Real Estate Agent Liability: Unauthorized Practice of Law

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 Unauthorized Practice of Law by Real Estate Agents

Real estate agents are licensed professional agents who are educated in real estate matters and are authorized to conduct real estate business in the state in which they are licensed. Real estate agents must have passed a state board exam to practice as licensed professionals.

It is important to note that in many states, there are significant distinctions between the terms “agent,” “salesperson,” “broker,” etc. In general, when a person uses the term “agent,” they refer to a salesperson instead of a broker. A broker generally handles higher-level real estate issues.

Further, in some states, an “agent” may be referred to as a “real estate broker,” while the broker is known as a “qualifying broker.” In some states, such as Colorado, all licensed real estate professionals are also considered brokers.

Once again, real estate agents can only perform certain tasks for their clientele. For instance, the sale or purchase of a home. A real estate agent’s tasks depend largely on their education, licensing, and certification. Examples of common tasks performed by a real estate agent include, but may not be limited to:

  • Handling standard client forms and questionnaires regarding property matters;
  • Answering basic questions that buyer or seller clients may have;
  • Reviewing real estate contracts on behalf of their clients;
  • Engaging in the negotiation of prices up to the closing of a deal;
  • Showcasing a property to clients by guiding them in walk-throughs and open houses; or
  • Providing their clients with specific information, up to a certain level of knowledge and expertise.

Once again, real estate agents, or salespersons, are frequently limited in their actual work capacity. For example, sometimes, real estate agents need confirmation from a supervising broker regarding more important transaction decisions. Further, real estate agents are not allowed to engage in the unauthorized practice of law.

It is important to note that the law and professional organizations do not allow professionals to exceed the scope of their training and licensing. The Code of Ethics and Standards of Practice of the National Association of Realtors addressed the unauthorized practice of law.

The Code states that realtors found practicing law without a license shall constitute the unauthorized practice of law. The following is a list of activities that are typically considered to be the unauthorized practice of law by real estate agents:

  • Providing their clients legal advice or offering an opinion on the legal effect of a contract or any parties’ actions;
  • Drafting legal documents that confer legal rights or obligations on a party, such as drafting a legal document that affects real property.
    • It is important to note that courts have said that real estate agents and brokers may fill in the blanks in pre-printed agreements that have been pre-approved by a licensed attorney so long as they do not provide any legal advice or legal guidance of any kind.
    • Typically, a real estate agent is safe to use a pre-drafted contract that has been drafted by an attorney and approved and circulated by the state’s Association of Realtors;
  • Preparing or expressing any sort of legal opinion, such as guiding the effect of a contract;
  • Assist their clients in initiating a civil lawsuit;
  • Representing a client before any tribunal or in an administrative or other real estate proceeding; or
  • Negotiating legal rights or responsibilities of a client in a contract or other setting.

As can be seen, numerous actions may constitute the unauthorized practice of law by a real estate agent. As such, if there is any question of whether or not an action may be considered an unauthorized practice of law, the real estate agent should advise their client to seek legal counsel.

What Are the Consequences of the Unauthorized Practice of Law?

As mentioned above, there are numerous legal consequences for a real estate agent’s unauthorized practice of law. If a real estate agent engages in any of the above-listed unlawful activities, they will have engaged in the unauthorized practice of law and face legal consequences.

Examples of common legal consequences for the unauthorized practice of law by a real estate agent include:

  • The loss of their professional licensure and possible ban from regaining their license in the state;
  • Civil and statutory fines;
  • The loss of insurance coverage;
  • The loss of employment from their real estate firm;
  • The loss of any profits related to the unauthorized practice of law;
  • The loss of any commission that was a result of the unauthorized practice of law; and
  • Lawsuits initiated by clients for fraud and forgery.

What Are Other Forms of Real Estate Agent Liability?

In addition to the unauthorized practice of law, real estate agents may be subject to other liabilities. Real estate agent liability refers to instances in which a real estate agent has violated either the law or real estate professional conduct guidelines, such as by providing real estate legal advice.

However, real estate agents are not the only liable party in some cases. When a legal issue arises, it is difficult to determine which parties are liable to a seller or buyer client. This is largely because, in any real estate transaction, multiple people and parties may be involved. Examples of parties involved in a real estate transaction may include:

  • The real estate agent or the salesperson who worked directly with the buyer;
  • A real estate broker, or the person who managed and supervised the salesperson;
  • Home inspectors and appraisers that were retained during the sale or purchase process;
  • Mortgage and loan companies; or
  • Lawyers and other professionals were retained to provide legal advice or other professional services.

Once again, real estate agents can become legally responsible if they breach a duty owed to their clients. For instance, breaching their contract with their client or giving no obligation to provide inaccurate property legal advice may constitute a breach of their duty to their client. In all these cases, the party that was harmed may initiate a civil lawsuit against the party responsible for harming them to make a recovery for the damages they suffered.

Who Should I Seek Advice from Regarding a Real Estate Issue?

Regarding any real estate legal issue, consulting with a licensed and experienced real estate lawyer is essential. Although a real estate agent can assist their clients with various common issues concerning the sale or purchase of a home, they should never provide real estate advice concerning a legal issue or complication.

If you have any questions regarding a contractual provision or legal issue, you should consult an experienced real estate attorney. Real estate lawyers are the only individuals with knowledge regarding your state’s property and real estate laws. An experienced attorney will have expertise in researching complex real estate law issues, and they will be able to assist you with any aspect of your real estate legal issue.

Additionally, an attorney can help you draft any necessary real estate document, such as purchase contracts and deeds. Further, an attorney can also represent you in any legal negotiation. Finally, an attorney can also represent you in court should a legal issue a civil lawsuit.

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