Intermediary

Touch all bases on the way to "home."

by J. Richard Hargis   The agency relationship known as "intermediary" has just concluded its fourth year of existence. Created by statute enacted in 1996, intermediary offers Texas real estate brokers a safe and practical means for representing a seller client and buyer client in the sale and purchase of a property listed by the broker.

Essentially, intermediary was created to provide brokers with an avenue to bypass the numerous pitfalls of dual agency. Moreover, intermediary is more consumer-friendly than dual agency as it allows the intermediary-broker’s appointed associates to provide opinions and advice to their respective principals. The rendering of advice and opinions are not permitted under dual agency.

Establishment or formation of intermediary status does, however, require adherence to several procedural steps. In other words, if the broker or broker’s associates fail to follow the procedural steps required for formation of intermediary status, all of the benefits of intermediary will be lost.

Over the past several months, information from TREC and other reliable sources indicates that some brokers and their associates periodically fail to touch all the procedural bases required for intermediary status. Missing a procedural base or two in establishing intermediary can result in disciplinary action by TREC and potential claims from broker clients. Many times, the broker is unaware of the omissions of the associates until it is too late.

In light of recent developments, a review of the procedures required for proper formation of intermediary status should be useful. In effect, it simply is a matter of touching all the right bases.

Step 1 - Authorization of intermediary status
The initial process of establishing intermediary status begins before it ever becomes a reality. The first step is to obtain written authorization from the broker’s seller client and buyer client for intermediary status, should events occur down the road whereby the buyer client becomes interested in purchasing (making an offer to purchase) the seller client’s property. Step one, then, is an anticipatory procedure of a contingent event which may or may not ever occur. It is, to put it simply, merely an authorization for the broker to act as an intermediary if the need arises. But since the written authorization step is the first base which always must be touched, it is a critical base in the path to intermediary status.

Obtaining authorization for intermediary status should be relatively simple. On the listing side, the TAR listing agreements include a comprehensive provision for the seller to either approve or disapprove intermediary. Although the intermediary provision in the listing agreements is comprehensive and explanatory of intermediary status, brokers and their agents should be well-versed in its provisions to offer additional explanation or clarification to the seller client, if necessary. If the seller client authorizes intermediary, step one for the listing side is accomplished. While intermediary status may never come into play, the listing agent and broker at least have written authorization in place.

Now, turning to the buyer side, a similar written authorization must be obtained from the buyer client. This side of the equation can be more tricky. Just like the TAR listings, the TAR Buyer Representation Agreement includes an intermediary provision to enable broker and buyer client to determine whether to permit intermediary status. If the broker, acting through its associate, obtains a signed buyer representation agreement which authorizes intermediary, the step-one authorization base is touched.

The trick, as so often expressed by brokers and agents, is getting a buyer to sign the buyer representation agreement. While it is always preferable to obtain a signed agreement with a buyer (if for no other reason than to cover the intermediary authorization), buyer representation can be established orally. If this is the case, and the buyer client becomes interested in purchasing a home listed by the broker, the buyer agent will have to secure a separate written authorization from the buyer client for intermediary status in order to properly establish intermediary status. Clearly, the buyer agent representing a buyer client under an oral arrangement must be alert to the requirement for written intermediary authorization, should the need arise.

Brokers who permit associates to represent buyers without a signed buyer representation agreement should have in place an intermediary authorization form for use by its associates. The information which should be included in this separate intermediary authorization form can be derived from the intermediary provisions in the TAR listing agreements and TAR Buyer Representation Agreement.

Please remember that failure to obtain written authorization from both the seller client and buyer client for the broker to act as intermediary generally is irretrievable. That is to say, if you fail to touch the first base of intermediary, the entire process is tainted.

Step 2 - Notification of intermediary status and appointment of associates
The second step of the procedural process becomes necessary when, in fact, a broker’s buyer client desires to make an offer for a property listed by the broker. Assuming written authorizations are in place (which they must be) and assuming further that the broker or manager of the brokerage firm has no knowledge of the impending interaction between the broker’s seller and buyer clients, the listing agent and buyer agent must alert the broker to the development and proceed to effect the second step of the intermediary process. Step two is accomplished by the broker, acting through its associates, presenting the Notification of Intermediary Relationship (TAR-027) to both the seller client and buyer client for their signatures. The notification procedure should be accomplished at or before the time an offer is submitted by the buyer. While it can be a challenge getting all the paperwork presented and signed, it is an absolute necessity to complete the process.

The Notification of Intermediary Relationship should include the broker’s appointment of associates to act for the seller and buyer, respectively. In most instances, the broker will appoint the listing agent for the seller and the buyer agent for the buyer. This makes perfect sense in as much as these are the broker’s associates who have an established relationship with their respective principal. In the rare, but not unusual situation of the seller and buyer being the clients of the same agent, the agent should choose which principal he or she wishes to accept appointment, and the broker should appoint another agent of the firm to the other principal. Once written notification of intermediary relationship is made, including appointment of the broker’s associates to act for the seller and buyer, the required procedures or prerequisites of intermediary are fulfilled. All of the bases have been touched and the transaction may proceed.

Step 3 - The transaction
Once intermediary status is firmly established, the real benefits of intermediary begin to take shape. Specifically, the intermediary broker’s appointed associates can answer substantive questions, give advice and opinions on such matters as the adequacy of an offer or how best to structure the transaction. Such acts are impermissible under dual agency.

Significantly, appointed associates of an intermediary have the opportunity to express opinions and not just assist the parties with paperwork, thereby increasing the value of their services. Now, there are still certain things the intermediary broker and the appointed associates cannot do (without written consent of the appointed party):

• cannot divulge that the seller will accept a price less than the listing price
• cannot divulge that the buyer will pay a price greater than the price submitted in a written offer
• cannot divulge confidential information of either party.

The above steps associated with the formation, authorization, and conduct of intermediary status are necessary requirements for compliance with the intermediary statute. The process of fulfilling the required procedures can be cumbersome, but the benefits of intermediary far outweigh the alternative. The recent outbreak of complaints and claims involving intermediary have occurred because of the absence of the written authorization of the seller and buyer and subsequent notification letters. Brokers and their agents who touch all the bases (written authorization, written notification of intermediary status, and compliance with permissible activities) will avoid any such problems.

J. Richard Hargis is a partner with Hargis & Harpold L.L.P., in Houston and is legal counsel for the Houston Association of REALTORS®.

This article was reprinted with permission from the April 2000 issue of the Houston Association of REALTORS® Network.

Note from TAR Associate Counsel Dennis R. Schmidt: Where the broker’s office policy does not permit the appointment of associates to communicate with, carry out instructions of, and provide opinions and advice during negotiations to each party, or in firms that do not have at least a broker and two associates, the Notification of Intermediary Relationship Form should still be used to satisfy the due-diligence requirements of notice and to provide an opportunity for the parties to object to or ratify their original consent to the intermediary relationship. Without appointing associates, the broker and all associates will act as an intermediary and will treat all parties honestly and fairly so as not to favor one party over the other.

TAR has an Agency Policy Manual, which will help a broker establish a detailed office policy covering the way agents will handle the various agency relationships authorized by Texas law and which includes guidance along each step of the process. To order the Agency Policy Manual, call TAR’s Products and Services Department at 800/873-9155.

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