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Can Real Estate Agents Explain the Contract?

Unfortunately for most, the answer is no.

As an frequent expert in real estate litigation cases, I sometimes wonder if the world is too hard on real estate agents. This is especially true in the area of purchase contracts. Agents are supposed to somehow magically know how to explain the contract to their clients in a legally correct manner, when most agents have had little if any training in contract law. In fact, agents are not even required to take a separate contract class for a California broker’s license. You can qualify with a class in Property Management, Fair Housing or Office Administration but no requirement for contracts. Does that make any sense?

Can you imagine the typical agent attempting to correctly explain what Liquidated Damages means or what the legal impact is of signing or not signing the Arbitration clause? Or trying to explain Good Faith or what to do when the other party doesn't perform. It is truly frightening.

During almost every trial the buyer’s agent is asked …..”Did you explain the contract to your client?” The agents usually answers, “Yes, I did.”. In a couple of cases, A highly skilled litigator then hands a copy of the contract to the agent and ask him or her to explain one of the paragraph to the jury. Usually something really fun, like the Liquidated Damages clause. You can imagine how well this goes for the agent.

Unless you have testified a lot and have the steel nerves of a bike messenger in New York City, ......sitting in the witness box, with a mike in front of you, a stoic judge looking over your shoulder, opposing counsel glaringly in your face and 12 jurors starting at you, is not the place that most agents, or anyone else, would shine, even if you knew the contract. Then, after the agent stammers through their explanation, the attorney gets them to admit that ….."maybe they don’t really understand the contract. And, if you couldn’t explain it now,” they would say, “obviously you didn’t explain it to my client then, did you?” And, if they want to pile on, they can ask …. “What other parts of the contract do you not understand??" This saddens me to see this, even when I am testifying against the agent.

The saddest part is that the client understanding one paragraph of the contract, typically has little to do with the case, but the jury doesn't know that. Once the agent admits they couldn’t explain it, the agent’s credibility is on the path to being destroyed with the jury and the judge.

A really smart attorney told me once that agents are not allowed to practice law but when they write counter offers, step outside the filling out the blank boxes with written addenda or try to explain what the contract means, they are practicing law. And, because Department of Real Estate and our state association don’t want to put the agent in further jeopardy by teaching them the law, the current solution is to pretty much ignore the problem.

The legal standard of care is that any agent, who feels unqualified to explain the contract, should advise their client to seek legal help. After 30+ years selling real estate, I can count on one hand how many agents actually did this. Unfortunately, it is not very practical. And make matters worse, I know several attorneys who won’t take the liability of reviewing purchase contracts. Even if they can bill the client for an hour or two, (which most clients won’t want to pay), imagine the incredible liability you have taken on.
In the past, I’ve had occasion to do business in Chicago, where the buyer and seller each hire an attorney to represent them, charging each side about $2000. I used to resent that idea but the more times I see agents who are uneducated on the contract (and getting beat up in court), I think it is something we should seriously consider doing the same, here in California.

Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.

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