Lawyers Provide Better Representation – Pt. 3 of 4
Craig on 08 13, 2009
Continuing with my series…
Lawyers provide better representation than agents because the law governs the buyer/seller relationship (contract law, plus laws regarding disclosure and other aspects), and real estate agents are only authorized to engage in the limited practice of law. This means that agents are limited by law to filling in pre-printed forms that were drafted and approved by a lawyer. Agents are not supposed to provide legal counsel to a client. In other words, they are neither authorized nor trained to explain the terms of the contract. If a buyer or seller hase a unique issue that should be addressed in the contract, the agent may not be legally authorized or trained to draft an appropriate contract term to protect the party’s interests.
Similarly, agents are not equipped to handle title issues. Agents aren’t trained or authorized to give a client any opinion on the condition of title or the significance of the information revealed in a preliminary title commitment. There is significant risk to a buyer that he or she will buy a property subject to certain restrictions or title matters that are inconsistent with their intended use. These are the kind of things that, if known by the buyer, might have dissuaded the buyer from purchasing the property or caused them to offer a reduced price. For sellers, the last thing a seller wants to do is sell a property with an unresolved title defect (such as an encroaching fence) as this can easily come back to haunt her months or years later.
In contrast, lawyers are specifically trained and authorized to practice law without limitation. The vast majority of lawyers have a four year college degree and a three year graduate degree from law school. They have passed a difficult and comprehensive exam (the “bar exam,” a two and a half day ordeal). They have gained – and proven that they have – the knowledge needed to competently practice law, and they have the license required to do so. Got a question about the terms of your contract? A lawyer can answer it. Concerned about an issue or aspect of the transaction? A lawyer can deal with it. Worried about whether there is a defect in title? A lawyer can find out and, if so, address it.
Why does this matter? The purchase or sale of a home is a legal transaction involving an asset worth hundreds of thousands of dollars. There are many legal issues involved, from the disclosure requirements imposed on the seller, to the formation of a binding contract that protects your interests, to the closing documents that will transfer title. It makes sense to use a lawyer who is able, authorized, and, once hired, obligated to fully protect your legal interests.
About the Author: Craig Blackmon
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24 Responses to “Lawyers Provide Better Representation – Pt. 3 of 4”
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Okay Craig,
Real estate agents cannot advise on the terms of the contract? Really?
Agreed we don’t practice law, we fill in the blanks, Good agents understand standard contacts backwards and forwards. Need something out of the ordinary, call an attorney.
Defect in title, don’t you have title insurance in Washington? I’m starting to wonder about you guys up there.
Jeffrey and Jay — I don’t know the law in either CA or AZ and I’ve never indicated otherwise. I have no idea what limits there are in those states — or any other, besides WA — in regards to an agent’s ability to practice law.
That said, the Supreme Court here in WA has clearly limited agents to a narrow definition: “The holding [that allows an agent to engage in the limited practice of law] is limited in scope. A real estate broker or salesperson is permitted to complete simple printed standardized real estate forms, which forms must be approved by a lawyer, it being understood that these forms shall not be used for other than simple real estate transactions which arise in the usual course of the broker’s business and that such forms will be used only in connection with real estate transactions actually handled by such broker or salesperson as a broker or salesperson and then without charge for the simple service of completing the forms.” Cultum v. Heritage House 103 Wn.2d 623 (1985).
So, sorry fellas, but that’s the law here in WA.
As for a title defect: Only an agent would say, “don’t worry about it, you’ve got insurance!” In reality, title insurance rarely pays out, and it specifically excludes the exceptions noted in the policy. So any buyer must understand those exclusions and insure that they are consistent with his intended use of the property.
Fair enough. But nothing in your posts indicate you’re referring strictly to WA law and practices. Granted, you’re posting on Rain City Guide and your profile has a link to your Seattle area practice, but days, months or years from now when people stumble across your series, I can assure you they many won’t make the distinction as to locale. Sweeping generalizations of “lawyers” and “agents” with no reference to location could be misleading to some readers. Let’s face it, many people don’t read comments, click on links in profiles, or even pay attention to the location a blog is published. Heck, I’ve got “Phoenix Real Estate Guy” blazed across the header of my blog and I get people asking me to help them buy a home in Cleveland.
For the record, I didn’t mention title insurance. Title companies (here in AZ) are chartered with doing detailed, in-depth title searches. I’ve had attorneys tell clients to let a title company handle the search and reporting of the results.
Fair enough, indeed. Perhaps, in retrospect, I should have included a disclaimer up front noting that it is limited to Washington. That said, I don’t have much sympathy for someone who indiscriminately accepts as gospel something on the internet.
Only an agent would say don’t worry about it? Another slam that Agents collectively have no concern for our Clients. Let me remind you that I have a fiduciary duty to my Clients at all times.
Title insurance in California is issued as CLTA/ALTA Homeowner’s Policy of Title Insurance as required by the standard California Association of Realtors – Residential Purchase Agreement – RPA-CA. The insurance policy is very comprehensive with Title Insurers having Title Officers and legal staff to answer any questions. Why then, would I recommend my Client to consult an attorney to incur additional cost unless there was some reason.
Once again Craig, you are using sensational language to scare the consumer into why they need an attorney.
First and foremost — and once again — I don’t know anything about CA (other than what I learned growing up in Sacramento as a 5th generation Californian).
That said, I’m not trying to “scare” anyone. I’m trying to educate people about the shortcomings inherent to a system that was created to serve SELLERS ONLY (originally both listing and selling agents represented the seller) but which has now been shoe-horned into a very different model (where agents now owe a duty to buyers).
Finally, my comment, which was admittedly perhaps overly broad, was certainly NOT a “slam that Agents collectively have no concern for our Clients.” Rather, I was trying to convey the point that, because agents do not have the training to engage in the unlimited practice of law, they are more likely to not appreciate fine legal issues that may be important to any particular buyer.
In any event, let me clarify further: Agents have certain legal obligations to their clients, although the scope of those legal obligations falls far short of the obligations lawyers have to their clients. Honestly, I think that is an inarguable point. Am I suggesting that every buyer or seller should hire a lawyer in addition to an agent? That would certainly incur an additional cost, but it would also provide the buyer or seller with unlimited legal counsel. Given that the house will cost $$$, I can’t say I recommend AGAINST hiring a lawyer. But its a decision that should be made by the buyer or seller after being informed of these issues.
Craig, I agree. Thank you for narrowing your statement.
Again, I am the first to recommend a Client consult an Attorney.
I am nearing closing on a particularly tricky transaction – boundary and title concerns – FSBO – and I know it would have been impossible w/out a real estate atty. (Your partner in fact
Probably on anything pretty straight forward, its no problem to work with a realtor – but I also highly recommend hiring an attorney to look things over.
“In other words, they are neither authorized nor trained to explain the terms of the contract.”
Horse hockey.
Of course we can’t practice law, but we can certainly explain the terms of a contract. We (at least in AZ) are both authorized and trained to understand and explain the terms of purchase contracts.
“If a buyer or seller hase (sic) a unique issue that should be addressed in the contract, the agent may not be legally authorized or trained to draft an appropriate contract term to protect the party’s interests.”
Real estate, and real estate law is local. Article 26 of the Arizona State Constitution provides licensed agents and brokers with the authority to draft terms and clauses.
As for title issues, that’s what title companies are for. They conduct in-depth title searches. That’s their field of expertise.
“They have gained – and proven that they have – the knowledge needed to competently practice law, and they have the license required to do so.”
EVERY lawyer is competent? Really? Ask Ron and Nicole’s parents if OJ’s prosecutors were competent.
There are great lawyers, and there are shitty lawyers. Ditto with agents. And any other profession.
This whole series of “Lawyers rock and agents suck”, written by an attorney, sounds like a 3:00am infomercial. Not what I’ve come to expect from RCG. I’ve got no problem with attorneys, but good grief, is there anything an agent is capable of doing in your eyes Craig?
FINALLY! A little heat from this fire…
See my reply to Jeffrey for the law here in WA and my explicit recognition of my total ignorance about AZ law. As for title insurance companies, they conduct in-depth searches to identify any flaws on title that they will not insure against. That makes it all the more essential that a buyer understand the contents of a title committment.
Also, Jay, please refresh my recollection: exactly where did I say that every lawyer is competent? Of course I never said that. What I did say was that lawyers are fully trained and licensed to engage in the unlimited practice of law. That is a distinct advantage over the limited practice of law in which agents can engage here in WA. Because they are fully trained and licensed, though, does not guarantee that they are competent. It just makes it more likely and allows them to practice without limitation (which may be rather useful in any transaction).
On a similar note: Where did I say, “Agents suck?” Of course I did not. What I did say — and what was confirmed by Ardell, an agent here in WA — is that agents bill for a root canal but provide only a filling, i.e. they’re overpaid for the service they provide.
To be clear, and speaking generally: Agents can and do provide a valuable service to those clients who a) want a professional deeply involved in the transaction and want to use that professional’s time indiscriminately, b) are willing to accept the lack of systemic safeguards to prevent conflicts of interest, and c) are willing to pay a substantial sum for the service. As for any particular agent: There are some who provide stellar representation, in every sense of the word, and who are worth every nickel. But this post is not and has never been about any particular agent or lawyer. It’s focused on the system.
And now, back to our regularly scheduled late nite programming…
Thanks Jay, you explained that much better than I. Language straight from page 8 of the RPA-CA, Residential Purchase Agreement.
A REAL ESTATE BROKER IS THE PERSON QUALIFIED TO ADVISE ON REAL ESTATE TRANSACTIONS
IF YOU DESIRE LEGAL OR TAX ADVICE, CONSULT AN APPROPRIATE PROFESSIONAL.
Well, that doesn’t make any sense to me. What is the distinction between “advise on real estate TRANSACTIONS” and “legal advice”? At a minimum, there is a very large overlap.
Which leads to: The RE broker industry is a powerful, entrenched interest that has significant impact on the rules and regulations of the industry. I don’t agree that every rule or requirement suggested by the RE broker industry is in the consumers’ best interests. Rather, I think the RE broker industry is geared towards maintaining its dominance over the market for RE services — and why not? We’ve all got to make a living — I’m not trying to denigrate anyone. I’m just saying, “follow the money.” I’d wager that this language, which draws a false distinction in favor of brokers, is the result of input from RE brokers.
One other point (to hopefully take some of the poison out of the incoming arrows): Lawyers, too, influcene public policy in their favor. I am not a big fan of the term “trial lawyers,” but the fact is that personal injury plaintiff attorneys — some in particular — make a LOT of money (too much, IMHO). They use some of this money to influence public policy in their favor. So please don’t accuse me of suggesting that RE brokers are unique in this regard.
Point well taken. As stated in an earlier post there are powerful forces in our real estate industry to keep the status quo on “Dual Agency”. Until the consumer decides to revolt, that will continue.
Most every post out there on the Internet argues the same lame points about why dual agency is good.
Craig, I give your profession a big plus since you don’t have such a conflict of interest built in.
I am just one tiny Broker/Company along with only a few that wish that would change.
Craig,
Real estate agents, from a purely technical observation, routinely practice law. Routinely. Is it smart? I don’t know. In the escrow business, we see contracts that are solid and those that are comically invalid: both from large brokerages to the boutique’s. I honestly don’t know how some are submitted to escrow in the condition they are presented. I thought that managing Brokers were to oversee each contract but I could be wrong. We also see invalid Quit Claim Deeds and other forms provided by a client’s attorney. Come to think of it, we also ran into a contract for a private party Deed of Trust completely screwed up by an attorney.
Attorneys, who’s sole practice is real estate, in my view are much more qualified and competent in not only drafting contracts but in understanding why they are being drafted in a particular manner. Now, that doesn’t mean that an attorney is as gifted in all the ancillary transactional nuances that a seasoned AND competent agent is from negotiations to knowing which reliable third party resources to suggest for their specific situations.
As an aside, Washington State licensed LPO’s are held to the same standard as an Attorney via the WSBA APR Rule 12. But, LPO’s don’t give advice, a huge difference.
Honestly, I think that while a lot of people in the industry try to understand each others roles, it is very difficult for an agent to understand how a title operation is run or for a loan officer to know what goes on in the escrow business. They are enormously different businesses with different regulations. We are connected, but so very different. And I didn’t know how wide this chasm was until we opened an office. It revealed how little I really knew about real estate very quickly.
Last week our very own Samy ran into a title issue that would have NEVER been caught at the last minute if it were not for her own crafty detail oriented eye. Even the title company didn’t catch it until it was brought to their attention by us. A huge embarrassing gaff (this is the stuff that agents and LO’s are not aware of that goes on behind the scenes) for the title company, but escrow and title collaborated and got the deal closed. And, commissions got paid.
While people grumble about it, continuing ed is key.
General agreement, Tim. I would only note — again — that while agents routinely practice law in a manner that exceeds their legal authority to do so, that does not make it legal, or arguably even acceptable. The law is clear. Agents are not lawyers. Consumers should understand this. If, notwithstanding their understanding, they want to proceed with hiring an agent, then at least they have made an informed decision, and that’s all anyone can expect. Ultimately, everyone gets to decide what’s best for theselves (other than JimN, a commentor on one of the earlier posts, who thinks the government should make that decision).
It makes sense to use a lawyer who is able, authorized, and, once hired, obligated to fully protect your legal interests.
Once I have a legal interest I hire a lawyer.
This is another reason to carefully consider using an attorney in the Purchase or Sale of a residential property. They should be hired sparingly and as needed. An attorney is obligated to protect your legal interests.
When you hire an attorney they can advise you on legal matters. They protect your legal interests. Many of the things concerning mom, dad, and the kids are far removed from legal issues. The color of the bathroom tile is subjective and hardly legal. Schools are not included in title issues. Even when it comes to title issues attorneys rely on experts in reading title reports the same as all agents do, or should.
Agents have the ability to gather information, including the advice of an attorney, and channel it into a Purchase and Sale Agreement. That’s why some of the best Real Estate agents are the nicest people in the world. They have the ability to gather resources, as well as come to a meeting of the minds between a buyer and seller.
For some reason what crosses my mind here is all the many times that the Purchaser, Seller or Realtor realizes there is a thorny legal issue and wants to speak with the title company counsel. This would usually occur after escrow had given whatever explanation was available (being mindful of not practing law) and the parties still had questions about the issue.
They hoped to be able to access information from the title company attorney and were often quite miffed when they were advised the title company attorney represents the title company and cannot give specific advise to a party to the escrow.
I can agree with Tim, many contracts are well crafted. The difficulty seems to be when circumstances come along where there is an issue which exceeds a pre-printed form.
I know historically attorneys have had the reputation of “deal breakers”. Smart agents know when to insist the party seek legal advice. The next hurdle is to convince the party that they need an attorney versed in real property as opposed to the one who did their last divorce. So the challenge is developing the knowledge to know when one is needed…and when in doubt err on the side of caution.
These days there are so many more professionals involved in real estate transactions. The recommended due diligence on residential transactions has grown and grown. It would be risky not to have an attorney be invited to the table in some transactions.
An attorney familiar with real estate is critical, otherwise the Client is paying someone $300.00 an hour to educate them.
Nancy — well said. Again, I might be inclined to urge consumers to get a lawyer involved earlier — and more regularly — in the process, but I completely appreciate your viewpoint, and indeed I think it is dead-on given the existing system and expectations of consumers.
Also, thank you for pointing out that a lawyer represents ONE client, so the title insurance lawyer is not going to necessarily give you the best — or even any — legal insight. This is one of the harder concepts for agents to grasp, and again it highlights one of the primary differences between agents and lawyers. Lawyers are not simply legal resources who can dispense legal advice to anyone. Lawyers have a client, and the lawyer’s obligation to that client is more or less absolute. By necessity, given that everyone ultimately looks out for themselves, a lawyer can only represent one party.
I would just like to comment that Agents and Attorney’s are both just grossly over paid. With 500 Realty, MLS 4 Owners, Red Fin, Shop Prop, Findwell, Zip, and the 1000 more companies coming this insanity of 6% will slowly come to an end.
From a medical background coming into real estate 15 years ago I was shocked by the incompetence. From working with surgeons on a daily basis at Madigan to dealing with people who feel they deserve 5k, 10k, 20k, for listing a home and then won’t get off their butts to show it never ceases to amaze me.
As for Attorney’s passing a very difficult exam and thereby believing they deseve 100-200 an hour for their expertise in analyzing contracts and giving expert advice based on law, I state wake up! The incompetence of lawyers is just as apparent as it is with Realtors. It does not matter that they passed a test 8 years ago. What have they done lately?
You see teachers, military servicemen and women who fight for our country, and health care professionals are at the top of the class in my book and deserve far more then they are compensated.
Realtors, Attorney’s, Salesman, Politicians, and 1000’s of other careers deserve to get paid what they are worth and over time they will see their value. There are far too many Attorney’s and Real Estate Agents.
They will begin to diminish in numbers and people will choose careers that society will require. I look so very forward to a New Era of Real Estate and having it powered by the mighty Google/Msft/????…Its not that far away friends and watch the demise of the NAR, MLS System as we know it, and all the Attorney’s and Realtors that circle around this profession.
Ray — Sounds like you hate everyone but medical providers. Dontcha’ think thats a little simplistic? Seriously, “1000’s” of jobs are overpaid?? Ray, that’s the talk of an alone-in-the-woods crank, not the insight of somebody who understands the system but wants to change it for the better.
Plus, I would add, I think you fail to appreciate human nature. We tend to be a combative species, and we certainly look out for ourselves first and foremost. In such a world, how, exactly, is Google or Microsoft going to protect the interests of buyers and sellers? Lawyers or agents are a necessary part of the marketplace where the assets being bought and sold are worth 100’s of thousands of dollars.
Finally, you look forward to the “demise of the NAR, MLS System as we know it, and all the Attorney’s and Realtors that circle around this profession”? What is the “profession” to which you refer? If its real estate broker/agent, then how, exactly, are lawyers “circling” around it”? In case you’re just tuning in, at least this lawyer is committed to providing an alternative model for representation of parties to a real estate transaction. Frankly, I think my job of marketing myself would be easier if agents did not have the built-in advantage of owning the de facto marketplace for real estate (the MLS). So I’d prefer a marketplace that is not owned and operated by agents. Until then, I’ll work with the existing system. You say I’m “circling”? I don’t get it.
Doctors, in my opinion, are at the bottom of the bottom feeders. More health care is administered by nurses on a day to day basis. It’s all about the charts with the docs because that’s how they get paid, and getting paid is what they do.
Would a discount make health care better? I don’t think we can educate the doctors any more, but would more education make health care better? Will having google provide all medical information make health care better?
Here’s what I like about you. You are proactive. I personally believe you believe in what you are doing and you are doing something that is a solution. You have also hit on a business plan that I think can work.
Lead generation has stuck in my mind since you brought it up. Lead generation is such a simple concept that every blogging real estate site misses. What is the back end is the question every web commerce person asks.
Redfin has the paper work rip off and zillow is selling mortgages, but what do most blogging real estate businesses have to sell? Credibility? The redfin, zillow thing is scamming all the would be takers out of that.
People need service. I am a highly trained sales person. I learned those skills in conjuction with my service provider businesses. My cleaning company nets more in a year than the vast, I mean vast, majority of Real Estate sales people. It’s a service. It nets dollars whether I’m actively involved or not. To be of use in Real Estate it requires a person’s attention twenty four hours a day seven days a week.
The 6% is cheap, really dirt cheap. It depends on the service. A good Real Estate agent can make a millionaire out of any body. Whether you are buying the family home or a string of commercial property you deserve the service you are paying for.
Will you learn the nuances of buying property by looking at pretty pictures? No. Will you drive around until some one sells you something? Yes.
This guy is saying people are capable and that’s true, but I consult with Real Estate professionals who have been “in the business” for over twenty years who have no clue what they are looking at. Real Estate is a complicated business even beyond the title report.
You, Ray, have taken a proactive role, but you should follow through and embrace the dream. You’re worth much more than $500.
David:
“I am a highly trained sales person.”
To me, that says it all. “Reperesentation” and “Sales” are two distinctly different categories of employment. One is paid by a principal to act on his/her behalf and to protect and advance his/her interests. The other tries to sell something to a consumer. Historically and culturally (foreshadowing my Pt 4 of 4), “agents” (as in “real estate agents”, not “agents” as defined by the law — in my mind there remains a difference) — agents are salespeople. The vast majority of them consciously continue at least in part with that approach.
Maybe I’m just urinating into the wind, here, but I think people deserve true representation and not pseudo-representation from a “highly trained sales person.”
You missed the point entirely which is normal. It’s more baiting.
I provide a service. It’s highly specialized.
I’m also a highly trained cook. How can you spin that?
How does that relate to my ability to provide service?