I Don't Want to Hire a Lawyer, That's Why I Hired You
...said the client who later sued their broker for the unauthorized practice of law.
Statutory law, the Agency Law to be specific, is very clear. A broker has a non-negotiable duty “to advise the [client] to seek expert advice on matters relating to the transaction that are beyond the agent’s expertise.” RCW 18.86.040-060. Said differently, if there is an aspect of the transaction that exceeds broker’s expertise, broker must advise the client to seek the advice of an expert on that aspect of the transaction. Broker is not required to insure that the client actually seeks or adheres to an expert’s opinion. Broker’s sole responsibility, with respect to this requirement, is “to advise”.
The Washington Supreme Court provided an illustration of what this might look like in real life.
In the case of Jackowski v. Borchelt1, the Court considered a transaction where purchaser bought a hillside, waterfront residence. The seller’s Form 17 referred to a letter indicating the property was in a landslide hazard area and further referenced a geotechnological report concerning the property. Buyer conducted a home inspection but conducted no investigation of the hillside. Two years later, a damaging slide occurred. Buyer sued seller and both brokers.
Buyer’s claim against buyer’s broker was that buyer’s broker failed to advise buyer to hire a geotechnical expert to inspect the property. Buyer’s claim was based on the Agency Law language requiring a broker “to advise the [client] to seek expert advice on matters relating to the transaction that are beyond the agent’s expertise.” Because of the litigation path traveled by this particular case, the Supreme Court was not in a position to determine whether buyer’s broker was liable. The Supreme Court was considering only whether buyer stated a case that could be viable against buyer broker. The Court concluded that buyer’s claim merited a day in court so that buyer could attempt to prove liability and damages against buyer’s broker.
In determining that buyer’s claim was viable, the Court considered and dismissed argument from broker’s lawyer that the Agency Law requirement was limited to requiring brokers to advise clients to seek the advice of lawyers, accountants and mortgage lenders but not additional inspectors. In a broad application of the Agency Law language, the Court concluded otherwise.
“In our view, informing a party to seek expert advice from a geotechnical expert could fall within the ambit of [the Agency Law].”2
With that said, there is no limit on the topics for which a broker must advise a client to seek the advice of an expert. If there is a “matter” in the transaction on which broker is not an expert, broker MUST advise broker’s client to seek the advice of an expert with respect to the subject matter. In considering the magnitude of this duty, consider the broad scope of topics encountered daily by a broker. In nearly every transaction, there are issues affecting lending, title, escrow, taxation, surveying, engineering, construction, property condition and legal compliance, among countless others. How can a broker insure that broker properly advises a client to seek the advice of an expert on all matters that exceed broker’s scope of expertise?
First, it is necessary to dispense with exclusive reliance on boiler plate language in the statewide forms, advising parties to seek experts on all issues. In the transaction at issue, the parties used statewide forms, including boiler plate, protective language advising necessary inspections. It is likely that when the trial court takes up questions of liability, boiler plate advice will be considered and may prove helpful to the broker. But, the inclusion of that boiler plate language in the subject agreement did not prevent the Supreme Court from concluding that buyer had a viable claim. As a result, it is essential that brokers incorporate additional methods of “advising” clients to seek expert advice.
This article will attempt to provide some ideas for routinely incorporating advice to seek an expert into a broker’s practice. It is not possible, however, to develop basic strategies that will encompass every situation. As in the Jackowski case, there are unique situations that develop based on the isolated fact pattern of a transaction. Brokers must be so keenly aware of the duty to advise clients to seek expert assistance that brokers automatically give the required advice, in writing, in appropriate circumstances.
The most fundamental rule for compliance is that all advice to seek expert assistance be given in writing. The Agency Law does not require the advice to be in writing but compliance with the Agency Law can likely be proven only if the advice is given in writing. Broker must be able to prove, months or even years later, that the advice was given. If the advice is given by email, broker should endeavor to receive a reply to the email. Broker should then print the email, print the reply (as proof that the email was received by client) and retain both in firm’s transaction file.
When Clients Need Explanation of Legal Provisions, Advise The Client To Seek Legal Counsel.
This is sometimes more easily said than done. The first step in this effort is to recognize what constitutes the practice of law, beyond that which broker is licensed to provide. Broker is licensed to complete the blanks in the statewide forms. However, if client needs explanation about the meaning of legal provisions within the forms or advice as to how to proceed in light of non-standard provisions, broker should advise client to seek legal counsel. For example, seller wants to know the significance of a warranty deed or buyer couple wants to know how they should hold title. Both of these are opportunities for broker to advise the client to seek legal counsel. If seller must respond to a buyer request for soil sampling or buyer needs assistance reviewing a home warranty, broker should advise the client to seek legal counsel. When seller seeks assistance completing Form 17, broker must be prepared to advise seller to seek assistance from others. The assistance needed may be from legal counsel or from one of seller’s existing consultants, such as a plumber, electrician, contractor, or the like. It can be difficult to know when a broker must advise a client to seek legal counsel rather than providing the service that brokers are licensed to provide. But, giving the advice to seek legal counsel is easy to do. When in doubt, brokers should advise clients to seek legal counsel, even if the purpose of counsel is to confirm a course that broker and client have already charted. This can be a good time to incorporate Form 22RA (Attorney Review Addendum) in transactions.
Advise Buyer Clients To Always Take Advantage of Additional Inspections.
In nearly every transaction, buyer will have an inspection and in nearly every inspection report, buyer will be advised to obtain additional inspections. Brokers should follow-up with buyers, in writing, and advise buyers to obtain the additional inspections recommended by inspector. Brokers should remind buyer that buyer has the absolute right to five additional days for inspections recommended by buyer’s inspector. Some buyers will not want to use the time or money that will be required to obtain the additional inspections. That choice by buyers is irrelevant. All that matters is that broker provably delivered the advice to seek the opinion of experts in the matters that inspector indicated were important.
Obtain a Title Report ASAP. Forward It to Client, by Email, Along With Advice To Contact the Title Officer With Any Questions or Concerns.
Listing brokers are constantly advised to order a preliminary commitment for title as soon as the listing is taken. Buyer brokers should also seek a copy of the preliminary commitment as soon as buyer has mutual acceptance. Whether broker recognizes issues or not, the title report should be forwarded to the client, along with advice to contact the title officer with questions. If issues exist that the title officer cannot address, then broker should advise client to seek legal counsel.
When Buyer Client Identifies Specific Concerns, Empower Buyer To Conduct Research.
Buyer may have specific concerns regarding neighborhood security issues, quality of schools, past uses of the property, land use potential, opportunities for in-home business and more. Most brokers are not “expert” in these issues and should refrain from advising buyer as to the suitability of the property for buyer’s intended purpose. Instead, brokers should empower buyers to answer these questions personally. Broker should direct buyer to the local police department, the County website identifying registered sex offenders, school district administrative offices, OSPI (Washington State Office of the Superintendent of Public Instruction), local health, building and permitting departments and other local offices with information important to buyers. This information should be provided to buyers early in the buyer/broker relationship so that buyer can obtain information prior to selecting the property to purchase.
Create A Routine Of Regularly Communicating With Client So That Giving Advice Is Less Awkward.
Clients appreciate regular contact advising client of the work broker is doing for client … even at times when there is not much happening on broker’s end. These regular contacts are a good opportunity to remind clients of the advice broker has given client, to seek the advice of an expert. Something along the lines of “… and remember, as we discussed, you should contact a lawyer regarding the “seller’s remedies” provision of the purchase agreement. I am licensed to assist you in completing the forms, but for specific questions regarding the provisions included in the forms, you need to seek the advice of your own lawyer.”
To the extent broker can recommend experts to a client, recommendations of multiple experts, who are licensing compliant in their industry, should be given. It is important to note, however, that compliance with the Agency Law provision does not require broker to advise client to seek the advice of a specific expert and it does not require broker to recommend experts by name. Broker must simply advise broker’s client to seek the advice of an expert. In most transactions, broker will be asked to serve as an expert in many arenas. It can be very difficult for a broker to admit that broker is not an expert on every topic. Nobody can, however, be an expert in real estate brokerage services and real estate law, and surveying and best construction practices and title and escrow services and lending practices and … (the list is never-ending). Pursuant to the Agency Law, broker must acknowledge the limits of broker’s expertise and advise the [client] to seek expert advice on matters relating to the transaction that are beyond the broker’s expertise.
1 Jackowski v. Borchelt, 174 Wn.2d 720, 278 P.3d 1100 (2012).
2 Id. at 735.
Hotline Attorney Annie Fitzsimmons writes the Legal Hotline Question and Answer of the Week. If you’d like to submit questions to the Legal Hotline, e-mail them to legalhotline@warealtor.org or call (800) 562-6027. Please have your NRDS number ready when you call or e-mail the Hotline with your question. The Legal Hotline lawyer does not represent Washington Association of REALTORS® members or their clients and customers.