3.3 Texas Intermediary Practice & Appointed Licensees

Texas Intermediary Practice & Appointed Licensees

One of the most heavily tested legal domains on the Texas Real Estate Broker Examination is Intermediary Practice. Prior to 1996, Texas recognized the common law doctrine of dual agency, which created insurmountable legal conflicts of interest when a broker attempted to represent both buyer and seller in the same transaction. In 1996, the Texas Legislature enacted sweeping statutory reforms that abolished dual agency and established the statutory Intermediary framework under TRELA §§ 1101.559–1101.561.

In Texas, an Intermediary is defined as a broker who negotiates a transaction between parties who are both clients of that same brokerage firm. The statute establishes clear operational rules for broker impartiality, agent appointments, and confidential communications.

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1. Statutory Prerequisites for Intermediary Status

Under TRELA § 1101.559, a broker may act as an intermediary between parties to a real estate transaction only if the following three mandatory conditions are met:

┌────────────────────────────────────────────────────────────────────────┐
│               MANDATORY PREREQUISITES FOR INTERMEDIARY STATUS          │
├────────────────────────────────────────────────────────────────────────┤
│ 1. Written Consent:                                                    │
│    The broker obtains prior written consent from each party to act as  │
│    an intermediary in the transaction.                                 │
├────────────────────────────────────────────────────────────────────────┤
│ 2. Conspicuous Bold Print:                                             │
│    The written consent clause contains a conspicuous statement in      │
│    BOLD or UNDERLINED print setting forth the broker's intermediary    │
│    obligations and stating how the broker will be paid.                │
├────────────────────────────────────────────────────────────────────────┤
│ 3. Impartiality Mandate:                                               │
│    The broker treats all parties honestly, fairly, and impartially,    │
│    refraining from favoring either party to the transaction.           │
└────────────────────────────────────────────────────────────────────────┘

In standard practice, written consent is secured at the inception of representation via Paragraph 9 of the Texas REALTORS® Listing Agreement and Paragraph 8 of the Buyer/Tenant Representation Agreement.

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2. Two Modes of Intermediary Practice

Once an in-house transaction occurs (where a buyer client represented by the brokerage wishes to purchase a property listed by the same brokerage), the sponsoring broker must operate under one of two distinct modes:

                     ┌──────────────────────────────────────────────┐
                     │          TEXAS INTERMEDIARY PRACTICE         │
                     │             (TRELA §§ 1101.559-561)          │
                     └──────────────────────┬───────────────────────┘
                                            │
         ┌──────────────────────────────────┴──────────────────────────────────┐
         ▼                                                                     ▼
┌──────────────────────────────────┐                  ┌──────────────────────────────────┐
│   INTERMEDIARY WITH APPOINTMENTS │                  │ INTERMEDIARY WITHOUT APPOINTMENTS│
│         (TRELA § 1101.561)       │                  │        (TRELA § 1101.559)        │
├──────────────────────────────────┤                  ├──────────────────────────────────┤
│ • Sponsoring broker appoints 2   │                  │ • 1 agent handles both sides OR  │
│   separate affiliated licensees. │                  │   solo broker firm.              │
│ • Agent A represents Seller.     │                  │ • No appointments made.          │
│ • Agent B represents Buyer.      │                  │ • Licensee acts as facilitator/  │
│ • Appointed agents CAN give      │                  │   scrivener/referee.             │
│   opinions, advice, & strategy.  │                  │ • CANNOT give opinions, advice,  │
│ • Sponsoring broker remains      │                  │   or negotiating strategy to     │
│   strictly neutral/impartial.    │                  │   either party.                      │
│ • Broker CANNOT appoint self.    │                  │ • Conveys offers & facts only.   │
└──────────────────────────────────┘                  └──────────────────────────────────┘

Mode 1: Intermediary WITH Appointments (TRELA § 1101.561)

If the sponsoring broker has at least two associated sales agents or associate brokers involved in the transaction, the broker may appoint one licensee to work with and advise the seller, and appoint another licensee to work with and advise the buyer.

• Powers of Appointed Licensees: An appointed licensee may provide opinions, advice, comparative market analyses, and negotiating strategies directly to the party to whom they are appointed.
• Role of the Sponsoring Broker: The sponsoring broker must remain completely detached and impartial. The broker cannot provide advice or negotiation guidance to either party and CANNOT appoint themselves as one of the appointed licensees.
• Written Notification: The broker must provide written notice of the appointments to both parties using the promulgated Intermediary Relationship Notice (TREC / TXR Form 1409).

Mode 2: Intermediary WITHOUT Appointments

Intermediary without appointments occurs under two common circumstances:

1. A single sales agent represents both the buyer client and the seller client in the same in-house transaction.
2. A sole proprietorship broker with no sponsored sales agents represents both parties.

• Strict Statutory Restrictions: Under this mode, the licensee and the broker must act purely as facilitators and referees.
• Prohibition on Advice: The licensee cannot provide opinions, advice, or negotiating strategy to either party. The agent can only present factual data, prepare standard promulgated contract forms at the specific direction of the parties, and transmit offers and counteroffers.

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3. Absolute Statutory Prohibitions (TRELA § 1101.561(d))

Regardless of whether appointments are made, Texas law imposes three absolute statutory prohibitions upon the broker and all affiliated licensees in an intermediary transaction. Neither the broker nor any agent may disclose:

1. Seller Price Concession: That the seller will accept a price less than the asking price, unless authorized in writing to do so by the seller.
2. Buyer Price Concession: That the buyer will pay a price greater than the price submitted in a written offer, unless authorized in writing to do so by the buyer.
3. Confidential Information: Any confidential information or any information that a party specifically instructs the broker in writing not to disclose, unless:
   • Authorized in writing by the respective party;
   • Required to be disclosed by TRELA, a court order, or federal law; or
   • The information relates materially to the physical condition of the property.

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4. Intermediary Comparison & Decision Matrix

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5. Critical Exam Traps & Broker Liability

1. The 'Broker Appoints Self' Trap: An individual broker owner who sponsors one sales agent cannot appoint the sales agent to the buyer and appoint themselves to the seller. Under TRELA § 1101.561, the broker must remain neutral. If there is only one sales agent, the transaction must proceed as Intermediary without Appointments.
2. Common Law Dual Agency Attempt: Any contract clause purporting to create a 'dual agency' or 'disclosed dual agency' is illegal in Texas. Intermediary is the sole lawful structure.
3. Failure to Secure Prior Written Consent: If an agent shows an in-house listing to a buyer client without written intermediary consent in both the listing and buyer representation agreements, the broker commits an illegal act under TRELA § 1101.652(b)(7).