Practice Law Much? Of Course You Do, So Do It Right
In 1985, the Washington Supreme Court determined that real estate brokers may practice law, to the extent that brokers complete simple, printed, standardized, lawyer-approved forms in simple real estate transactions. There is no doubt that when a person drafts a contract between two third parties, a contract that controls legal rights and obligations, the drafter practices law. The Washington State Supreme Court has exclusive authority to determine who, in Washington, is allowed to practice law and under what circumstances.
At first blush, most would think that lawyers are the only people authorized to practice law in Washington. That is not the case. Escrow closers, with a limited practice officer’s license, are not lawyers but they have a limited license to practice law. Law students are given an opportunity to represent clients before attaining their license. Recently, the Court created licensing for Limited License Legal Technicians, a group of licensees who will have authority to engage in the provision of some, but not all, legal services with the expectation that services will be offered at a cost lower than what a lawyer would charge. There are other examples as well.
In 1985, the Washington Supreme Court determined that real estate brokers may practice law, to the extent that brokers complete simple, printed, standardized, lawyer-approved forms in simple real estate transactions. There is no doubt that when a person drafts a contract between two third parties, a contract that controls legal rights and obligations, the drafter practices law. The Washington State Supreme Court has exclusive authority to determine who, in Washington, is allowed to practice law and under what circumstances.
At first blush, most would think that lawyers are the only people authorized to practice law in Washington. That is not the case. Escrow closers, with a limited practice officer’s license, are not lawyers but they have a limited license to practice law. Law students are given an opportunity to represent clients before attaining their license. Recently, the Court created licensing for Limited License Legal Technicians, a group of licensees who will have authority to engage in the provision of some, but not all, legal services with the expectation that services will be offered at a cost lower than what a lawyer would charge. There are other examples as well.
When the Court creates an opportunity for any person to practice law, the Court also creates guidelines under which the legal services must be provided. This is for the protection of consumers. For example, all lawyers must conform to the Lawyer’s Rules of Professional Conduct. LPOs have requirements, enforced by the Limited Practice Board.
With respect to real estate brokers, the Court created the parameters within which brokers are authorized to select and draft purchase agreements, or, said differently, the parameters within which real estate brokers are authorized to practice law. The Court did this in 1985, in the case of Cultum v. Heritage House.*
In that case, the Court limited a broker’s authority to practice law to the broker’s completion of purchase agreements. The Court then conditioned broker’s authority to complete purchase agreements as follows:
So…what does all of this mean to the busy real estate broker who is simply trying to get buyers and sellers to a mutually desired closing table? In answering this question, it will be helpful to analyze each of these Court-imposed conditions.
The forms must be simple, printed, standardized, lawyer-approved forms.
The Statewide Forms include well over a hundred forms, each of which is to be used in a certain set of circumstances. The forms cover a huge complexity of issues from seller financing to home sale contingencies to liability for charges and assessments that may or may not be recorded to title review for satisfaction with buyer’s intended use of the property and on and on with a seemingly never ending list. Is that really what the Court intended when it said the forms must be simple? Yes.
The Court said that the forms must be simple, printed, standardized and lawyer-approved. In other words, all of those descriptors are combined to create a system of forms that a broker can be taught to use competently, even though broker has no legal training. With few exceptions, a broker can use the statewide forms to create a binding agreement obligating buyer to buy and seller to sell, without having to do more than check boxes or fill in short blanks with a number or brief phrase. There are, undeniably, exceptions to this statement. The statewide forms are pre-printed and lawyer approved.
Additionally, the statewide forms are standardized. The forms are produced by NWMLS, an entity with no vested stake in the outcome of any given transaction. While it is impossible to draft forms that favor neither party from beginning to end, the statewide forms attempt to treat both buyer and seller as even-handedly as possible. When favorable treatment is given to one party, it is based on a logical, unbiased determination that there is no better way to write the provision and not because NWMLS is attempting to treat one party more favorably than the other.
Compare this statement to forms that are not “standardized.” For example, consider a builder addendum, REO (including FHA and VA) purchase agreements, a short sale negotiator addendum or a third party relocation company agreement. All of those forms are drafted by a lawyer representing a specific party to the transaction. There is not even an attempt at even-handedness. Rather, the forms are drafted, specifically, to favor one party over the other. The same can sometimes be said of forms drafted by a specific real estate company for use by their agents.
The forms described in the preceding paragraph are not standardized forms. Broker’s client or broker’s firm may instruct broker to use the form in a transaction and in that case, broker should comply. But, a problem exists for the broker on the other side of the transaction. If a non-standardized form appears in a transaction, added or required by the other party, broker may be operating outside the Cultum v. Heritage House authority if broker completes that form. It is always best for the broker, whose client or firm promotes use of the form, to complete the form. The broker on the other side of the transaction should advise his or her client, in writing, to seek legal counsel with respect to use of the form.
The transaction must be a simple transaction.
For any real estate broker who has handled at least one transaction, this is a laughable statement. Nevertheless, it is true that some transactions are less “simple” than others. The court further explained the meaning of “simple” as follows:
In a few instances [purchase] agreements may be complicated and one or both parties may realize the need for a lawyer to prepare the contract rather than use a standardized form. In fact, if a broker or salesperson believes there may be complicated legal issues involved, he or she should persuade the parties to seek legal advice. More often, however, these transactions are simple enough so that standardized forms will suffice ….
With this explanation, the Court empowered brokers to define the difference between simple transactions and transactions with “complicated legal issues involved.” If broker recognizes complicated legal issues in a transaction, broker should “persuade” broker’s client to seek legal counsel. The Agency Law, RCW 18.86, provides further guidance. The Agency Law says that broker must “advise” broker’s client to seek expert advice on matters relating to the transaction that are beyond the broker’s expertise. When a broker recognizes complicated legal issues in a transaction, broker must advise broker’s client, in writing, to seek legal counsel. If a complicated legal provision should be added to the standardized forms, client’s lawyer should draft that provision for inclusion in the purchase agreement.
Completion of the forms must arise in the usual course of broker’s business, in transactions actually handled by the broker, as a real estate broker, and then without charge for completing the forms.
If two parties get themselves together, agree to terms and the only thing left to finalize their agreement is drafting the purchase agreement, broker is not licensed to draft that purchase agreement. Recall that drafting a contract between two third parties is the practice of law. The Supreme Court gave brokers the conditional right to practice law, if drafting the purchase agreement is the by-product of real estate brokerage services provided by the broker. However, if drafting the agreement is the first thing broker is asked to do for either or both of the parties, then the parties need to go to a lawyer to have that agreement prepared. If drafting the agreement is the first thing broker is asked to do, then there is no way that drafting the agreement “arises” out of broker’s provision of real estate brokerage services.
When selecting and completing purchase agreement forms, broker will be held to the standard of care of a lawyer.
This standard of care requires further examination by every real estate broker. When a broker shows property, solicits clients, prepares broker price opinions and engages in any other Real Estate Brokerage Service, and the broker’s actions are later questioned in a courtroom, the broker’s conduct is compared to the conduct expected of another real estate broker. In other words, in the provision of Real Estate Brokerage Services, a broker is held to the standard of care of a reasonable real estate broker. However, if a broker’s preparation of a purchase agreement is questioned in a courtroom, broker’s preparation of the purchase agreement will be held to the standard of care expected of a lawyer. Consider the lawyer you know best … perhaps the lawyer who represents your firm … and imagine that your purchase agreements will be compared to a purchase agreement prepared by that lawyer. In other words, with no legal training, you are required to draft a purchase agreement as competently as a lawyer would draft the agreement. This is not a new standard and it is not just words. When a real estate broker drafts a purchase agreement, the purchase agreement must be similar to an agreement that a reasonable lawyer would draft.
How does a real estate broker accomplish this outcome? The first step is knowing and properly using the statewide forms. There are certain forms that should be used in certain circumstances and not in others. For example, when selling a residential condominium unit, broker should use Form 28, the Condominium Purchase and Sale Agreement rather than Form 21, the Residential Real Estate Purchase and Sale Agreement. Only by using Form 28 does broker properly cue inclusion of a condominium legal description, delivery of the resale certificate and other transaction events that are both unique and critical to condo sales. Similarly, the statewide forms include forms intended to allow you to protect your client’s interests in the way that a lawyer would protect a client. Again, as an example, listing broker’s failure to include a Form 22EF, “Evidence of Funds Addendum,” or failure to deliver a Form 22AL “Request for Loan Information” when necessary to protect seller’s interests, could violate the standard of care required of a lawyer.
Even when a broker knows and properly uses the statewide forms, there are times when a broker must draft language more extensive than a number or simple phrase to fill in a blank. That is the drafting that sometimes gets brokers into trouble. How to draft more extensive language on Form 34 or Form 36 or even how to request repairs on Form 35R is a skill that must be the focus of intentional development and training. Brokers should take a class on drafting (Washington REALTORS® offers such a class), firms should discuss good drafting practices and if timing allows, brokers should ask a trusted broker friend or advisor to review language that broker drafts before broker’s client signs the language.
Conceptually, holding brokers to the standard of care of a lawyer in selection and preparation of a purchase agreement (including addenda) is an unrealistic standard. The Washington Supreme Court expressed confidence, however, that brokers will learn this skill through continuing education and because development of the skill is essential to completion of a broker’s objective in selling real estate. The standard of care exists. Now, brokers need to make sure they gain the education and assistance necessary to draft a purchase agreement, like a reasonable lawyer would draft it.
*Cultum v. Heritage House Realtors, Inc., 103 Wn.2d 623, 694 P.2d 630 (1985).