7.3 Texas License Maintenance and Conduct

Advertising Rules

TREC's advertising rules (22 TAC §§535.154–535.155) define an "advertisement" broadly: any communication by or for a license holder designed to attract the public to use brokerage services — print, signs, business cards, email, text, social media, and websites all count. The cardinal rule: the sponsoring broker's name must appear in every advertisement. A sales agent may use a personal name or a team name, but the broker's name must be present, and the broker's name must be at least half the size of the largest contact name (the agent or team name) shown.

Advertising may not be false, misleading, or deceptive. Prohibited practices include:

• Implying a sales agent is the responsible party (the broker is);
• Using a team name that suggests the team is a separate brokerage;
• Failing to identify the broker; and
• False claims about a property, designation, or results.

Every broker must also display the Consumer Protection Notice (TREC CN 1-2) at each place of business and link to it on the business website homepage.

Trust/Escrow Accounts and Earnest Money

Only a broker may hold trust money; a sales agent who receives earnest money must promptly deliver it to the broker or the named escrow agent. Trust funds — earnest money, security deposits, property-management funds — must be kept in a separate trust or escrow account, clearly identified as such.

Commingling — mixing client trust money with the broker's own operating funds — is prohibited and is a frequent disciplinary trigger. So is conversion (using client funds for the broker's own purposes). The broker must be able to account for all trust money and provide an accounting on demand.

In a standard Texas residential transaction, the buyer typically delivers earnest money to the title company acting as escrow agent, not to the brokerage, so many sales agents rarely hold trust funds directly. When a contract falls through and the parties dispute the earnest money, the escrow agent holds the funds until the parties agree in writing, a court orders disbursement, or the statutory release procedure is followed — the agent must not simply hand the money to one side.

Canons of Professional Ethics and Conduct

The Canons of Professional Ethics and Conduct (22 TAC Chapter 531) carry the force of law. They have five articles:

Prohibited Conduct and Discipline

TRELA and the TREC Rules list conduct that subjects a license holder to discipline, including misrepresentation, failure to disclose a material defect, commingling or conversion of trust funds, false advertising, acting as an undisclosed dual agent, and conduct that demonstrates bad faith, dishonesty, or incompetency. TREC may reprimand, suspend, revoke, or deny a license, place a license holder on probation, require additional education, or assess administrative penalties up to $5,000 per violation per day. A license obtained or used in violation of TRELA can also forfeit the right to a commission.

The Real Estate Recovery Trust Account

The Real Estate Recovery Trust Account is the fund of last resort for consumers harmed by a license holder's fraud, misrepresentation, or breach of the License Act. A consumer must first sue the license holder and obtain a court judgment, then show the judgment cannot be collected, before applying to TREC for payment.

When TREC pays a claim from the account, the offending license holder's license is automatically revoked and stays revoked until the license holder reimburses the account in full plus interest. The account covers actual damages found in the judgment; it does not pay a license holder's exemplary (punitive) damages.

Record Retention

Brokers must keep transaction records — contracts, disclosures, trust-account records, and related documents — available to TREC for at least four years from the date of closing, the date the contract terminated, or the end of the transaction. Records may be kept electronically as long as they are readily retrievable for the Commission.

Exam tip: Remember the figures: four years record retention; $5,000 maximum administrative penalty per violation per day; $125,000 / $250,000 Recovery Trust Account limits. These exact numbers are common state-portion questions.