Why would a real estate agent suggest that a client consult with a real estate attorney in the course of contracting to buy or sell a house?

by James A. Zitesman, Esq
Why would a real estate agent suggest that a client consult with a real estate attorney in the course of contracting to buy or sell a house? After all, when an attorney gets involved there is a chance that the deal will get killed, so why run the risk? The answer is simple; it is fulfilling the fiduciary duty that the real estate agent/broker owes to their client."Fiduciary duty" are two words that are used a lot, but are not always understood. Fiduciary duty is the requirement to act primarily for another's benefit. When we have a fiduciary relationship, it is our duty to put our client's interests before our own. Ohio Revised Code Section 4735.62(G) states, "Advising the client to obtain expert advice related to material matters when necessary or appropriate;" As Division Counsel for the Ohio Division of Real Estate, Holly Johnston-Cook has stated, "It is an express fiduciary duty of an agent to advise his or her clients to obtain expert advice related to material matters when necessary or appropriate. Many of the complaints the Division receives against agents could have been avoided had the agents recommended their clients seek counsel." Several other sections of Ohio Revised Code include the prohibition of real estate agents practicing law. So what is practicing law and what is a real estate agent allowed to do? There have been many court decisions over the last 60-plus years that have clarified these questions.In 1941, the Ohio Supreme Court decided the issue. Real estate agents can fill in the blanks of pre-printed forms with basic information.The problem comes when a real estate agent goes beyond filling in the blanks by inserting contingencies or other terms and conditions. Seldom are today's transactions so simple that all one needs to do is fill in the blanks. The Supreme Court of Ohio in a couple of decisions in the last five years have found the unauthorized practice of law by a title agency preparing deeds without an attorney's supervision and by a CPA firm in providing advice on incorporating. The easiest way to avoid being in the situation of defending against unauthorized practice of law is to have the client hire an attorney during the contracting phase of the transaction. A recent case from the 10th District Court of Appeals in Franklin County, Ohio provides another example of how involving an attorney in the drafting of documents to address inspection issues would be in the client's best interests. In that case, there were problems caused by water intrusion. The sellers agreed to have an engineer do an analysis and provide recommendations. The parties agreed to follow the recommendations of the engineer for suggested repairs. The seller agreed to pay for the repairs. The parties signed an Addendum. By the time of the closing, no repairs had been made. The parties escrowed $3,000. The actual repairs cost in excess of $21,000. The question before the court was what was the intent of the parties?In finding the intent, the Court read the documents. The seller argued that the fact that the parties agreed to escrow the $3,000 should control. The buyers argued that it was the actual Addendum that should control. The Court ruled that it was the Addendum that controlled. While we don't know whether there were real estate agents involved, it was clear that the standard forms from the Columbus Board of REALTORS were being used. But if real estate agents did take it upon themselves to negotiate the resolution of the unsatisfactory conditions without attorneys representing the parties, were they fulfilling their fiduciary duties? Real estate agents should have documented advice to their clients that they need to be represented by an attorney. Clients look to real estate agents to guide them through the process. Just as home inspectors are referred to clients to do home inspections; real estate agents fulfill their fiduciary duty when they refer clients to competent real estate attorneys. Some agents may be reluctant to do so as the attorney might kill the deal. Some deals need to be killed in the best interest of the client. That is fulfilling the fiduciary duty. Remember, it is the client for whom we all work, not the other way around.Bob Miller of RE/MAX Premier Choice of Dublin, Ohio and past-president of the Columbus Board of REALTORS says one of the reasons he recommends an attorney is, "So that an objective attorney can ‘double check' the contract language and make absolutely sure, once again, that the contract is written to the Buyer's satisfaction."Louise Potter of Prudential Calhoon Company REALTORS of Hilliard, Ohio says, "Anything can, and will, happen during a real estate transaction. Having a real estate attorney involved from contract on is the best way to ensure your clients are well protected and fully represented on their side of the deal. A good agent knows it is always best to bring in the experts." Protecting clients by bringing in real estate attorneys, doing what truly is in the clients' best interests and thereby fulfilling the statutory fiduciary duty also protects the real estate agent as well. If the clients are represented by an attorney, the real estate agent does not risk practicing law.
Editor's note: James A. Zitesman, Esq., received his law degree from Capital University. He is a member of the Columbus and Ohio State Bar Associations. Zitesman has conducted numerous seminars for the Columbus Board of REALTORS including the three-hour contract class and the Investor Seminar II and was recognized as the CBR "2004 Instructor of the Year."