Real Estate Agents: Legal Experts Or Not?

Real estate agents are prohibited from practising law in the traditional sense. This means they cannot provide legal advice, interpret the law or draft legal documents. However, they are expected to have a good understanding of the laws that govern their industry and work. For instance, they must understand the laws for mandatory disclosure in their state. In addition, they are required to refer their clients to competent third-party professionals when there is an issue requiring analysis outside the ordinary expertise of an agent. While real estate agents are not lawyers, they do possess a wealth of localized real estate knowledge and can provide valuable insights on local markets.

Real estate agents are prohibited from practising law

Real estate agents are not lawyers, and as such, they are prohibited from practising law. This means they cannot provide legal advice, draft legal documents, or interpret legal language in contracts. They can, however, fill out official pre-existing forms with factual information. For example, they can insert the identities of the parties, property identifiers, and amounts into blank attorney-approved form agreements.

Real estate agents have a duty to serve their clients' best interests, which includes preparing and listing a property for sale, marketing it, ensuring the client understands what to expect, and working to close the sale at the best price possible. They are also responsible for being aware of and staying up to date with any legal restrictions that impact their industry and work.

However, they are not legally permitted to disclose certain information due to fair housing laws, such as neighbourhood crime rates or school district reputations, as this can be interpreted as references to race or ethnicity, which are protected under the Fair Housing Act.

If a real estate transaction requires edits beyond filling in factual information, it is the ethical obligation of the real estate agent to refer their clients to a real estate attorney. This is because real estate agents are prohibited from practising law, and they can face serious consequences if they do so. These consequences can include fines, suspension, revocation of their license, or even a lawsuit.

Therefore, it is crucial for real estate professionals to be familiar with their state's laws, rules, and regulations to avoid engaging in the unauthorized practice of law.

Agents must refer clients to a real estate attorney

Real estate agents are prohibited from practising law in the traditional sense. They cannot provide legal advice, draft legal documents or interpret legal language in contracts. They are also not allowed to make major modifications to form agreements. While they can fill in factual information, such as party identities, property identifiers and amounts, into blank attorney-approved form agreements, they must refer their clients to a real estate attorney for any other changes. This is an ethical obligation under the Code of Ethics.

Real estate agents are financially motivated to close a deal, whereas a lawyer is not. A lawyer's role is to protect the interests of their client throughout the transaction, even if that means reminding the agent of their legal obligations. A lawyer can provide legal advice, draft contract documents and offer representation in disputes. They can also advise on contract interpretation, helping the client to navigate potential disputes during and after the transaction.

In some cases, hiring a lawyer can save money and reduce risk. For example, a lawyer can help a buyer negotiate a reduction in the purchase price, as the seller will not have to pay compensation to a buyer's agent. A real estate attorney can also explain whether the real estate agent charges a fair price for their services and guide the client through their next steps.

Real estate agents have an obligation to their clients after a sales agreement has been reached. The seller's agent should provide additional support and guidance to their client, which could include scheduling a time for the buyer's home inspection, serving as a go-between for the buyer and seller, communicating with the buyer's agent and providing additional information to the title clerk. However, agents must be aware of their legal obligations, as failing to comply with these obligations could jeopardise their license and career, as well as open the door for legal action against them.

In summary, while real estate agents have a duty to serve their clients' best interests, they must refer their clients to a real estate attorney for any legal matters. This is to ensure that the client receives the best possible advice and protection and to avoid any potential legal or ethical issues for the agent.

Agents must be aware of legal restrictions impacting their industry

Real estate agents have a responsibility to be aware of and remain up to date with any legal restrictions that impact their industry and work. Negligence is not considered an excuse for illegal real estate practices. While real estate agents are not required to have an inside-and-out understanding of the law, they must be mindful of the legal restrictions that apply to their industry.

Real estate agents are prohibited from practising law in the traditional sense. This means they cannot provide legal advice, draft legal documents (other than filling out official pre-existing forms), or interpret legal contract language. They can, however, insert factual information, such as party identities, property identifiers, and amounts, into blank attorney-approved form agreements. Making major modifications to form agreements or providing legal interpretations of provisions likely constitutes the unauthorised practice of law. In a 2017 Wyoming case, a real estate agent was found to have engaged in the unauthorised practice of law for merely removing inapplicable provisions of a state association's form.

Real estate agents must also understand the laws for mandatory disclosure in their state. For example, in many jurisdictions, failure to disclose known defects in a property is illegal and can lead to lawsuits, penalties, and even the revocation of a real estate agent's license. Additionally, agents have an obligation to their clients after a sales agreement has been made, such as providing additional support and guidance, communicating with the buyer's agent, and scheduling a time for the buyer's home inspection.

Furthermore, agents must be aware of fair housing laws, which restrict the information they can disclose to clients. For instance, information about neighbourhood crime rates or school district reputations is protected under the Fair Housing Act, and agents can be interpreted as references to race or ethnicity if they provide such information. Instead, agents should refer clients to the proper resources to find this information themselves.

Overall, real estate agents must be mindful of the legal restrictions that apply to their industry to avoid legal consequences and provide the best service to their clients.

Agents can be financially motivated to close a deal

Real estate agents are often financially motivated to close a deal. This is because, for any real estate agent, negotiating an investment and finalizing the deal can be the most rewarding part of the process, emotionally and financially. Closing on a real estate deal is the final step in securing a contract with a buyer, and it is vital to approach it carefully and strategically.

Real estate agents are often willing to get their hands dirty and learn how to negotiate to close a deal. Before approaching any negotiation, an agent needs to decide what they want to get out of it. In other words, they have to define what winning means to them and their client. While winning isn't always about the money, it often is.

To master the art of closing sales, real estate agents must understand their customer's journey and convert leads into valued clients. This involves addressing different client behaviours and scenarios and adapting to each unique situation. For instance, the Assumptive Close is a subtle yet powerful technique where the agent assumes the client is ready to purchase and proceeds with actions that suggest so. For example, asking the client, "When would you like to schedule the final walkthrough?" This technique works well when clients have shown interest and helps move the process forward without explicit confirmation.

Another effective sales closing technique is creating a sense of urgency to make the buyer feel they have to act now or lose out. For instance, reporting decreasing home prices or increasing interest rates as incentives to act quickly. However, for some potential buyers, adding a time crunch is not the right move. If they are unsure or apprehensive about signing the deal, it is better to release the pressure a little to allow them time to think.

Agents must disclose dual agency

Dual agency is when a real estate agent represents both the buyer and the seller in a property transaction. While dual agency is not expressly forbidden in most states, it is illegal for an agent to be a dual agent without disclosing this arrangement to both parties. This is because, in a dual agency situation, the agent cannot provide the advocacy, confidentiality, and trust expected in an agency relationship. The agent must also obtain written acknowledgment from both the buyer and the seller, confirming that they understand the nature of the dual agency and that they may engage their own agent to act solely for them.

In a dual agency situation, the agent's commission is based on a percentage of the final sale price of the home. This presents a conflict of interest, as the agent is incentivized to bid up the sale price, which may cause them to favor the seller over the buyer. Therefore, it is important for both the buyer and the seller to understand how they are being represented and to carefully consider the possible consequences of a dual agency relationship.

Dual agency often occurs when the buyer and seller of a home use the same brokerage or when a buyer approaches the listing agent directly without being represented by their own agent. For example, a buyer who is not yet working with an agent may attend an open house, decide they love the property, and choose to work directly with the hosting agent to purchase the home. If that agent agrees, they become a dual agent, representing both parties in the transaction.

In some states, acting as a dual agent is illegal. Therefore, it is important for real estate agents to be familiar with the laws and regulations in their state regarding dual agency.

Frequently asked questions