By Michael Repka, Esq. and Colette Thomason, Esq.
Through an interesting confluence of rules that apply to Realtors® and attorneys, the vast majority of real estate agents cannot give their clients legal advice. This is true even if the real estate agent is a licensed attorney. However, due to DeLeon Realty’s unique business ownership, attorneys on the DeLeon Team, including Ken DeLeon, Michael Repka, and Colette Thomason, amongst others, are permitted to provide legal advice and counsel to the DeLeon Team’s clients. Even better, we provide this legal counsel at no extra charge to our clients.
We frequently receive complaints from our competition that it is unfair that the DeLeon Team offers services that other agents do not or simply cannot provide. In regards to legal services, other agents or brokers are either unqualified or are not permitted to provide any type of legal advice to buyers or sellers. The DeLeon Team is unique in that it is in complete compliance with all applicable laws and regulations.
Most importantly, the DeLeon Team provides the answers to legal and tax questions that our clients need to make informed decisions about purchasing and selling real estate, and to protect themselves. The purchase of real estate is a significant investment, and the sale is an important decision in a person’s life, one which is often assisted with an agent who is paid considerable commission but cannot provide the full extent of legal counsel that a buyer or seller deserves.
How the Rules Work
It is common knowledge that one must pass the bar exam and be licensed to practice law in order to provide clients with legal advice. As a result, real estate agents that are not attorneys are not permitted to provide legal advice that goes beyond the basics of checking boxes in a purchase contract. In fact, clients that are parties to real estate contracts generally sign multiple documents that advise them that the agent is not qualified or permitted to provide legal advice. As frustrating as this is to clients, the client is actually better off getting no advice than getting bad advice from a traditional agent that does not understand the law.
What is not commonly known is that a licensed real estate agent or broker who is also a licensed attorney is not automatically allowed to provide clients with legal advice, just by virtue of being an attorney. Indeed, agents may advertise themselves as holding a bar license, whether active or not, but they cannot provide legal advice to their clients.
Under California bar rules, an agent that is also an attorney can give legal advice only if the real estate brokerage is entirely attorney owned. This is based on strict rules regarding who may receive fees in exchange for legal services. If legal services are provided by a real estate agent (who is also an attorney) and that agent receives commission, a portion of the commission goes to the agent’s brokerage and ultimately the owners of the brokerage. Thus, if the brokerage is not attorney owned, money collected in connection with the rendering of legal services is paid to a non-attorney. This is considered illegal fee-splitting and is strictly prohibited.
Pursuant to California Rules of Professional Conduct Rule 1-320, neither an attorney nor a law firm shall directly or indirectly share legal fees with a person who is not a lawyer, except under certain limited circumstances.
Thus, the typical agent, even if they are also an attorney, cannot provide recommendations on how buyers should hold title. They cannot explain the effect of an easement on a property or explain the maintenance obligations between neighbors who share a driveway. They cannot assist a client through a contract dispute or advise the client of the strengths or weaknesses of their case. They cannot assist a seller with a boundary dispute that could interfere with the sale. Put another way, if Ken DeLeon or Michael Repka were affiliated with a traditional brokerage such as Keller Williams, Compass, or Intero, they could not provide legal advice to clients without violating certain California Rules of Professional Conduct. However, since DeLeon Realty is entirely attorney owned, they may provide the legal advice that is so valuable to buyers and sellers in real estate transactions.
Ken DeLeon and Michael Repka went to a great deal of effort to create a brokerage (DeLeon Realty, Inc.) from the ground up, and to house only one team (the DeLeon Team), in part because they wanted the flexibility to provide clients with legal advice. A recent news release from Yahoo! Finance recognized Ken and Michael as innovative attorneys who “created a new business model that more closely resembles an elite law firm than a traditional brokerage,” which led to the DeLeon Team’s number 1 ranking by volume amongst teams in the entire nation in 2018.
The attorney-owned brokerage model created by Ken DeLeon and Michael Repka allows them to not only provide full service to their clients, but also allows them to be in full compliance with all Realtor® rules, DRE regulations, and Bar Association rules.
The Best Path Forward
A surprising number of buyers and sellers believe that their agent (or that agent’s manager) understands the various tax and legal issues that are involved in the transaction. Other buyers and sellers believe that the agent is partnered with an attorney who provides supervision or protection. Unfortunately, this is rarely the case.
Before signing a contract, irrespective of whether it is a listing agreement or an offer to purchase real estate, the client should ask to speak with an attorney that can explain all of the legal issues related to the client’s specific situation in the purchase or sale of real estate.