When real estate agents practice law…

Bad things can happen. I recently worked on a matter where seller signed an offer. The offer included an escalation clause and indicated that the the legal description was “to be attached.” However, the offer also included the tax parcel number. The listing agent attached a new addendum stating the sale price as a sum certain (calculating the price based on the terms of the escalation clause) and attaching the legal description. The seller initialed these “changes” and sent them to the buyer for the buyer’s approval. All other terms of the offer were unchanged and accepted by the seller.

Before getting a response from the buyer, the seller received another, substantially better offer from a second buyer. The listing agent informed his client that he could still revoke the first offer and accept the second because, when the offer was returned with a legal description and a sum certain sale price, it constituted a counteroffer. Thus, according to the agent, as long as the seller rescinded the “counteroffer” before it was accepted by the buyer, there would be no contract with the first buyer and the seller could enter into a contract with the second buyer.

Unfortunately, the seller took the listing agent’s counsel and proceeded to rescind the “counteroffer” and sign the second offer. The first buyer promptly hired an attorney, who promptly threatened legal action. The buyer’s attorney reasoned that, when the seller signed the offer, there was mutual acceptance of the terms of the offer, and thus a contract was created. The contract contained a tax parcel number, thus satisfying the requirement for a legal description. Moreover, to be enforceable, a contract requires either a specific price or a mechanism by which a specific price can be determined. Because the offer contained an escalation clause, it probably satisfied this legal requirement as well. This attorney’s reasoning was sound and the seller had a significant legal problem as a result of selling the same house twice.

Thus, the seller was subjected to potential liability on a breach of contract claim by the first buyer (or the second buyer, depending on which contract he breached when he sold to the other buyer). While real estate agents are allowed to engage in the limited practice of law by completing blanks in pre-printed forms, they are not allowed to provide legal analysis or counsel to their clients. In this situation, the agent did just that. If you have a question or concern about your legal rights and obligations at any point in the transaction, you rely on your agent’s input at your peril. An agent, no matter how experienced, is not an attorney and may not give you good — or even competent — advice.

18 thoughts on “When real estate agents practice law…

  1. This is my first time here (I’m brand new to blogging…I don’t even have a pic of myself up yet, but that’s coming); but I’m anxious to contribute, so I’ll comment here.

    You raise an excellent point, Mr. Blackmon. I too have been involved in several real estate transactions where the real estate agent ventured into the realm of practicing law to the detriment of their client(s). Personally, I believe real estate agents have plenty of biz staying safely w/in their scope of work, and staying out of the practice of law (i.e. know where one stops, and the other begins). Not only may the client be damaged; but the real estate agent risks opening “Pandora’s Box”.

    The real estate agent can expect to be held to the standard of an attorney, if engaging in the “practice of law”. Their E & O insurance coverage may exclude coverage for the “practice of law”. Finally, in the extreme, the real estate agent may be facing criminal charges for the unauthorized practice of law, RCW 2.48.180 (depending on circumstances, of course. I’ll admit that I’ve never seen a prosecutor take up such criminal charges, but it’s always a possibility).

    OK, that’s my comments…any feedback for a “blogging newby” like me???

    Thank You,
    Joe Beitey

  2. Craig,

    Post more, please. Good stuff. And, if I may I humbly ad another bit of information that seems to percolate in the realm of real estate circles:

    It is not the primary job of escrow to insert legal descriptions into P & S agreements. Far more often than should, our office goes round ‘n round with some folks who, when asked about the legal description being absent (including the tax parcel), promptly respond “that’s your job.”

    We frequently see on the P&S form, “see attatched,” or, “per NWMLS”, or “at Title Company.”

    Have a great weekend!

  3. Joe — other than the degree of formality (the web is pretty informal and even rough-and-tumble) I think your comment was great. I don’t know whether the E&O policy would exclude the practice of law, as agents are able to do so on a limited basis. I think it would be pretty extreme for an agent to be prosecuted, but it’s certainly a possiblity given the statute you cite. I might add that, if an agent regularly engaged in the unauthorized practice of law, the agent may also be liable on a Consumer Protection Act claim, which usually is excluded from E&O policies.

    Tim — thanks for the feedback. Let’s just say RCG made it onto my New Year’s Resolutions list…

  4. Astute brokers have been training their agents to make sure that legal descriptions are part of any submitted offer. When I act as a listing agent one of the first things we do is order preliminary title so we get a copy of the legal description. That is then put into buyer’s packets that are put onsite at houses for sale and they’re attached to the NWMLS listing detail for immediate download by agents sitting at a computer. There really aren’t many reasons left for agents to miss putting these in with their buyer’s offers unless they’re just being sloppy or are too rushed to be more complete with their paperwork.

    Even if a listing agent hasn’t provided the legal in a buyer packet or via the NWMLS it’s possible to go onto most title websites to get a copy of a last deed, or to go to a county website to get this document.

    It is dangerous for agent’s to try and interpret what can and/or will happen but without this case having gone to trial (it doesn’t provide an outcome here) we don’t know what a judge would have done. I’m not saying push it – but that agent should have had an attorney that they could call to get help with such an issue – and the broker should likely have been consulted as well. That’s what I do when we get into “sticky” spots like this where we need more than just an agent’s input. Taking the fiduciary duty of an agent seriously means knowing when to call in another expert for assistance.

  5. Good post Craig. A couple of thoughts:

    Since I can remember, the standard MLS Purchase and Sale Agreement included a provision that stated “Buyer and Seller authorize Selling Licensee, Listing Agent or Closing Agent to insert, attach or correct the Legal Description of the Property.” This gave “false” comfort to agents that they could attach a legal after the fact and still be OK. That’s never been the case. In June, the NWMLS PSA went through a significant revision and that clause was removed. Therefore, any attempt to incorporate a complete legal description after the fact will require mutual agreement of the parties. If either the buyer or seller doesn’t want to go there, big problemo!

    Also, Reba says, “Taking the fiduciary duty of an agent seriously means knowing when to call in another expert for assistance.”

    In Washington, fiduciary agency duties were replaced in the late ’90s with statutory agency duties found under RCW 18.86. This law, Washington’s Real Estate Agency Law, specifically states that a Seller/Buyer’s agent MUST “advise (their client) to seek expert advice on matters relating to the transaction that are beyond the agent’s expertise.” This is not optional. An agent who fails to do so will be in violation of this very importantly law.

    The key is for each agent to understand the areas that they are expert in and those that they are not AND to be confident in their relationship with their client to involve other more qualified folks when the line gets crossed.


  6. Hi Russ and Craig,

    I understand the difference between fiduciary duties and statutory agency duties. Q: Does this mean that if a real estate agent is a member of the Assoc of Realtors, their duties become fiduciary?

    Here is Standard of Practice 11-2 from the Realtor Code of Ethics:

    The obligations of the Code of Ethics in respect of real estate disciplines other than appraisal shall be interpreted and applied in accordance with the standards of competence and practice which clients and the public reasonably require to protect their rights and interests considering the complexity of the transaction, the availability of expert assistance, and, where the REALTORĀ® is an agent or subagent, the obligations of a fiduciary. (Adopted 1/95)

  7. It never ceases to amaze me as to what lengths some agents will go to in their efforts to “prove” how astute they are in the art of real estate. šŸ˜†

    In your example, Craig, the listing agent should have referred the seller to proper legal counsel to see what the potential legal options and recourses might be.

    I never mind telling clients to get proper counsel. It’s not a sign of weakness.

  8. I think everyone agrees that this agent should have told the seller to consult with an attorney BEFORE signing the second offer. As Russ points out, this is a duty imposed by statute. If an agent routinely ignores this duty, the agent could possibly face liability under the Consumer Protection Act. Moreover, I agree that his is not a sign of weakness — just the opposite, in fact.

    Jillayne, the distinction between a “fiduciary duty” and a “statutory duty” is pretty arcane and, in most instances, a distinction without a difference. I’ll leave it up to Russ or Ardell (who have crossed swords on this issue in the past) to flesh out the distinctions. That said, the duty would not become “fiduciary” simply because it is so identified in the Code of Ethics. On the other hand, the Code of Ethics arguably determines what would be expected of a reasonably prudent Realtor, and if a Realtor deviated from that standard he/she may be liable.

  9. Agents should always meet the guidelines of the statutes that regulate our industry, if a member of the NWMLS they should meet the rules and regulations of that body (and/or the CBA requirements as well), and if an agent is a REALTOR(R) then they should be held to the Code of Ethics standards as well. Not all agents are REALTORS(R) so the code of ethics may, unfortunately, not be applied across the board in terms of complaints against an agent. It’s a shame though. It would be great if more brokers required it as part of hanging an agent’s license in their office.

  10. Statutory duties are duties you perform as defined by law in the role you are licensed to perform. Fiduciary duties are acts you perform in place of another on their behalf. For instance a title insurance agent sitting at a closing table closing a mortgage loan transaction is performing statutory duties as a title insurance agent and also fiduciary duties on behalf of the mortgage lender. The role of a fiduciary includes looking out for the best interest of the principal and so whether or not the real estate agent had a statutory duty to suggest that the seller seek legal advice, he certainly had a fiduciary duty to do so.

    This is a terrific post. Thank you for raising the issue. In the heat of the moment it’s too easy to forget that small acts can turn into big disasters. You are right to help everyone remember where the unauthorized practice of law line is drawn and how NOT to step over it. šŸ˜‰

  11. Diane,

    You said “The role of a fiduciary includes looking out for the best interest of the principal and so whether or not the real estate agent had a statutory duty to suggest that the seller seek legal advice, he certainly had a fiduciary duty to do so.”

    That conclusion is not correct, at least not in Washington state (and many other states that have adopted comprehensive RE agency laws). In Washington, the “statutory” duties have completely replaced the traditional common law fiduciary duties of a real estate agent to their principal. This is the case in many other states, too. So, the only legal standard here in Washington that the agent will be held to is the “statutory” duties.


  12. I don’t think fiduciary standard is relevant to the case here, as Craig suggests.

    My issue with fiduciary is the obligation to put the client above self interest. Is there no rule here in WA, either in the Realtor Code or the licensing law or anywhere, that would make it wrong to push a buyer to purchase the house where the agent makes the most money? Especially when in most cases, the bnus fee is not disclosed to the buyer at the time it is happening?

    What in WA prevents an agent from being mesmorized by a Bonus Buyer Agent Fee when representing a buyer client? I don’t want to argue about that, I want to throw up about that, if there is no rule against that.

  13. Not that it really matters to the overall message of the story, but I don’t think a tax parcel number qualifies as a legal description. If that’s all there was, I doubt it was a legal contract. The reason it doesn’t qualify is like an address, a tax parcel number can change over the years.

    I’d never use just a tax parcel number on a P&S agreement.

  14. Kary — see my earlier post on this very issue for an in-depth discussion. As a general rule, though, you’re absolutely right: if you want to create a binding contract, include a legal description.

  15. I need to understand when a contact is considered binding. We thought we were in mutual acceptance after we signed and returned the counter we received from the seller with no changes. Can the seller come back and say “sorry” we made a mistake on our counter? We meant to change the price and just missed that part of the paperwork.

  16. There is an out to being in contract in some situations for unilateral mistakes, but I don’t remember at all what those situations are. I’d sort of doubt this is one of them–absent a huge mistake that evidenced a typo (e.g the list price was$399,000 and the offer came in at $299,000).

    Sounds like a trip to an attorney would be a worthwhile investment.

  17. I showed the most wonderful home listed at $249,900. It was gorgeous, too gorgeous. I checked the address number. I checked the street sign. The house was new, had just been built for the couple selling it. It made no sense at all. Ten foot ceilings, high doors, French country design, lots of upgrades. We drove back to my office and of course my clients were in a hurry to write the offer. With my clients in the room I called the listing agent. I asked about the house and she gushed on about how wonderful it was. Finally I asked her what the list price was. She said $449,900. Ah hah. The listing agent’s assistant had punched in the wrong price in the MLS. A simple mistake. The seller could not be forced to sell it for the mistaken price because the lien on the home was for much more than the mistaken price. We moved on. For what it is worth, when I told the listing agent how much the MLS price was she immediately said “I am so sorry”. She knew how disappointed my buyers were.

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