This article is the first in a multi-part series on the use of attorneys in residential real estate transactions. The second article, Attorney Review of Real Estate Transactions, provides some guidance on when parties to a residential real estate purchase and sale agreement should seek an attorney’s review of that agreement before signing it.
In Washington, most residential real estate transactions are completed without attorneys. The vast majority of these transactions are conducted without problems due to the use of standardized forms, standard title insurance policies, and regulated escrow services.
However, problems do arise. Often, the problem can be traced to a poorly drafted purchase and sale agreement, sometimes called an earnest money agreement. When these problems occur, who can we blame? This article looks at the roles that real estate agents play.
Generally, only attorneys licensed in Washington may practice law in the state. RCW 2.48.170. Washington has a fairly strict definition of “practicing law.” The Washington Supreme Court is responsible for this definition, which can be found in General Rule 24. Among the activities that constitute the practice of law are (1) “selection, drafting, or completion of legal documents or agreements which affect the legal rights of an entity or person(s),” (2) “negotiation of legal rights or responsibilities on behalf of another entity or person(s),” and (3) “giving advice or counsel to others as to their legal rights or the legal rights or responsibilities of others for fees or legal consideration.” GR 24(a).
Do realtors do these things? You bet! Realtors act as agents in negotiations of not only price but other terms that define legal rights. They select which standard forms to use, fill them out, and sometimes add language to those forms for special situations. And, although some say that they cannot give legal advice, they answer questions on their clients’ rights and responsibilities, and do so as part of the commission they receive. So there is no question that realtors practice law!
But is it okay for a realtor to practice law? Our Washington Supreme Court has answered this question in the affirmative. See Cultum v. Heritage House Realtors, Inc., 103 Wn.2d 623 (1985). The Court in this case and in other cases discussing the practice of law take a two-step approach: First, is the activity the “practice of law?” Second, is that practice of law “authorized?” The Cultum court decided that the practice of law typically engaged in by realtors is authorized.
(As an aside, the Cultum court didn’t actually say this. There were two opinions issued in that case with four judges signing each of the two. One of the opinions, considered the lead opinion, held as I explained above. The other opinion did not agree, but did not exactly hold that the realtor’s activity in that case was unauthorized. The eight justices agreed on the liability issue, which I discuss below. I write this aside to indicate that there is no law that I am aware of that gives realtors a safe harbor to practice law in this fashion. The practice of law without a license is a misdemeanor for the first offense and a felony for the second and subsequent offenses. RCW 2.48.180(3). However, I know of no case of a real estate agent being prosecuted for the unauthorized practice of law.)
Even though a realtor can “practice law” by choosing, filling out, and even supplementing standardized forms, they are held to the standard-of-care of any attorney. Cultum, supra; Edmonds v. John L. Scott Real Estate, Inc., 87 Wn. App. 834 (1997). Realtors have a fiduciary duty to their clients. If a real estate agent commits legal malpractice in his work with his client, he can be sued by that client for malpractice just as an attorney can be. Since the standardized forms used in Washington are good, malpractice usually occurs when the realtor drafts additional language or takes some other inappropriate action. For example, in Cultum, the realtor drafted the additional language, “This offer is contingent on a Satisfactory Structural Inspection, To be completed by Aug. 20, 1980.” The buyer had asked that the offer be contingent on her subjective approval of the inspection, but the realtor failed to include this request in the language. In Edmonds, the realtor took unilateral action that he shouldn’t have.
I will note that sometimes realtors act as “dual agents,” representing both parties to the transaction. Attorneys simply cannot represent both sides ethically because doing so is a conflict of interest. So, if realtors are held to the same standard of care as attorneys, why can realtors represent both sides? I know of no authority that approves or disapproves dual agency. However, if a realtor commits an error in the drafting of purchase and sale language, say, the agent’s dual agent role in the transaction may bolster the case for malpractice.
The remaining articles in this series explain some situations in which buyers and sellers of residential real estate should consider whether to engage an attorney. The next article, Attorney Review of Real Estate Transactions, provides guidance on whether an attorney’s review of residential real estate purchase and sale agreements may be helpful.
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