It is no surprise that lawsuits are on the rise against Real Estate Agents and brokers, nor is it a secret that many real estate agents need better training and guidance from their brokers. This is why it is important to look into finding the right specialists who can assist you with anything relating to real estate. Whether you are thinking of relocating to turtle lake, moving house, renting or investing in real estate, it is important to find out everything there is to know before committing to something as big as this. It can sometimes become a stressful process, which is why getting all the help you can is beneficial to you.
Fortunately, there are now many different brokers that offer a mentoring service. The free real estate mentoring offered by some brokers could really help ensure real estate agents receive proper training as there are no mandatory training standards after obtaining a license in many states, apart from continuing education, and the degree of training varies significantly from brokerage to brokerage. The real estate industry provides too much freedom to agents, many whom do not truly understand the legal ramifications involved in property sale transactions.
We need tougher rules when it comes to brokers and their responsibilities. One way of doing so is to restrict broker licenses to attorneys only, an idea which some states have contemplated over the years, but which is controversial amongst attorneys and could impact the practice of real estate law.
Real Estate Lawsuits Against Agents/Brokers: Can We Reduce and to What Extent?
It is important to look at the main reasons for lawsuits in the real estate industry, in order to find solutions for the poor levels of agent training and lack of agent oversight by many brokers today. This will provide a basis for forming an opinion as to whether restricted licenses should be allowed. Most lawsuits fall under one of the following categories, which can lead to claims of negligence or fraud in most instances:
1. Failure to disclose defects. Real estate agents have a duty to disclose any known defects pertaining to a property, or any they see that are obvious (think big wet spot under a sink or on a ceiling, or an HVAC system that does not come on when started, for example). There are agents who either fail to or feel they do not need to disclose defects. If a seller does not exercise diligence in disclosing a defect of which the agent is aware, the agent still needs to disclose said defect.
The importance of disclosure needs to be hammered into the brains of all agents by their brokers, and this training should be consistent over the career of the agent. This alone could eliminate a large percentage of viable legal claims. Attorney- brokers might have an edge in teaching agents about the ramifications of non- disclosure.
2. Failure to advise/providing legal advice. Agents need to know what types of advice they are required or permitted to provide, and the types of advice that are illegal and present reasonable causes of action for a lawsuit.
In states that do not use attorneys for closings, real estate agents have a duty to ensure buyers and sellers understand the contracts they are signing. However, an agent may not give legal advice. Agents may explain a contract clause in general terms, but must always defer to the broker and/or an attorney if additional clarification or advice is needed. Unfortunately many agents overstep the fine boundary line and do provide legal advice – however innocent it may be.
If the broker is an attorney s/he is in a strong position to explain legal ramifications to his/her agents. Brokers who are not attorneys frequently require legal counsel. A broker who is also an attorney could feasibly prevent issues from arising in the first place, with proper agent training and oversight.
Prevention of Real Estate Lawsuits: Positive or Negative for Attorneys?
A mandate that all brokers must be attorneys could affect the number of lawsuits filed against agents and brokers. A reduction in these types of lawsuits could alter the livelihood of attorneys who work such cases. Here are the pros and cons of instituting such a rule:
Argument in favor of the proposed rule: Such a rule could create job opportunities for many real estate attorneys. Real estate attorneys could spearhead brokerages and derive more income from agent sales, venturing into another realm apart from trial work. Attorneys would be responsible for meeting agent training requirements (note that as of now there are no mandatory brokerage requirements for training agents – post license – in most states, thus a reason there are so many lawsuits. Training requirements need to be changed regardless of whether we make attorney- brokers mandatory), and could also play an important role in altering the standards of training agents.
Argument against proposed rule: Many attorneys who practice real estate law bank their careers on lawsuits and settlements – the actual practice of law. Along with stricter training and continuing education mandates, if brokers are required to be attorneys only, there is a chance that real estate lawsuits could decrease, which can leads to lower income. If those attorneys took on new roles as brokers it could bring in extra income, but could also be very time consuming, and much of the work could involve real estate practice management. It may be difficult for attorneys to divide time between legal work and management of real estate brokerages.
Further Ramifications from Imposition of Broker-Attorney Rule
1. Backlash from the real estate community. Limiting brokerage licenses to only licensed attorneys will cause a backlash from within the real estate community. Grandfathering in those brokers who are already licensed and holding them all to the newer (tougher) training standards would be fair and reasonable. Those contemplating becoming brokers in the future would not be able to do so, and any future brokerages would have to be managed by attorney-brokers. It may be necessary to provide a grace period until the new standard went into effect, so that those who have enough training and experience and want to become brokers can do so before only attorneys are afforded the privilege.
2. Loss of income to local associations and licensing boards. Real estate boards and local associations may not like the rule either, as the amount of fees realized by these agencies could drop if there are fewer brokerages being formed. In the last few years many states, such as California, have seen an increase in the number of smaller (“boutique”) real estate brokerages, as many agents and brokers have left the corporate real estate model. It is not clear whether imposing an attorney-as- broker-only rule would slow the creation of new brokerages, but if so that could mean less money to local associations and governing boards.
3. Licensing fees could drop. It is feasible that if agents are required to meet tougher training and renewal standards, the result will be a decreased applicant pool and lower licensing fees. This would be a turn-off for licensing boards as well, which may fight to prevent tougher standards and any alteration of current rules.
The real estate industry needs tougher standards for agents. Attorneys can play a role in reshaping an industry that needs definition, and attorney-brokers may provide the answer. However, the benefit to the industry and the consumer could lead to business loss for real estate attorneys due to the expectation of fewer lawsuits; it also could lead to a new role for attorneys and possible expanded income potential.
What solutions do you think could benefit the real estate industry, the consumer and attorneys? Is the idea to allow only attorneys to be licensed real estate brokers a good one, or does it go too far? If it does not seem like a viable solution, what ideas do you have to make training for agents stricter and hold brokers more accountable?
About the Author
Rachel LaMar is the Broker/owner of LaMar Real Estate in North San Diego. She practiced real estate and personal injury law before jumping into the real estate sales industry in 2003. Rachel is an avid blogger, occasionally writes for local and national online publications, taught distressed property webinars for agents and seminars for homeowners, and wrote a book in 2008 to help homeowners who were facing foreclosure. Her website is LaMarRealEstate.org and her blog site is RachelLaMarRealEstate.com.