At a minimum

Section 1101.557 of The Real Estate License Act contains provisions that impose minimum standards an agent must provide when representing a party. The provisions state that an agent:

  1. Must inform the client if the agent receives material information related to the transaction, including the receipt of an offer
  2. Must answer the client’s questions
  3. Must present any offers to or from the client.

These standards are required even for agents who serve as a subagent or hosting agent.

It may not seem like a big deal if an agent from another firm hosts an open house at your firm’s listing. However, doing so exposes both firms to potential liabilities. Consider the following before moving forward.

The other broker may be responsible

Brokers are responsible for their agents’ activities as license holders. If something goes wrong at an open house being hosted by an agent from another firm, the broker of that agent (called the hosting agent for purposes of this article) could be held responsible along with the broker who listed the property.

The other broker should consent

The hosting agent’s broker should consent before allowing the hosting agent to hold the open house for the listing brokerage. Any compensation for hosting an open house would go to the hosting agent’s broker unless that broker provides written consent for the hosting agent to be paid directly, as outlined in TREC Rule Section 535.3. (That broker can share whatever portion of that fee the broker and hosting agent agree to.)

Brokers should disclose that they may use outside agents for showings

Listing brokers should disclose to their clients that they may use outside agents to host an open house. The Texas REALTORS® listing agreements provide authorization from a seller to the listing broker to allow other brokers to access the property in Paragraph 7, but they do not specifically state that agents outside of the listing brokerage may be hosting open houses or operating as subagents of the seller to show the house. Therefore, brokers may want their attorneys to draft agreements that cover these scenarios. In addition, the two brokerages should have their own agreements that govern their working relationship and who will be responsible if issues arise.

There’s potential for misrepresentation

While providing brokerage services, such as showing a property, a license holder must provide a clear understanding of who the license holder represents. Texas real estate license holders cannot practice in a non-agency capacity. A license holder must represent someone. You can represent the seller’s interests or the buyer’s interests—or serve as an intermediary if both parties consent to such an agreement.

As a hosting agent, you must obtain the authorization of the listing broker to hold an open house for that listing broker. It is wise to get that authorization in writing. Accordingly, with such authorization, the hosting agent is effectively a subagent of the seller and should treat the buyer like a customer, not a client.

A subagent is defined under Texas law as a license holder who represents a principal through cooperation with and consent of a broker who represents the principal and is not sponsored by or associated with the principal’s broker (1101.002(8) Texas Occupations Code). In other words, a license holder not associated with the listing broker but still representing the seller’s interest would be a subagent of the seller.

When acting as a subagent of the seller, the hosting agent must make clear to any potential buyers that the hosting agent is acting as a subagent of the seller. This should be done because the buyer may not realize the hosting agent’s fiduciary duty is to the seller, not the buyer. Failure to disclose this fact could also mean additional liability concerns for the hosting agent’s broker.

How are mistakes handled?

The hosting agent has a duty to treat all parties fairly and honestly and to provide minimum duties to the seller as outlined in Section 1101.557 of The Real Estate License Act. The hosting agent must also disclose any significant defects that the hosting agent is aware of that a reasonable buyer would want to know.

The hosting agent may also acquire knowledge about the property while acting as a subagent for the seller. The information obtained must be kept confidential. Sharing such information with a buyer while hosting the open house or when working as the buyer’s agent after the hosting agent’s subagency ends could subject the hosting agent to liability.

The brokers can include in their agreement governing the hosting agent’s obligations which brokerage will be responsible if there is a misrepresentation or other error made on the part of the hosting agent. It’s possible that the hosting agent would not be covered by either firm’s errors and omissions insurance in this scenario. The listing brokerage’s insurance may not cover outside agents, and the hosting agent’s brokerage’s insurance may not cover work done for another firm. The brokerages would need to review their policies to determine their insurance coverage.

Co-hosting isn’t a cure-all

There could also be liability if an agent from the listing brokerage co-hosts the open house with an agent from another brokerage. It could be seen as misleading or a misrepresentation, especially if the agent from another brokerage does not specify for whom that agent works and to whom that agent owes a fiduciary duty.

Get attorneys involved

The best thing for brokerages to do when involving an agent from a different firm to host an open house is to consult their attorneys. The attorneys can draft an agreement spelling out the parties’ responsibilities as well as how to disclose to the seller that a third party may be showing their property.

It may also be advisable to have an agreement with the seller obtaining consent to utilize a hosting agent for an open house and outlining who is responsible for the hosting agent’s actions or omissions if an issue arises. It’s possible that the attorneys may suggest avoiding this scenario altogether due to the risk of liability.

Scan the code for an NAR consumer guide about open houses

NAR considerations

Another area that brokers and agents should consider is the recent change to the NAR MLS policy, which requires an MLS participant working with a buyer to obtain a written agreement with that buyer prior to showing a home.

As stated previously, license holders must provide a clear understanding of who they are representing. If the hosting agent has obtained the consent of the listing broker to become a subagent of the seller, then the hosting agent is working with the seller and would not need to obtain a written agreement for buyers to tour the home during the open house.

However, if the hosting agent has not obtained the consent of the listing broker to be a subagent of the seller or if the hosting agent is opening the home to work with buyers, then the hosting agent would need to obtain a written agreement from each buyer before that buyer could enter the home for a tour.

Similarly, if the hosting agent is a subagent of the seller, and a buyer would like to utilize the hosting agent’s services with respect to showing the buyer other homes, the hosting agent would be required to obtain a buyer written agreement with that buyer before touring any homes other than the open house.

Brokers should be clear and make sure their agents are clear on who they represent and how they share this with potential buyers entering the open house to reduce their risk of liability. If the hosting agent is serving as a subagent of the seller, the hosting agent can use Texas REALTORS® Representation Disclosure (TXR 1417) to disclose that the agent represents the seller.