Source: TREC ADVISOR - AUG. 2016
It has come to our attention at the Commission that in a hot market some buyers’ agents are drafting and adding problematic language into the contract, generally into the One to Four Family Residential Contract (Resale) Paragraph 11. Special Provisions. For example, something like this is inserted:
“Buyer will pay above appraised value” or “Buyer will pay $1,000 more than any other offer.” In some communities, agents are adding language to special provisions written by a title company or the real estate brokerage’s attorney. All of these practices violate the License Act and Commission Rules. The following Q & A’s explain why!
When can a license holder inserts language into paragraph 11, Special Provisions that makes the purchase price vary based on either other offers or an appraisal?
Short answer: Never! Making the purchase price vary from the amount set out in the contract based on outside variables could affect the rights and remedies of one or both of the parties to the contract and is considered the unauthorized practice of law. Please note that license holders cannot draft inserts or addenda for these purposes either.
Can an attorney for a license holder or an attorney for a title company draft language for such contingencies that the license holder can then recommend their clients insert into paragraph 11, Special Provisions?
Short answer: No. License holders are prohibited from employing an attorney, directly or indirectly, to represent the interest of a party to a transaction when they are acting as an agent of their client. It creates confusion and possible conflict as to who the attorney represents and can create additional liability for the broker if the suggested language results in a problem down the road.
Can an attorney for a party to a contract draft language for such contingencies that the party can then insert into paragraph 11, Special Provisions?
Short answer: Yes. If a party to a contract is the attorney’s client, the party can then follow any advice the attorney gives the party regarding making changes to that particular contract. Keep in mind that the license holder may not recommend or make any additional changes to the contract, but simply follow the party’s instructions based on the party’s consultation with the party’s own attorney.
Can an attorney for a license holder or an attorney for a title company draft a contract form or addendum for use by a license holder’s clients?
Short answer: Only under very specific circumstances. If there is no standard contract form or addendum for that type of transaction promulgated by TREC, a licensed Texas attorney may prepare a standard contract form or addendum and authorize its use for a particular kind of transaction. Keep in mind that unless the attorney specifically authorizes the use of that form by all license holders or the general public, the license holder or title company who hired the attorney is the only one authorized by the attorney to use that form. In other words, license holders cannot legally use a contract or addendum form for their own clients that was created for another brokerage in a different transaction without express authorization from the attorney who created the form.
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