Real Estate Agent Liability: Unauthorized Practice of Law

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 What is an Agent?

An agent is an individual who represents another individual, typically referred to as the principal, when dealing with a third party. This means that anything that an agent says or does while they are acting in the capacity of being an agent for an individual is as if the individual did or said it themselves.

What is a Real Estate Agent?

A real estate agent is an individual who is authorized to conduct real estate business in a given location or state. A real estate agent is typically employed by a brokerage firm.

Real estate agents are licensed professionals who are educated in real estate matters and have passed a state board exam. In many states, there are significant differences between an agent, a salesperson, and a broker.

In many cases, when speaking about an agent, an individual is referring to a salesperson as opposed to a broker. Real estate brokers tend to handle higher-level real estate issues.

The proper terms for real estate professionals may be difficult to figure out. In certain states, an agent is referred to as a real estate broker while a broker is referred to as a qualifying broker.

In other states, such as Colorado, all licensed real estate professionals are considered to be brokers.

What Do Real Estate Agents Do?

Depending upon the real estate agent’s education, licensing, and certifications, real estate agents may perform numerous tasks, including:

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

A real estate agent, or salesperson, is sometimes limited in their actual work capacity. For example, in some cases, they are required to obtain confirmation from a supervising broker when more important transaction decisions are involved.

For the majority of home buyers, this distinction does not affect their transaction. With more experienced investors or commercial investors, however, they may prefer a broker over a sales agent.

What are Licensed Real Estate Agent Relationships?

There are numerous methods by which the buyer or seller of a home can establish an agency relationship with a licensed real estate agent, including:

  • An express contract;
  • An implied agency; or
  • A gratuitous agency.

An express contract can be either verbal or written. Listing agreements are the most common written contracts between home sellers and agents.

Then the agreement is signed by the seller, or principal, and the agent, or licensee, an agency relationship is created. A verbal contract is not as common but, in some cases, may be sufficient to create an agency relationship.

Agency relationships may also be implied by the actions of an agent and how a buyer or seller relies upon those actions. If an individual acts like an agent, leads another individual to believe that they are acting in their best interests as an agent would do, and the individual thinks of them as their agent, then the individual will most likely be labeled as an agent and will be held to the standard of an agent.

It is important to note that payment of compensation does not determine the existence of an agency relationship between an agent and a buyer or seller. Agents do not have to be paid by principals in order to be deemed the principal’s agent.

What is Practicing Law Without a License?

If an individual is practicing law without a law license, they are said to be engaging in the unauthorized practice of law. There are things that individuals with law licenses are permitted to do, including provide legal advice and represent a client in court.

If an individual who is not a licensed attorney and is not certified by their resident state bar provides legal advice or represents an individual in court, that may be subject to harsh consequences. Giving legal advice includes prescribing or suggesting certain courses of action based upon presumed legal knowledge.

For example, legal inquiries or criminal charges arise in certain specific circumstances. An attorney is trained in a very specialized manner so they know how to conduct legal research on the specific nature of the issue or charge.

An individual with a general knowledge of the law would not be equipped to provide sound legal advice. This may lead to serious consequences for the individual who is receiving the device.

Other examples of practicing law without a license may include preparing legal documents and practicing in court. Individuals are also prohibited from presenting themselves as attorneys when they are not.

It is important for certain types of individuals to ensure that they make it clear to clients that they are not attorneys and cannot provide legal advice, including:

What is Unauthorized Practice of Law by Real Estate Agents?

As previously noted, only attorneys are authorized to practice law. Attorneys are required to:

  • Obtain rigorous educations and training in law school;
  • Pass a comprehensive background check called a moral character and fitness test; and
  • Pass a difficult bar examination which encompasses all areas of state law.

When individuals become activated and licensed members of a state bar, they are then qualified to provide legal advice to their clients. There are no other individuals, including law students, paralegals, or real estate agents, who are legally permitted to provide legal advice regarding real estate law issues.

Many real estate agents, however, provide legal advice to their clients which breaches legal and ethical rules in the field of real estate. A real estate agent is not, under any circumstances, authorized to practice law.

Real estate agents are not permitted to:

  • Explain potential legal outcomes of disputes;
  • Evaluate an individual’s legal issue and advise them on the best way to proceed;
  • File a lawsuit for the individual;
  • Make arguments in court on the individual’s behalf; and
  • Draft legal paperwork.

What are the Consequences of the Unauthorized Practice of Law?

If real estate agents engage in any of the previously noted legal activities, they have engaged in the unauthorized practice of law, or practiced law without a license. A real estate agent may face a variety of consequences for the unauthorized practice of law, including:

  • Losing their realtor license;
  • Fines;
  • Losing commissions; and
  • Lawsuits for fraud and forgery.

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

It is essential to have the assistance of a real estate lawyer for any real estate issue, question or concern you may have. Although your real estate agent will be able to assist you with a variety of issues surrounding the sale or purchase of your home, you should never solicit real estate advice from your real estate agent.

Real estate lawyers are the only individuals who have years of training and courtroom practice, including knowledge regarding the laws of your state. Your attorney will also have experience researching complex real estate law issues and they will be able to assist you with any aspect of your case. These include negotiating real estate disputes, drafting legal documents, and representing you in court.

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