We have a loan officer who has
a relationship with a real estate attorney from whom the loan officer receives
referrals.
The attorney is also a newly licensed realtor who intends to act both as the realtor and an attorney on a transaction.
Is that permissible? It seems like a conflict to me.
The attorney is also a newly licensed realtor who intends to act both as the realtor and an attorney on a transaction.
Is that permissible? It seems like a conflict to me.
ANSWER
As the loan officer will be
receiving referrals from the attorney, the presumption is that the attorney
will be representing buyers in real estate transactions both as a real estate
agent and attorney.
Several state bar associations,
including the Connecticut, Massachusetts, and New York State Bar Associations, have
opined on this issue.[*]
Assuming the attorney is being compensated as a real estate agent by the seller in an amount equal to a percentage of the sales price and receipt of such compensation is conditioned on the transaction closing, the short answer is no, the individual cannot act in a dual capacity of real estate agent and attorney.
Assuming the attorney is being compensated as a real estate agent by the seller in an amount equal to a percentage of the sales price and receipt of such compensation is conditioned on the transaction closing, the short answer is no, the individual cannot act in a dual capacity of real estate agent and attorney.
DISCUSSION
An individual functioning as
both the buyer’s attorney and real estate agent in a residential real estate
transaction raises the issue of the existence of a conflict of interest and the
individual’s ability to adequately represent the buyer in both capacities. The
role of the buyer’s real estate agent is to guide the buyer through the preliminary
process of purchasing a property, including ascertaining the type of property
and location that suits the buyer’s needs, responding to questions regarding a
listing, showing the buyer the properties, and presenting and negotiating the
purchase price. Typically, the buyer’s real estate agent is paid by the seller.
The seller enters a listing
agreement with seller’s real estate broker which sets forth the commission,
typically a percentage of the purchase price and contingent upon the
transaction actually closing. That commission is usually split between the
buyer’s and seller’s real estate brokers, with a portion going to the agents
themselves. Thus, both buyer’s and seller’s real estate agents have an interest
in not only having the transaction closed (otherwise they do not get paid) but
also in having the sales price at the highest amount possible so they can
maximize their commission.
The buyer’s attorney works with
the buyer’s real estate agent to bring the transaction to closing. Typically,
the attorney will prepare and negotiate the purchase contract or in some
states, review and revise the broker prepared contract; review the title
commitment to ensure there are no title defects; review the term of the mortgage
and the purchase agreement to ensure the documents reflect the buyer’s wants
and needs; prepare closing documents; and, attend the closing. Throughout this
process, it is incumbent upon the attorney to zealously represent the buyer’s
interests.
Therein lies a personal
conflict of interest for the real estate agent/lawyer. As the real estate
agent, not only is the individual interested in the highest purchase price but
also in closing the transaction; otherwise, he will not get paid. By contrast,
the buyer’s lawyer’s role is to protect the buyer’s interests, which in some
circumstances may include renegotiating a lower purchase price due to
inspection issues or even advising the client that it is in his best interest
to walk away from the deal even though doing so may preclude the real estate
agent from receiving a commission.
Most, if not all, states’ Rules
of Professional Conduct prohibit an attorney from entering a “business
transaction” with a client unless certain conditions are satisfied, including
that the transaction is fair and reasonable, that the client has been advised
in writing to consider the desirability of seeking the advice of other legal
counsel, and that the client has provided informed consent to the
representation in writing. However, many states’ bar associations and state
court opinions have opined that the personal conflict of interest of an
individual acting in the dual capacity of a buyer’s real estate agent and
lawyer is not one that may be waived by the parties; it is essentially
“non-consentable by the client” and thus an individual may not act as both the
buyer’s attorney and buyer’s real estate agent in the transaction.[†]
Note that the foregoing analysis only applies in situations wherein the real estate agent/lawyer is receiving a commission paid by the seller. It may be permissible for the individual to act in a dual capacity in other circumstances such as if - in his capacity as a real estate agent – he is being paid a flat fee regardless of whether the closing transaction is being paid by the buyer.
Note that the foregoing analysis only applies in situations wherein the real estate agent/lawyer is receiving a commission paid by the seller. It may be permissible for the individual to act in a dual capacity in other circumstances such as if - in his capacity as a real estate agent – he is being paid a flat fee regardless of whether the closing transaction is being paid by the buyer.
Joyce Wilkins Pollison, Esq.
Executive Director
Director/Legal and Regulatory Compliance
Lenders Compliance Group
[*]
Connecticut Bar Association Informal Opinion 15-03/Dual Role as Real Estate
Attorney and Real Estate Agent in the Same Transaction, February 18, 2015; Massachusetts
Bar Association Opinion 82-4, April 1982; New York State Bar Association
Committee on Professional Ethics Opinion 1117/Conflicts of Interest; Serving as
Lawyer and Broker in Same Real Estate Transaction, April 4, 2017; Oregon State
Bar Association Formal Opinion 2006-176/Conflicts of Interest: Lawyer
Functioning in Multiple Roles in Client’s Real Estate Transaction, September
2016
[†]
New York State Bar Association Committee on Professional Ethics Opinion
1117/Conflicts of Interest at ¶6.
