Legally speaking: Can I write a purchase contract for parties involved in a FSBO transaction?
On December 2, 2014
By Peg Ritenour, OAR Vice President of Legal Services/Administration
The OAR Legal Assistance Hotline receives an array of real estate-related legal questions — including license law issues, disclosure, contract law, ethics and commission problems, among others. In an effort to help you work within the law, our “Legally Speaking” series spotlights some of the timely questions that are being asked by REALTORS. This one involves whether you can help a former client draft a purchase contract on a “for sale by owner” transaction…
Q: I was contacted by a former client who found a FSBO he wants to purchase. He and the seller have already negotiated the terms, but they want me to draft the purchase agreement and will pay me $500. Can I do this? Who would I represent? Am I required to show the buyer the house before writing the purchase agreement?
A: While it is important to clarify who you will represent in this situation, the first and most crucial issue that must be addressed is the potential risk that you could be found to have engaged in the unauthorized practice of law by merely drafting a contract for the buyer and seller.
Under Ohio law, drafting legal documents for third parties is conduct that requires a license to practice law. However there is a exception that permits a real estate licensee to fill in the blanks on pre-printed, form purchase contracts and leases that have been prepared by an attorney. This is because such conduct is perceived as falling within the ordinary course of a licensee’s business duties. But in the situation where a licensee is being hired to merely write a purchase contract on behalf of buyers and sellers for a fee, such conduct could be considered the practice of law if you are not also performing any other duties that are part of your real estate related services as a licensee.
Thus, to avoid a claim that you engaged in the unauthorized practice of law, you need to make sure that you are providing other services that you would normally perform as a real estate licensee. Examples of such duties would include showing the property, reviewing comparable sales in the area, making sure that the seller has provided the buyer with the Residential Property Disclosure Form and the Lead-based Paint Form (if required), assisting with the financing and inspection process, and other steps necessary to see the transaction through to closing.
In determining what services will be provided, it is important to understand that under Ohio licensing law you must establish an agency relationship with either the seller, the buyer or both. Moreover, Ohio law also specifies that you owe that client(s) fiduciary duties of due care and diligence, obedience, confidentiality, disclosure, etc. In this scenario you should clarify with the parties who you will represent, what services will be provided, what your compensation will be and who will pay it. Your agency choices would be to represent the seller only, the buyer only, or both as a dual agent. Once that is decided you will be able to better determine the services that you will perform. Of course this agreement should be reduced to writing and because it will likely constitute an agency agreement, it must contain the fair housing language and logo and a definite expiration date.
Tags: legal, Legally Speaking