Proposed Contract Form Changes, Broker Succession Rule Adopted During August 2024 TREC Meeting

The Texas Real Estate Commission met August 19 in Austin for its third meeting of the year. The Commission adopted a new rule addressing broker succession. In addition, several form changes were recommended by the Broker-Lawyer Committee (BLC) and proposed by the Commission, which means you can provide your public comment on these changes now. Read on for more updates.

Adopted Changes

New Rule About Broker Succession

Under TREC rules, the death of a sponsoring or designated broker will cause any sponsored sales agent’s license to become inactive, meaning the sales agent cannot perform any real estate services that require a license—even if the agent is in the middle of a transaction. This is true regardless of whether the agents are sponsored by an individual broker or a business entity broker.

TREC adopted a new rule, 535.124, Death of a Designated Broker, to detail agency practice and provide better guidance in the event the designated broker of a licensed business entity dies. Under this rule, neither the business entity license nor any sponsored sales agent’s license will become inactive right away. Rather, the entity and agents will be given 14 days from the broker’s death before their licenses inactivate. This will hopefully give the entity and agents time to designate a new broker that satisfies the requirements without having to go inactive and disrupting business.

Course Approval Forms

The Commission adopted changes to the course approval forms for Principles of Real Estate I, Principles of Real Estate II, and Law of Agency courses. These changes reorder and remove content from the course approval forms to ensure relevancy and that course objectives are being met. These course approval form revisions were recommended by the Education Standards Advisory Committee (ESAC). Providers will receive more information on implementing the new course forms soon.

Texas Practicum

As recommended by the Texas Real Estate Inspector Committee (TREIC), the Commission adopted rule amendments to TREC Rules 535.209, Examinations; 535.213, Qualifying Real Estate Inspector Instructors and Courses; and 535.214, Education and Experience Requirements for a License.

These changes primarily rearrange existing inspector licensure requirements to clarify that the Texas Practicum is an experience requirement separate from an educational course.

Education providers may still offer the Texas Practicum but no longer need to submit a course application for it to TREC or issue completion certificates to students. Instead, students will submit the credit request form to the agency to obtain credit.

Proposed Contract Form Changes

The BLC recommended several changes to the TREC contract forms. Most of these changes are the culmination of two years’ worth of work on the part of the committee, with other changes recommended in response to industry practice changes around broker compensation affecting many license holders. You can provide public comment on proposed changes.

Recommended Proposals Related to Compensation Language

In light of recent industry changes surrounding broker compensation, Paragraph 12A(1)(a) and 12A(2) adds that each party pays the brokerage fees that they each have agreed to pay. Paragraph 12A(1)(b) is amended to allow for a specific seller contribution to the buyer’s brokerage fees.

A new Paragraph 12A(1)(c) has been added to separately address other seller contributions (that was previously in Paragraph 12A(1)(b)) and the prior language that specified the order in which any contribution was to be paid, as well as a limitation on the type of fee that could be paid, is removed. Conforming changes are also made in the Amendment to Contract.

The compensation disclosure in the Broker Information section of the contracts (except for the Farm and Ranch Contract) removes the parenthetical referencing the MLS and to add checkboxes to allow for the fee to be reflected either as a percentage or a dollar amount.

Recommended Proposals Related to the One to Four Family Residential Contract (Resale) Form

• Paragraph 4 is amended to add the term “geothermal” to the definition of Natural Resource Leases as a result of a 2023 law change that stipulates property owners own the geothermal energy below the surface of their land and can drill or produce that energy and associated resources.
• To be consistent with a recently updated Texas Department of Insurance procedural rule, Paragraph 6C(1) is amended to include the option of providing the T-47.1 Declaration (which does not need to be notarized)—in lieu of the T-47 Affidavit—when the Seller furnishes the Buyer an existing survey. In lieu of providing a “no survey required” option, Paragraph 6C(2) is amended to read “Buyer may obtain a new survey” instead of “Buyer shall obtain a new survey”, and adds that if the Buyer ultimately fails to obtain the survey, the Buyer does not have the right to terminate the contract under Paragraph 2B of the Third Party Financing Addendum because the survey was not obtained.
• Because Texas law requires a seller to provide a buyer a copy of any mold remediation certificate issued during the five years preceding the sale of the property, new Paragraph 6E(11) is added to provide information regarding this requirement (except in the Unimproved Property Contract).
• Paragraph 6E(12) is modified to add specific examples of the types of notices that should be listed in the paragraph and to add a caution that Seller’s failure to provide required notices may provide Buyer with certain remedies, like the ability to terminate the contract. For consistency with that paragraph and with applicable statutory requirements, Paragraphs 6E(4), (7), and (9) are amended to remove references to a separate related addendum.
• Paragraph 8B is changed to add a statement that brokers’ fees are not set by law and are negotiable.
• The title of Paragraph 20 is changed to “Federal Requirements” from “Federal Tax Requirements.” In new Paragraph 20B of the Farm and Ranch Contract, information regarding the obligations related to the federal Agriculture Foreign Investment Disclosure Act has been added.

Recommended Proposals Related to the Third Party Financing Addendum

In the Third Party Financing Addendum, to ensure the buyer is terminating appropriately, Paragraph 2A, Buyer Approval, has been changed to require both a notice of termination and a copy of a written statement of the lender’s determination like in Paragraph 2B, Property Approval. The language in Paragraph 2B is modified because the language related to notice of termination timing was different than in other contract provisions and was causing confusing. “Requirements” in Paragraph 4 is made singular and a conforming change is made to a paragraph citation.

Recommended Proposals Related to the Condominium Resale Certificate

The Condominium Resale Certificate is amended to conform the language in Paragraphs K and L with section 82.157, Texas Property Code.

Recommended Proposals Related to the Unimproved Property Contract, Addendum for “Back-Up” Contract

In the Unimproved Property contract, Paragraph 3D is amended to include the same sales price adjustment language as in the Farm and Ranch contract. A dollar sign is also added to Paragraph 3D in the Farm and Ranch Contract.

Out of concern about confusion and improper use of Paragraph 11, Special Provisions, by license holders, the Addendum for “Back-Up” Contract is modified to provide more clarity on the timing and payment of the earnest money and option fee by incorporating similar language from Paragraph 5 of the contract and by addressing timing and payment of additional fees.

Recommended New Addendum for Section 1031 Exchange Form

The committee drafted a new Addendum for Section 1031 Exchange form that allows the seller or buyer to disclose an intent to use the subject property as a 1031 exchange and includes a statement that the parties will reasonably cooperate with one another. Providing this as an addendum, rather than in the contract, allows the parties to use it when applicable without causing unnecessary confusion. A reference to the new Addendum for Section 1031 Exchange is also added to Paragraph 22 of the contract.

The BLC will review the public comments it receives to determine whether it should make changes to their proposals or recommend the Commission adopt the changes as proposed at the November TREC Meeting.

Fee Changes Still Being Considered

TREC is in its early stages of considering fee increases for renewals. TREC is a self-directed semi-independent (SDSI) state agency, which means it is responsible for its costs of operation and removed from the legislative budgeting process. Therefore, TREC’s sole source of revenue is through collecting fees, which are utilized to conduct agency operations.

Fee changes must be made in rule, so once a fee change is proposed by the Commission, the public will have an opportunity to provide feedback prior to adoption.

Meeting Materials

Download the meeting materials and watch a recording of the meeting.

Upcoming Meeting Info

The next TREC Meeting is November 4 at 10 a.m. CT in Austin. Broker license holders and sales agent license holders may earn up to four hours of continuing education (CE) elective credit per two-year renewal cycle by attending any single Commission meeting in person. A license holder cannot earn partial credit across multiple meetings.