                              ATTORNEYGENERAL OF TEXAS
                                            GREG        ABBOTT


                                              December     14.2004



Mr. Wayne Thorburn                                       Opinion No. GA-0282
Administrator
Texas Real Estate Commission                             Re: Whether the Texas Real Estate Commission
Post Office Box 12188                                    may establish by rule minimum service standards
Austin, Texas 78711-2188                                 for area1 estate broker who enters into an exclusive
                                                         agency relationship with a party to a real estate
                                                         transaction    (RQ-0224-GA)


Dear Mr. Thorbum:

        You ask on behalf of the Texas Real Estate Commission (the “Commission”) whether the
Commission may establish by rule minimum service standards for a real estate broker who enters
into an exclusive agency relationship with a party to a real estate transaction.’

I.      Backeround and Legal Context

         In November 2002, the Commission adopted an amendment to Texas Administrative Code,
title 22, section 535.2.’ See 27 Tex. Reg. 9255-56 (2002), adopted 27 Tex. Reg. 10920 (2002)
(codified at 22 TEX. ADMIN. CODE 4 535.2). The purpose of the amendment was to define “the
minimum level of service that a consumer may expect to receive from a [real estate] broker who
represents the consumer.” 27 Tex. Reg. 10920 (2002). The Commission explained its reasoning for
adopting the amendment at the time of the amendment’s proposal, noting:

                  This clarification is proposed based on concerns raised by various real
                  estate industry organizations       regarding limited service listing
                  agreements. A limited service listing agreement is an agreement by
                  which a broker provides fewer services than those services provided
                  for in a traditional real estate listing agreement. A limited service
                  agreement may provide for a menu of services or reduced fees for
                  certain specified services rather than a full commission for the


           ‘See Letter from Wayne Thorbum, Administrator, Texas Real Estate Commission, to Honorable Greg Abbott,
TexasA~omeyGeneral(June        8,2004) (ontilewitbthe OpinionCommittee,  &so availableathttp://www.oag.state.tx.us)
[hereinafter Request Letter].

         ‘See Brief from the Texas Association ofRealtors, at 1 (July 6,2004) [hereinafter TAR Brief]; see ako 27 Tex.
Reg. 10920 (2002) (“The Texas Real Estate Commission adopts an amendment to 5 535.2            without changes to the
proposed text as published in the October 4,2002, issue of the Texas Register (27 TexReg 9255).“).
Mr. Wayne Thorburn - Page 2                          (GA-0282)




                 complete range ofbrokerage services generally found in a traditional
                 real estate agency relationship.

                 In many cases under such listing, a real estate broker may provide no
                 service to the seller except to place the listing in a Multiple Listing
                 Service. Typically, the listing broker instructs the cooperating broker
                 to contact the seller directly for all purposes (showings, presentations
                 of offers, and negotiations).

                 This practice raises several concerns for brokers who represent buyers
                 interested in properties listed under limited service agreements. Often
                 times the seller does not understand the complexities             of the
                 transaction and relies upon the cooperating broker for assistance and
                 advice. The seller is reluctant to approach the limited service broker
                 for assistance at the risk of incurring significant additional fees; in
                 some cases the limited service broker will not provide the additional
                 service.    When the cooperating broker represents the buyer, the
                 cooperating broker is uncomfortable about providing assistance or
                  advice to the seller. Cooperating brokers also understand, however,
                 that failing to provide the requested services to the seller may
                 jeopardize the transaction or increase risks associated with the
                 transaction.

27 Tex. Reg. 9255-56 (2002).

        According to the Texas Association ofRealtors (“TAR”), before the amendment to the rule
was to take effect, a Texas broker tiled for a temporary restraining order against the Commission
claiming that the amended rule was contrary to chapter 1101 of the Occupations Code (the “Real
Estate License Act”). See TAR Brief, sups note 2, at 1. Apparently, opponents objected that the
new rule had the effect of prohibiting the use of limited service listing agreements by denying
consumers the right to select and pay for only selected services with a licensed broker. See 28 Tex.
Reg. 3951 (2003). However, “[t]he restraining order was granted on procedural grounds because
the reasoned justification was omitted from the order adopting the rule.” TAR Brief, supra note 2,
at 1. In May 2003, the Commission repealed the amendment “for further study of the issue.”
28 Tex. Reg. 395 1 (2003). Now having studied the issue, the Commission again wishes to amend
section 535.2 to define the minimum level of service that a consumer may expect to receive from
a broker who represents the consumer. See Request Letter, supra note 1, at 3-4.

        As background to the new proposed amendment, TAR informs us that in certain
circumstances brokers enter into limited service listing contracts with real estate owners that grant
“exclusive agency’” to the broker but limit the broker’s duties merely to listing the property on a
multiple listing service (“MLS”). See TAR Brief, supra note 2, at 2. These exclusive agency limited


          ““Exclusive agency” is a term of art that Black’s Law Dictionary defines as “[a111 agreement by owner that
during life of contract he will not sell pmperty to a purchaser procured by another agent, which agreement does not
preclude owm himselffromselling      to apurchaserofhis  own procuring.” BLACK’SLAWDICTIONARY 58 (5thed. 1979).
Mr. Wayne Thorbum        - Page 3                (GA-0282)




service listing contracts specifically state that the listing broker will not negotiate for the
seller/principal.  See id. And though the use of the phrase “exclusive agency” in a listing contract
does not grant the listing broker any additional powers or duties, this type of agency relationship is
a necessary formality that enables the listing broker to list the property on a MLS. See, e.g., North
Texas Real EstateInformationSystem,Inc.,MLSListingRule              5 7.0l,avaiZableathttp://www.ntreis.net
/FonnsAndDocs/rulesregs.htm        (requiring that a listing broker must be, at a minimum, the exclusive
agent of a seller to list a property); West Texas Regional MLS, art. 5 Listing Procedures, available
at http://www.wtrmls.info/docs.shtml        (requiring that a listing broker must be, at a minimum, the
exclusive agent of a seller to list a property).

         With respect to exclusive agency contracts, the Commission notes that section 1101.652
(b)(22) of the Occupations Code permits the Commission to revoke or suspend a real estate
licensee’s license if while acting as a broker or salesperson the licensee “negotiates or attempts to
negotiate the sale, exchange, or lease ofreal property with an owner, landlord, buyer, or tenant with
knowledge that the person is a party to an outstanding written contract that grants exclusive agency
to another broker in connection with the transaction.” Request Letter, supra note 1, at 2-3 (emphasis
added); see also TEX. Oct. CODEANN. § 1101.652(b)(22) (V emon 2004). The Commission argues
that these exclusive agency limited service listing contracts create ziproblem for the buyer’s broker
when a seller/principal attempts to negotiate the real estate transaction with the buyer’s broker
directly because, following the Commission’s argument, any actual or attempted negotiation would
subject the buyer’s broker to penalties for violating section 1101.652(b)(22). See Request Letter,
supra note 1, at 3-4.

         The Commission argues that section 1101.652(b)(22) implicitly imposes on listing brokers
who enter into an exclusive agency relationship with a seller the duty to negotiate, see id. at 3, and
that this duty needs to be more clearly defined in the Commission’s rules, see id. The Commission
refers us to the current version of the rule, section 535.2, which it contends, in light of section
1101.652(b)(22), gives too general an outlineofareal    estate broker’s duties when acting as anagent.
See id.; see also 22 TEX. ADMIN. CODE5 535.2 (2004). Section 535.2 reads in relevant part:

                (b) A real estate broker acting as an agent owes the very highest
                fiduciary obligation to the agent’s principal and is obliged to convey
                to the principal all information ofwhich the agent has knowledge and
                which may affect the principal’s decision. A broker is obligated
                under a listing contract to negotiate the best possible transactionfir
                the principal, the person the broker has agreed to represent.

22 TEX. ADMIN. CODE 3 535.2(b) (2004) (emphasis      added). The Commission seeks to clarify the
meaning of “to negotiate” as it is used in section 535.2(b) by amending section 535.2 to include
three new subsections: (d), (e), and (f). See Request Letter, supra note 1, at 1-2.

        Specifically,   the three proposed subsections would read:

                (d) In negotiating for his or her principal a broker may not refuse to
                provide the following services when such services are appropriate in
                the transaction:
Mr. Wayne Thorbum       - Page 4                  (GA-0282)




                        (1) accept and present to the principal offers and
                        counter-offers to buy, sell, or lease the principal’s
                        property or property the principal seeks to buy or
                        lease;

                        (2) assist     the     principal      in    developing,
                        communicating, and presenting offers, counter-offers,
                        and notices that relate to the offers and counter-offers;
                        and

                        (3) answer the principal’s questions          relating      to
                        offers, counter-offers, and notices.

                (e) Under 5 1101,652(b)(22) of the Act a broker may not negotiate or
                attempt to negotiate the sale or lease of property with a principal
                with knowledge that the principal is a party to an outstanding written
                contract that grants exclusive agency to another broker.         Under
                5 1101,652(b)(27) of the Act, a broker may not aid, abet, or conspire
                with another to circumvent the Act. A broker who represents a
                principal under a listing contract that grants an exclusive agency to
                the broker may not instruct or authorize another broker who
                represents another party in the transaction to negotiate directly with
                the principal.

                (t) When a broker delivers an offer or counter-offer to another
                broker, the broker is not negotiating or attempting to negotiate with
                a principal he or she does not represent by delivering a copy of the
                offer or counter-offer to the principal he or she does not represent so
                long as the broker representing the principal consents to the delivery
                and the broker who makes the delivery does not discuss or attempt to
                discuss the terms or conditions of the offer or counter-offer with the
                principal he or she does not represent.

Id. These subsections putport      to define aminimum service negotiation standard that all brokers who
have entered into a relationship     ofrepresentation with a client must meet, including exclusive agency
limited service listing brokers     who have by contract agreed with their principals not to negotiate.
See id. at 3. The Commission        asks us to evaluate its authority to adopt these proposed subsections.
See id. at 1-3.

II.     Analysis

         Every state administrative agency is a creature of the legislature and has no inherent
authority. See Pub. Utils. Comm’n v. City Pub. Ser. Bd. ofSan Antonio, 53 S.W.3d 310,316 (Tex.
2001) (citations omitted). A state agencyhas only those powers that the legislature expressly confers
upon it, see id., but when the legislature expressly confers a power on an agency, it also impliedly
Mr. Wayne Thorbum - Page 5                      (GA-0282)




intends that the agency have whatever powers arereasonablynecessaryto     fulfill its express functions
or duties, see id. However, an agency may not exercise what is effectively a new power or a power
contradictory to the statute. See id. With these principles guiding our discussion, we now turn to
address individually the three proposed subsections that the Commission wishes to adopt and the
authority of the Commission to adopt them.

         The Commission’s organic statute, the Texas Real Estate License Act (the “Act”), provides
that “[a real estate broker] who represents a party in a real estate transaction acts as that party’s
agent.” TEX. Oct. CODEANN. 5 1101.557 (Vernon 2004). The Act does not define the scope of a
real estate broker’s agency, but it does authorize the Commission to “adopt and enforce rules
necessary to administer [the Act’s chapter 11011 and Chapter 1102” and to “establish standards
of conduct and ethics for persons licensed under [the Act’s chapter 11011 and Chapter 1102.” Id.
8 110 1.15 1(b)(1)-(2). Because agency, in this context, only describes a relationship ofrepresentation
between a broker and the broker’s client but does not by itself describe required representative
acts, the legislature necessarily authorized the Commission to establish, within the confines of the
Occupations Code, a standard of conduct with respect to a relationship of representation formed
between a listing broker and the broker’s client.

         The Commission has already determined that “acting as an agent        [a] broker is obligated
under a listing contract to negotiate the best possible transaction for the principal, the person the
broker has agreed to represent.” 22 TEX. ADMIN. CODE 5 535.2(b) (2004). As a threshold matter,
we believe that this rule is within the Commission’s power to establish and enforce and it does not
conflict with the statutory scheme created by the legislature. Furthermore, there is nothing that
would prohibit the Commission from clarifying by rule what it means by “to negotiate” so long as
that rule does not exceed the rule-making authority granted or necessarily implied by the legislature.
Seegenerally, supra, City Pub. Ser. Bd. of San Antonio, 53 S.W.3d 310 (citations omitted).

         A.     Proposed Subsection (d)

                We now turn to the Commission’s       proposed rule changes.        Proposed subsection (d)
reads:

                (d) In negotiating for his or her principal a broker may not refuse to
                provide the following services when such services are appropriate in
                the transaction:

                        (1) accept and present to the principal offers and
                        counter-offers to buy, sell, or lease the principal’s
                        property or property the principal seeks to buy or
                        lease;

                        (2) assist     the     principal      in    developing,
                        communicating, and presenting offers, counter-offers,
                        and notices that relate to the offers and counter-offers;
                        and
Mr. Wayne Thorbum          - Page 6                    (GA-0282)




                           (3) answer the principal’s questions               relating    to
                           offers, counter-offers, and notices.

Request Letter, supra note 1, at 1

         Proposed subsection (d) describes a standard of conduct with respect to a listing broker’s
relationship ofrepresentation with the broker’s client. Specifically, this subsection defines the term
“to negotiate” used in section 535.2(b), the Commission’s          extant rule. Moreover, proposed
subsection (d) clearly expresses what is only implied by section 1101,652(b)(22). A listing broker
who has been authorized to represent a client through an exclusive agency limited service listing
contract must negotiate for that broker’s principal in the manner prescribed by proposed subsection
(d) because anything less would cause a violation of the Act. We therefore conclude that the
Commission has the authority to adopt proposed subsection(d) because it is arule that falls squarely
within the Commission’s rule-making authority and does not conflict with the Act’s statutory
scheme.4

            B.    Proposed Subsection (e)

                  Proposed subsection (e) reads:

                  (e) Under §1101.652(b)(22) of the Act a broker may not negotiate
                  or attempt to negotiate the sale or lease of property with a principal
                  with knowledge that the principal is a patty to an outstanding
                  written contract that grants exclusive agency to another broker.
                  Under 5 1101.652(b)(27) of the Act, a broker may not aid, abet,
                  or conspire with another to circumvent the Act. A broker who
                  represents a principal under a listing contract that grants an exclusive
                  agency to the broker may not instruct or authorize another broker
                  who represents another party in the transaction to negotiate directly
                  with the principal.

Id. at 2.

        This proposed subsection cites to section 1101.652               of the Act, which as addressed earlier,
outlines conduct that is punishable by license suspension or             revocation. See TEX. Oct. CODE ANN.
5 1101.652 (Vernon 2004). This proposed rule reiterates                   only what the legislature has already
determined to be prohibited behavior, and we conclude                     accordingly that the Commission is
authorized to adopt such a rule.


           ‘TAR writes: “The words ‘maynotrefuse to provide’ in the proposed Subsection(d) may cause some to believe
that the broker only need provide the listed services under proposed Subsection (d) when asked by the client to provide
the services.” TAR Brief, supra note 2, at 8. We agree. While the Commission has the authority to adopt subsection
(d) as proposed, to the extent it would create the impression that a listing broker in an exclusive agency contract need
negotiate only when requested to do so by the broker’s principal then the language contradicts section 1101,652(b)(22)
ofthe Act. We suggest revising subsection(d) to employ mandatory language such as “must provide” 01 “shall provide”
to avoid any such impression.
Mr. Wayne Thorburn - Page 7                     (GA-0282)




       C.      Proposed Subsection (f)

               Proposed subsection (t) reads:

               (f) When a broker delivers an offer or counter-offer to another
               broker, the broker is not negotiating or attempting to negotiate with
               a principal he or she does not represent by delivering a copy of the
               offer or counter-offer to the principal he or she does not represent so
               long as the broker representing the principal consents to the delivery
               and the broker who makes the delivery does not discuss or attempt to
               discuss the terms or conditions of the offer or counter-offer with the
               principal he or she does not represent.

Id.

         We have already established that the Commission is permitted to clarify existing rules by
adopting new ones so long as the new rules do not exceed the scope of the Commission’s rule-
making authority as granted by the legislature, and so long as the new rules do not conflict with the
legislature’s statutory scheme. Proposed subsection (f) further clarifies the meaning of“to negotiate”
by describing conduct that would not constitute negotiation, and would not, therefore, violate the
Commission’s rules or the Act. It does not exceed the Commission’s rule-making authority as
granted by the legislature, nor does it conflict with the Act’s statutory scheme. We conclude, for the
same reasons we concluded that the Commission would be permitted to adopt proposed subsection
(d), that the Commission would be permitted to adopt proposed subsection (f).
Mr. Wayne Thorburn - Page 8                   (GA-0282)




                                       SUMMARY

                         The Texas Real Estate Commission has proposed three rules
               that purport to clarify a listing broker’s duties when negotiating
               for a client. Proposed Administrative Code section 535.2(d), which
               provides that a listing broker may not refuse to provide certain
               services to that broker’s principal, is valid. Proposed Administrative
               Code section 535.2(e), which prohibits behavior already prohibited
               by Occupations Code section 1101.652, is valid. Finally, proposed
               Administrative Code section 535.2(t), which describes conduct that
               wouldnot violate agency rules or the Texas Real Estate License Act,
               is valid.




BARRY R. MCBEE
First Assistant Attorney General

DON R. WILLETT
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

Daniel C. Bradford
Assistant Attorney General, Opinion Committee
