item 21 on page 293 of the TREC Meeting Materials packet and Supplement Item 21 on TREC’s website for more details.

Proposed changes to requirements for the Consumer Protection Notice

The Consumer Information Rule currently states that brokers must provide a link to TREC’s Consumer Protection Notice (TREC CN 1-2)—which must be labeled as “Texas Real Estate Commission Consumer Protection Notice”—in at least 10-point type and in a readily noticeable place on the homepage of a business website.

TREC proposed an amendment to prohibit placing the link to the Consumer Protection Notice in the footer of a business website’s homepage. The amendment also calls for an increase in the size of the link to 12-point type. TREC defines a “business website” in the proposed rule as “a website on the internet” that the public can access, has information about a license holder’s real estate brokerage services, and content on the website is controlled by the license holder.

When it comes to social media, the proposed amendment says the link may be located on the account holder profile or “on a separate page or website through a direct link from the social media platform or account holder profile.” See Supplement Item 20 on TREC’s website for more details.

TREC also proposed a change to Section 535.191, Schedule of Administrative Penalties. TREC wants to add administrative penalties for violations of Sections 531.18 and 531.20, which deal with the Consumer Protection Notice and Information About Brokerage Services, respectively. If adopted, this means TREC can assess an administrative penalty ranging from $500 to $3,000 per violation per day for violating the rules about providing TREC’s Consumer Protection Notice and the Information About Brokerage Services form.

Proposed limits for when lawyers can draft contracts for principals who aren’t their clients

TREC is proposing amendments to Section 537.11, Use of Standard Contract Forms. This rule currently says license holders may only use contract forms promulgated by TREC, with a few exceptions.

TREC proposed amendments to some of those exceptions, including Section 537.11(a)(3), to state that while generally license holders must use TREC forms in their transactions, TREC forms are not required for transactions in which a principal or a lawyer representing the principal prepares a contract form or addendum. If TREC adopts this amendment that says a lawyer-principal relationship is necessary for a lawyer to draft a contract, this means a lawyer for a title company or a brokerage could not draft a contract or addendum for a transaction unless he or she is representing the buyer or seller.

If the amendment proposed to Section 537.11(a)(3) is adopted, certain forms could still be drafted by a lawyer who is not representing a principal to a transaction because the rule would not change the current exception of using lawyer-drafted forms in transactions for which no mandatory form has been approved by TREC. This is what allows TAR to create commercial contracts or residential lease forms, for example. The only change here is that the form must contain the following information:

  • Name of the lawyer or trade association who prepared the form
  • Name of the broker or trade association for whom the form was prepared
  • The type of transaction for which the lawyer has approved the use of the form
  • Any restrictions on the use of the form
  • A statement that the form has not been approved by TREC; and
  • A statement that TREC rules prohibit real estate license holders from giving legal advice.

In addition, TREC has made another proposal that would affect TAR’s ability to provide forms to members that amend existing mandatory forms from TREC, such as the Release of Earnest Money or the Relocation Addendum, which are not TREC forms. You can read more about this proposal here.

Proposed rule amendment would affect availability of TAR forms

A proposed rule change to Section 537.11 would eliminate TAR’s ability to create and provide forms to members that amend existing mandatory forms from TREC. If adopted, TAR could not provide certain forms such as the Release of Earnest Money (TAR 1904) or the Relocation Addendum (TAR 1941), which change the rights and responsibilities of principals in mandatory TREC contract forms and addenda. TAR is in the process of reviewing the proposed rules and will provide comments to TREC.

The current rule provides an exception to using forms promulgated by TREC by allowing license holders to use other forms, like TAR forms, in transactions for which no TREC contract form exists. The proposed language clarifies that the exception “does not permit a license holder to use a form that changes the rights, remedies or responsibilities of a principal contained in a mandatory contract form or addendum.”

Proposed changes to earnest money and other paragraphs

TREC has proposed changes to Paragraph 5 of the TREC contracts to require that earnest money be delivered within three days after the effective date of the contract. Time is of the essence and if the buyer fails to deliver the earnest money in time, the seller can terminate the contract, pursue Paragraph 15 default remedies, or both before the buyer deposits the earnest money. Currently, if the buyer fails to deliver the earnest money, the buyer may be in default.

In Page 9 of the contract, the proposed changes create three separate receipt boxes for earnest money, the contract, and additional earnest money.

Other proposed changes include Paragraph 6D, Title Policy and Survey, to clarify aspects of the curing obligation and Paragraph 20 to add language that elaborates on the definition of a foreign person.

Proposed changes to the Farm and Ranch contract
TREC has proposed changes to Paragraph 2F so that reservations cannot be included in special provisions and instead should be addressed in a separate addendum.

Proposed changes to the Residential Condominium Contract (Resale)
TREC’s change clarifies that the seller is required to deliver documents, such as bylaws, and the resale certificate at the seller’s expense.

Proposed changes to statements for all BPOs and CMAs

TREC proposed amendments to Section 535.17, Broker Price Opinion or Comparative Market Analysis. The current rule requires license holders to provide a written statement with specific language when giving a broker price opinion or comparative market analysis to consumers. MLSs and RPR should provide the disclaimer when a BPO or CMA is created through these platforms.

The proposed amendment adds “Estimated Worth or Sales Price”—which would include Automated Valuation Models (AVMs)—to the types of items given to consumers that require a written disclosure statement.

If adopted, the required disclosure statement would change to the following and would need to be reproduced verbatim and in at least 12-point type:

“This represents an estimated sale price for this property. It is not the same as the opinion of value in an appraisal used by a lender to approve a mortgage loan.”

Proposed new forms

TREC proposed two new forms. The earliest these proposed forms could be adopted for use is during the next TREC meeting, scheduled for November 13.

Addendum Concerning Right to Terminate Due to Lender’s Appraisal
In transactions where the contract includes the Third Party Financing Addendum and does not involve FHA or VA financing, this form would allow a buyer to terminate the contract within a certain amount of time if the appraisal is less than a certain dollar amount.

This addresses the current situation where, despite a low appraisal, the lender approves the property for financing (often because the buyer is putting a large amount down) and the buyer has no way to terminate. This form also allows a buyer to waive his right to terminate under the Third Party Financing Addendum if, due to the appraisal, the property does not satisfy the lender’s underwriting requirements. If the lender reduces the amount of the loan because of the appraisal, the cash portion of the sales price will be increased by the loan reduction.

Addendum for Authorizing Hydrostatic Testing
Currently, a buyer has a right to have the property inspected, but this does not include hydrostatic testing. In order to perform hydrostatic testing on the property, the seller must provide written permission. This addendum would provide a written agreement for the seller to authorize the buyer, at buyer’s expense, to conduct a hydrostatic test and includes checkboxes to identify who will be liable for any damages.