Real estate lawyers and real estate agents are both professionals who list "real estate" as their area of expertise. But the type of knowledge each brings to the table is, in fact, very different. Each one, or both, may be essential in a particular real estate matter in California, but neither real estate agents nor attorneys offer their services free. The best way to choose whom to hire is to get a clear overview of how the process works in California and the specific areas of expertise of each professional.
Selling a Home in California
Real estate attorneys and real estate agents don't compete for clients in most states. That's because the laws in many states require a seller to use both an agent and an attorney. The real estate agents are in charge of marketing, setting a price and finding a buyer, but the transactional details are the province of real estate attorneys. The attorneys in these states may draft contracts and must accompany the parties to the closing.
But in California, this is not the case. A real estate agent can handle both the marketing and the transactional work. The agent negotiates the sales contract and also handles the exchange of disclosures, including timely completion of all required forms. As a result, many sellers don't hire an attorney for a sale of real estate in California. However, a real estate agent is not qualified nor permitted to give legal advice. That means a seller might also need to hire an attorney if legal questions arise. And, if the owner is selling her home herself without an agent, she might hire a real estate attorney to complete the legal requirements of the sale.
Real Estate Agents
Many property owners in California use real estate agents to sell their homes for them. In fact, if a property owner wishes to hire someone to sell his California house, that person must have passed a California real estate salesperson test and obtained a real estate salesperson license.
In order to sit for the California real estate licensing test, an applicant must have passed three college level classes. These classes must include both Real Estate Principles and Real Estate Practice. The applicant can choose the third class from a list of about a dozen approved classes. Once she passes the exam, she can apply for a license and pay the fees.
An attorney licensed to practice in California cannot act as a real estate agent without obtaining a license. That means the attorney must sit for the test and obtain a license, but all educational requirements are waived.
Read More: Real Estate Multiple Owner Agreement
Real Estate Brokers
Another type of real estate professional in California is the broker. Every real estate agent must work under the supervision of a broker. A real estate agent who wishes to work for himself must get a broker's license. A broker often sets procedural rules and provides office space, telephones and real estate forms for the agents, who work as independent contractors.
California requires that a person pass a second real estate exam to become a broker. To qualify to take the exam, the applicant must provide evidence of a four-year college degree, plus either eight college-level real estate classes or two years of full-time licensed salesperson experience within the last five years. These educational requirements are waived for an attorney who is licensed to practice in California, although the attorney must have worked in real estate for two years.
Commissions for Real Estate Agents and Brokers
If a property owner wishes to use a real estate agent to sell his property, he will have to pay a commission from the amount of the sales price. A real estate agent earns her living by selling other peoples' property and taking a percentage of the sale price. The law does not set the commission percentage, which is open to negotiation between the seller and the agent. However, most agents get a 5 percent commission from the sale. That comes to $50,000 on a $1 million dollar property. An agent doesn't pocket the full commission amount, however, because she must share the commission with the broker and with the buyer's agent.
Duties of Real Estate Agents in California
In quite a few states, real estate agents have limited responsibilities. They simply help a seller set a price for a property and find a buyer, often scheduling open houses to show the property. The seller in these states hires an attorney to handle the closing paperwork. However, in California, real estate agents are charged with not only pricing the property and finding a qualified, willing buyer, but also making sure that all of the required forms are completed and exchanged. These include the sales contract, as well as some complex legal forms called disclosures. California real estate law requires a seller to tell prospective buyers a lot about a property's condition, features, issues, defects, pest problems and, essentially, anything else he knows about the property that might influence a buyer to purchase or not to purchase.
Failure to fill out the forms accurately and correctly can result in considerable liability to the seller. Special standard forms have been developed for this. The buyer's agent usually uses a standard form to make an offer that the seller can simply sign without any attorney review. That means, in California, a real estate attorney may not be required. In fact, many real estate sales contracts close in California without the seller bringing in an attorney.
Fiduciary Relationship to Client
In California, a real estate agent owes her client a "fiduciary duty." This is the highest duty one person can owe another under California law. It imposes on the agent the highest degree of loyalty and obligation to the client, requiring her to put the client's interest above her own.
An agent who finds that she has a conflict of interest with the client must disclose it promptly to him, including all relevant facts about the conflict. California courts will hold a real estate agent personally liable to clients for any breach of the high level of duty of care imposed. But that does not mean that representation will necessarily be free of conflicts. The fact remains that real estate agents are paid by commission if and only if the sale closes. If the transaction doesn’t close, the agent gets nothing, no matter how much time and effort she put into the deal. Naturally, that means an agent is very eager to close a deal, which isn't a bad thing. But this might make the agent press for a closing that is not always in the seller's best interest.
Real Estate Attorneys
A real estate attorney is a professional who has been admitted to the California bar. This means that, after college, he attended law school, passed his classes, and sat for and passed the California bar exam. At some point, he started working in property law issues.
That means that California real estate attorneys have training and expertise in state property law. An attorney might specialize in sales and lease transactions, including negotiating deals and drafting contracts to reflect those agreements. Or, he might handle other property matters like adverse possession, property liens and foreclosures, deeds, property taxes, estate planning or zoning. Some attorneys work exclusively on commercial property exchanges, while others focus on residential properties.
Fiduciary Duty Owed by Attorneys
Like real estate agents, attorneys owe their clients a fiduciary duty. That means a lawyer must always act in her client's best interest, disclosing any other interest the lawyer has that might conflict with the interest of the client.
Under this legal duty, a real estate lawyer must take actions that will benefit the client. She must provide advice in the client's interests and use professional skill and energy to protect the client’s interests. If the lawyer finds she has a conflict of interest, the lawyer must immediately disclose the conflict and take steps to end it, even if doing so is contrary to her own interests.
Real Estate Attorneys Not Mandated in California
While some states require that the parties to a real estate sales contract bring attorneys to the closing, this is not the law in California. A seller can consult with a real estate attorney however, and there are several circumstances in which this can be a good idea. One such situation occurs when an owner decides to sell her property herself rather than using a real estate agent. Another is when legal issues arise in a potential real estate sale. Finally, hiring a real estate attorney may be warranted in the case of dual agency.
Owner Selling His Own Property
When an owner decides to market his own property, he usually does so to avoid paying the agent's commission. This means that he does not have an experienced real estate professional on hand to assist in figuring out the best asking price, holding open houses to attract offers and weighing the offers that come in. The property owner must price his own property and locate a buyer without assistance.
The bigger issue is the extensive and complex paperwork required to close a real estate transaction. The California Department of Real Estate is very strict about mandating full compliance with the state laws in a real property sale. This is one of the situations in which a seller might think about hiring a real estate attorney in California. It is a good idea to have a knowledgeable person prepare and review the documents relating to the real estate sale, like the purchase agreement, title insurance documentation, financing paperwork, title documents and transfer documents. An experienced real estate attorney is prepared to do this. That same attorney can also handle any disputes about the transaction for the seller.
Legal Issues During a Real Estate Sale
Another situation in which it pays to consider hiring a real estate attorney is when legal issues arise during a real estate sales contract. Most real estate agents are not attorneys and will be unqualified to offer legal advice. In fact, it is illegal for the agent to do so since that would constitute practicing law without a license. In some cases, no legal issues will arise during a property sale. But when they do, the seller may need to bring in an attorney to address them. The more complex the real estate deal appears, the stronger the case for hiring a real estate attorney.
The list of legal questions that might arise during a real estate sale is very long. For example, California has recently enacted new protections for tenants, including limiting evictions. If the premises for sale is occupied by a tenant, the parties are going to want to know how these laws apply. A realtor cannot give an opinion on this. Likewise, if the neighboring property has a footpath to the street that cuts across the seller's property, is that an easement? Tax consequences of the sale are also a legal matter, as are questions about the best type of deed to use. In short, any legal questions a party to a real estate contract might have can make hiring a real estate attorney important. This is especially true in the case of dual agency.
Real Estate Agent Dual Agency
Despite the fact that the agent has a fiduciary duty to his client, California allows the agent to represent both the seller and the buyer. This relationship is called dual agency. The benefit to the agent is clear: he does not have to split the commission with the buyer's agent. However, the seller in this case needs to be sure that the dual agent is working in her best interests.
For example, when a seller's agent gets multiple offers on the property, he reviews them and makes a recommendation to the seller as to their desirability. If a seller's agent is representing one or more of the potential buyers, it may be harder for that agent to be neutral while making the review. Bringing in a real estate attorney in these circumstances is one effective way of preventing problems. The attorney is paid by the hour, not on commission, and will be able to offer neutral advice.
Cost of Real Estate Attorney
Anyone selling property in California may benefit from bringing a real estate attorney into the transaction. Legal advice and explanations can reassure a seller or provide guidance for keeping problems at bay. However, there are downsides to using a real estate attorney. The primary consideration is the cost. While some personal injury attorneys in California agree to work for a percentage of the client's damages award, transactional attorneys usually charge by the hour. The rate can run as much as $1,000 per hour or more. A seller must also ask about charges for associates, paralegals and miscellaneous costs.
A property owner who is considering selling her own property without a real estate agent should also realize that a real estate attorney is not likely to have the same knowledge about the housing market in a particular neighborhood. An experienced agent will be familiar with local pricing and demand that helps to make sure the asking price is in the seller's best interests. Real estate agents often have contacts with good inspectors, loan brokers and other professionals that can expedite the buying process.
- Investopedia: What Does a Real Estate Attorney Do?
- Investopedia: Obtaining Real Estate Licensure in California
- California Department of Real Estate: 2020 Real Estate Law
- FindLaw: Home-Buying Agent vs. Real Estate Agent
- Nolo: Should You Hire a Real Estate Agent or Lawyer to Buy a House?
- Farah Law Firm: Real Estate Attorney vs. Realtor – Buying or Selling a House
- California Department of Real Estate: Examinees
- Stimmel, Stimmel & Roeser: The Fiduciary Duty the Real Estate Agent Owes a Client
- Nolo: Selling a Home in California?
- Nolo: Before Buying a Home in California, Here's What to Know
- Stimmel Law Firm: Fiduciary Duty
- Upcounsel: How Much Does a Lawyer Cost?