The Texas Real Estate Commission in November proposed changes to Section 537.11, Use of Standard Contract Forms. The new language amends the exceptions to the requirement that a license holder use a commission-approved contract form and clarifies what is considered the unauthorized practice of law.
The current rule allows a broker to use an attorney to draft a contract form for a party to use in a transaction when TREC has no mandatory form in place. The proposed rule removes this option and would require parties to engage an attorney to draft a contract document or for the parties to write the contract language themselves.
This proposed rule change would not apply to a contract in which the license holder is a principal.
Read the full list of rule proposals in the Texas Register, and send any comments by Dec. 25 to the Texas Real Estate Commission.
So what is one supposed to use? This is confusing.
It says “parties” can engage w/sn attorney not Brokerage! Because broker is not party to the contract
So if you need a document created that isn’t promulgated and you can’t have your attorney draw one up, what are you supposed to do?
Good question.
This rule would prevent a broker from hiring an attorney to provide additional contract language. The principles to the transaction would be required to reach out to an attorney directly.
First of all, we as agents are asked not to practice law so we do not by asking an attorney to be involved, sounds to me like TREc is contradicting themselves for what they initially asked the agents and brokers not to do
The answer is “…require parties to engage an attorney to draft a contract document or for the parties to write the contract language themselves”. The PARTIES to the transaction and not the BROKER/BIC cannot use company attorney to draft documents. Makes sense to me.
That doesn’t make sense. An attorney licensed in Texas is authorized to draw up legal documents in Texas. Not every situation in real estate requiring a legal document is available in a form approved by TREC or Texas Realtors Association.
Very well said.
That’s right. What this rule would prevent is the broker hiring an attorney to draft something up, and then the broker turning around and giving what the attorney did to the agents to then give to the clients. The clients should be going directly to the attorney if they need one.
The problem is agents typically are not paying an attorney, they reach out to an attorney at their favorite title company ask them to draft a document or provide language in paragraph 11. So as to now lose business the attorney for the title company complies with their request. Then that agent uses that document or language over and over regardless of the circumstances. What this rule change does it prohibits the agent from doing this and would require a party to the transaction make contact with an attorney.
So the principal would be required to hire the attorney rather than the brokerage…? That’s how I read it. Surely the proposed rule does not intend to rule out all forms drafted by attorneys for a transaction when no promulgated form exists…If the new rule intends to still allow the principal to hire an attorney to draft a form, then I am on board with this. Brokerages too often take forms drafted by attorneys and put them into regular circulation for other transactions within the brokerage.
If a TREC or TAR form exists, you should never engage an attorney to create a similar form.
You have just further confused things! What are we supposed to do if no legal contract exists?
Well said.
Tell your clients to hire an attorney.
Have the client reach out directly to an attorney; that’s what the proposal is saying.
Pretty much if it is needed, it already exists. This is just saying the PARTIES to the transaction need to be ones to hire the attorney to draft the document OR write the verbiage themselves. The Broker and Associates are not the ones to add the verbiage or have brokerage hired attorney draft unnecessary documentation.
Does this only apply to the use of forms between the parties to the contract, i.e. buyers & sellers? Or does this also include forms used between the licensee and a buyer or seller, i.e. listing agreements? Also, I must be licensed by TREC to do commercial real estate, yet they provide no forms for those transactions. How does this align with the new rules? I understand that TREC can mandate which forms are used, but Texas REALTORS does not have the same authority for their forms. I imagine that the State Bar of Texas will likely have an opinion… Read more »
If no forms exist, you need to tell your clients to hire an attorney or for them to hammer out a contract directly themselves. This rule would prevent brokers from hiring attorneys to draft something for the broker, then the broker giving what the attorney drafted to the agents to then give to clients. The clients need to be going directly to the attorney instead of it being attorney, to broker, to agent to client. This would not prevent a broker from hiring an attorney to draft up an agreement between the broker and its agents for example because the… Read more »
Ben – go back and reread the thread and my questions. I spent 6 years serving on the Broker/Lawyer committee at TREC and am aware of the importance of having clear and precise language. The proposed rule change fixes several issues but creates new ones.
TREC does not promulgate listing/buyer rep forms. Just contracts between parties, addenda to the contract between parties and notices/disclosures between patries. And I’ll bet the state BAR really likes this rule change… more business for them!
Looks like this is the purpose – and what if the client doesn’t want to hire an attorney ? Is the Broker just supposed to go ahead and risk being sued?
Dana, if the client doesn’t want to hire an attorney, the client can still write their own verbiage. The way I read this proposal is that it removes some risk from the brokerage when client is asking for something to be written into a promulgated form, that there isn’t already a form for the requested change. That’s my understanding of it.
That is an assinine rule. There are times when an attorney must be used to create a form that is not available through TREC or TAR. I have had to hire an attorney to create and addendum when no such form already exists through TREC or TAR. So, what do we do when there is not a form that would be required?
as·i·nine ˈa-sə-ˌnīn. : extremely or utterly foolish or silly. an asinine excuse. : of, relating to, or resembling an ass.
From how I read the rule the principle would need to an engage an attorney OR draft a form themselves, now THAT will create a HELL of a MESS!! I have been in the business for over 60 years and it’s been my experience few if any are willing to hire attorneys to draft an offer on residential and small commercial real estate. TREC is trying to solve problems and over the decades have done a world of good but at times they can”t “see the forrest for the trees”.
I agree, Walter. For those clients who are unwilling or unable financially to hire an attorney, the possibility of them drafting the language themselves will create an even bigger problem, given the fact that the majority of clients have no concept of what is and isn’t legal in a contract.
It doesn’t have to be legal – it just has to be from the parties (buyers or sellers) and not the facilitators (brokers/agents) .
What this rule would prevent is the broker hiring an attorney to draft something up, and then the broker turning around and giving what the attorney did to the agents to then give to the clients. The clients should be going directly to the attorney if they need one.
There needs to be a better explanation of this to us by TAR. The commercial broker above has a great point.
Good call!
How does using a form drafted by an attorney for a brokerage expose the agent/brokerage/TREC to liability?
I am going to bet this “proposal” will not be passed.
This rule would prevent a broker from hiring an attorney to draft something for the broker to give to agents who would then give it to their clients. The language would probably be pretty general and may not work for the contemplated transaction or may create unintentional liability for the client. The clients should be working directly with the attorney.
I’m guessing this may have to do with brokerages that have in-house counsel and draft up contracts for things like an escalation clause? I had an agent from a major brokerage present an escalation clause on a deal and when I informed her this was illegal in TX, she said her brokerage attorney drafted it and therefore it was legal. I can only assume this new policy is to address those kinds of issues?
I think Frank here is on the right track. I have seen many “standard docs” that Brokerages require their Agents to use for both Buyers and Sellers. A lot of these “Broker Docs” are superfluous and some of them are just obnoxious. If Buyers or Sellers need legal services they should be hiring their own counsel. If a Buyer or Seller asks and Agent for a legal referral then the Broker could give the Client a name. I think there is wisdom in this proposal. There are too many Brokerages out there that are adding a lot of “Legal Fluff”… Read more »
That makes sense.
Interesting. I would like to know what brokerage co. Has an attorney on staff to write addendums for agents. I worked for two large companies and we all had to go outside for counsel.
Yep. This is exactly what I was thinking of when I read about the proposed new rule. That has to be stopped, as it’s out of control. Every brokerage cannot be allowed to develop their own form for things they think should be allowed by the TREC contract but aren’t.
Will TREC be willing to write emergency forms to cover brokerage liability for sales immediately after natural disasters (Hurricane Harvey) , especially for second home markets? Will brokers be able to hire their own attorney to produce a form to cover situations unique to their geographical areas?
Having an attorney draw up an amendment versus brokers/realtors trying to write something in Special Provisions ( which should not be done- only business related details ) could create a litigious incident. We have an attorney at our brokerage who has helped tremendously with possibly averting a real estate “collision” by creating forms to help. Bad idea to lose them with this proposed change.
This needs more clarification.
Simply not a good idea
There is a nuance in the explanation that TREC needs to define. The explanation says “contract” form(s). So are we to presume that this rule only applies to “contracts” themselves and not all other forms, like addendums, amendments, disclosures, and notices, or does this apply to every type of “contract” form?
The focus is on having the client hire the lawyer rather than an agent providing a form to a client that the agent’s lawyer prepared. It’s all about the attorney/client relationship. It is separate and apart from the realtor/client relationship.
Richard Reese…agree. All of the Commercial Contracts I have been involved in were drawn up by the buyers attorneys. When I use a TAR Commercial Contract an Agent asked me, What is this…I’ve never seen this before. Requested he submit the offer to the seller. Sellers attorney made a couple of changes, like any good agent would, and we had a contract.
You are correct Steve!
Why is anyone worried about understanding this poorly written (in my humble opinion) explanation? As the rule is from TREC, wouldn’t a competent real estate attorney in Texas know that we, as agents, aren’t allowed to engage them for this service? (If I’m understanding that correctly.) Shouldn’t/wouldn’t the attorney have more responsibility than we agents to understand and follow the law, and inform us that our request would be illegal?
Remember the committee that makes these rules is half brokers and half lawyers. Biased to say the least. But Texas Realtor forms cover just about anything you need. Notice the rules say TREC and other approved forms. Like TR forms.
We always use lawyers to do special amendments not coved by TR forms.
What is Texas REALTORS position on this? The membership wants this flexibility (attorney drafted provisions), so is TXR lobbying against this change on behalf of the members?
All agents and brokers can file comments with TREC stating their opposition to this change. Send an email to general.counsel@trec.texas.gov, or go to TREC’s website and use the on-line comment tool.
I agree the clients attorneys form document agreements that conform within real estate law, not the realtors proceed or thought…
Brokerages often have an attorney draft forms for the Brokers Agents to use under specific circumstances. (For example, prior to the existence of an applicable TREC form, my Broker had an attorney drafted form requiring the property under contract meet appraisal). All of the Agents in the Brokerage could use it in their offers to protect our buyers. Having these Brokerage forms available keeps the Agents from “practicing law” by writing in their own verbiage PLUS these docs saves our Clients LOTS of money in attorneys fees. It appears to me that this new proposed rule benefits Attorneys more than… Read more »
They are all about control. They control you the broker they keep you paying fees to them to work. Sounds alot like the mafia without the guns and protection.
Shouldn’t that decision be left to the broker and their attorney.
The current rule allows A BROKER to use an attorney to draft a contract form for a party to use in a transaction when TREC has no mandatory form in place. The proposed rule removes this option and would require PARTIES TO ENGAGE AN ATTORNEY to draft a contract document or for the parties to write the contract language themselves. This is the line I believe most are referring to: Brokers can not have forms drafted even if they are a party to the contract. Parties can still have an attorney draft those documents or write it themselves. A License… Read more »
This is going to give the big commercial real estate companies who draft their own forms, and do not cooperate with other brokers some heartburn……
How hard is it to understand that except for promulgated forms, the client needs to use his own attorney and not use the one the agent uses? This applies to any piece of paper the client is requested to sign. It is a very simple concept.
I am in support of the change. We are dealing with Investors who hold Real Estate license drafting own contracts for their deals – This will prevent unscrupulous wholesalers with a license to draft contracts. I’ve seen too many of those in-house contracts being deliver to the general public being one sided. This new rule will get some bad apples out of the basket. Our interest should be in favor of our clients, not ourselves.
Well said.
so if i’m an agent that is using an attorney drafted contract to purchase a property for myself from another agent on market , im not allowed to use form?
But…Why??? As it sits now, brokers can’t practice law and may have a need to draft a form to allow transaction(s) to run smother for their client(s). So now, their clients will have to unsure an extra burden to pay for a form to be drafted that their brokerage may have already had drafted before this ridiculous proposal. How on earth does this best represent the public consumer by burdening them more??? Isn’t that the mission for TREC?