Is Your Real Estate Agent Involved in the Unauthorized Practice of Law?

There is a very fine line involved in what a real estate agent can and cannot do when it comes to working with contracts to sell and purchase homes, yet over the last 17 years in the real estate sales I have seen and continue to see examples weekly of agents who are pushing the boundaries of practicing law in an unauthorized manner. As a buyer or seller you should be aware of this so that your interests are protected; as an agent you NEED to be aware of this to protect yourself, your broker and especially your clients from legal action.

Let’s define “unauthorized practice of law” so as to understand what is happening. The definition varies state to state, but in California only an attorney is legally allowed to draft a contract. Real estate agents use contractual forms that have been approved by the California Association of Real Estate (C.A.R.). So as not to create legal issues with drafting, these forms are mostly fill in the blank, where the agent adds specific details like addresses, prices and party names. The rest of the information is added via checking boxes. This gets around the requirement because the agent is not “drafting” material terms, merely filling them in (although of course there is a strong argument that agents should not even be able to do this since they are not attorneys).

There are some forms that require agents to actually write in terms, such as contract addenda, which in my legal opinion should not be allowed but somehow is, and which can lead to problems for clients in a real estate transaction. Here are some of the most egregious examples of agent unauthorized practice of law:

1. Drafting terms in the contract beyond factual terms: Agents should never draft their own agreements if they are not attorneys, and should only stick to pertinent facts (names, dates, property description, etc.)

3. Editing contractual terms: This is the same as above…if any contractual terms need to be edited make sure you do so in a nonlegal and factual way (such as names, dates, etc.). This is a bit confusing because agents ARE allowed to draft contract addenda, which can change terms of a contract as long as all parties agree in writing.

** I feel strongly that allowing agents to do this constitutes the unauthorized practice of law and should not be allowed. An easy way to get around this confusing problem is to have escrow draft an amendment…however most escrow companies will require to see a contractual addendum first in order to draft the escrow amendment. If you are confused by this it is understandable.

3. Interpreting legal or contractual terms: If an agent is not an attorney s/he may not interpret contractual or legal terms as that would constitute providing legal advice. If a client needs something interpreted the agent must advise the client to seek legal advice. Even if an agent has seen the same situation happen before or feels s/he has a grasp of the subject, it could constitute the unauthorized practice of law so it is not even worth it to “share your knowledge.”

The bottom line is that an agent should always ask the advice of her or his broker if not certain whether something can be construed as the unauthorized practice of law. Consequences can include fines, suspension, loss of license and prosecution. The best advice to agents is to advise your clients to consult an attorney. Remember that negligence and other causes of action can lead to lawsuits down the road as well.