Because the Texas Real Estate Commission's latest form changes became effective January 3, the Broker-Lawyer Committee (BLC) focused much of its January 10 meeting on its continued conversation related to compensation, including the recent changes to Paragraph 12 and the disclosure on Page 10.

Paragraph 12 specifies the settlement and other expenses that Seller and Buyer agree to pay at or before closing. Paragraph 12A(1) lists the expenses payable by Seller, and Paragraph 12A(2) lists the expenses payable by Buyer.

Seller expenses in Paragraph 12A(1) are broken down in three subparagraphs, each of which was recently amended:

• Subparagraph 12A(1)(a) was amended to add specific language requiring Seller to pay “brokerage fees that Seller has agreed to pay.” An example of these expenses are the fees Seller agreed to compensate a listing broker in the listing agreement.
• Subparagraph 12A(1)(b) was added to allow Seller to agree to contribute an amount that Buyer may use for the specific purpose of paying brokerage fees that Buyer has agreed to pay. In this subparagraph, the use of the phrase “brokerage fees that Buyer has agreed to pay” limits the amount Seller ultimately must contribute to the lesser of (1) the amount listed; or (2) the amount Buyer actually agreed to pay their broker which is typically specified in a buyer’s representation agreement.
• Subparagraph 12A(1)(c) contains a revised version of the former Seller contributions language and allows Seller to contribute an amount that Buyer may use for “other Buyer expenses.” The definition of the term “Buyer Expenses,” which includes the list of qualifying expenses, is contained in Paragraph 12A(2). In this subparagraph, the use of the phrase “other Buyer expenses” is meant to exclude brokerage fees that buyer has agreed to pay. Accordingly, Seller contributions listed in Subparagraph 12A(1)(c) may not be used to pay Buyer’s brokerage fees.

“Paragraph 12A(1)(b) of the contract is intended to be a direct contribution out of the seller's pocket to pay for buyer-broker compensation,” said BLC Co-Chair John G. George, Jr. “The contribution is capped by the amount the buyer has agreed to pay their broker. That’s why we included the phrase X percent or X dollars towards buyer compensation that buyer agreed to pay.”

BLC discussed public comments on Paragraph 12 and the compensation disclosure on Page 10 of the One to Four Family Residential Contract (Resale), and the co-chair explained the difference between the two.

“There are two key distinctions between the amount listed in Paragraph 12A(1)(b) and the amount listed on Page 10. First, they are paid by different people. The amount in Paragraph 12A(1)(b) is paid out of the seller’s pocket, whereas the amount on Page 10 is paid out of the listing broker’s pocket (even though the seller might ultimately have to fund the amount paid by the listing broker via their obligation in their listing agreement).

“Second, the amount listed in Paragraph 12A(1)(b) creates a binding obligation, whereas the amount listed on Page 10 is for information purposes only and does not create an enforceable agreement no matter how much is listed in the disclosure. The amount on Page 10 must be established in a separate compensation agreement between brokers, typically through agreements we’ve always referred to as cooperative compensation agreements.”

BLC decided against making any changes right now and to defer any action related to brokerage compensation issues until a later meeting.

“These contracts are brand new, and we understand the need for license holders to be provided education on their proper use. Before we recommend additional changes, we want to see the impact of this education and receive additional feedback from license holders and the public,” the co-chair said. “We understand there’s a learning curve and are open to addressing any issues that arise and continue in the market.”

Potential Water Disclosures Issues

How do surface water and groundwater relate to a real estate transaction? This is a topic on BLC’s radar. The group reviewed public comments about water-related issues and rights.

In some scenarios, consumers do not realize they have purchased property with limitations on their ability to use groundwater due to the property’s location. Another scenario is buying land that has a well—the buyer may unknowingly incur certain liabilities and responsibilities for that well. One more situation involves neighbors using a shared well located on one lot and then running into issues when the lot is sold.

To protect consumers in these transactions, BLC is considering a water right disclosure form. They reviewed a draft during the meeting and referred that draft to a working group.

Notice of Buyer’s Termination of Contract

The committee discussed the Notice of Buyer’s Termination of Contract. The committee recommended that the clarifying change in Paragraph 2 of the notice be adopted by the Commission. The change ensures that the buyer has delivered the lender’s written statement to the seller in accordance with recent changes to Paragraph 2A, Buyer Approval, of the Third Party Financing Addendum.

What’s a Holiday?

BLC discussed adding a definition of “Legal Holiday” in the contract forms. The committee drafted language that they will review again at their next meeting.

Where to Find Meeting Materials

View a recording of the meeting and download related materials.

BLC meets again on June 13.