Knowing When to Answer and When to Refer

Before answering a question or drafting a complex clause, ask yourself:

Am I explaining the transaction, or am I providing legal advice?

If you’re being asked to interpret legal rights, determine legal consequences, or create specialized contractual language beyond your expertise, it may be time to recommend that the client seek legal advice.

When legal questions arise, the best service a licensee can sometimes provide is recognizing that the issue is beyond their expertise and connecting the client with the right professional. That judgment helps protect both the client and the transaction.

Licensees regularly answer questions, explain contracts, and help clients navigate complex transactions. However, there is an important distinction between providing real estate expertise and providing legal advice.

RECA’s standards of practice require licensees to provide competent service and act in their clients’ best interests. That includes recognizing the limits of their expertise and knowing when a client should be referred to a lawyer or another qualified professional.

Understanding the Difference

Licensees play an important role in helping clients understand the purpose of contract terms, conditions, and clauses. They can explain how a transaction works, discuss risks and options, and draft terms that accurately reflect a client’s instructions.

However, problems can arise when a licensee moves beyond explaining a contract and begins interpreting legal rights, predicting legal outcomes, or drafting complex clauses that require legal expertise.

For example, a licensee may be asked:

• “Can I get out of this contract?”
• “Can the other party sue me?”
• “Is this clause enforceable?”
• “What are my legal rights in this situation?”

These are legal questions. While a licensee may have encountered similar situations in the past, determining legal rights, obligations, or consequences falls outside the role of a real estate licensee unless they are also licensed to provide legal advice.

The Risks of Going Beyond Your Expertise

Many licensees who stray into legal advice do so with good intentions. They want to help their clients and keep the transaction moving forward.

Unfortunately, a poorly drafted clause or an incorrect interpretation of a legal issue can have lasting consequences. A term may not achieve the client’s intended outcome, may create confusion between the parties, or may lead to disputes after the transaction closes.

When licensees step beyond their area of expertise, they can also take on risks that could have been avoided by involving the appropriate professional. Legal advice is best provided by individuals who are qualified and insured to provide it. Referring clients to a lawyer when legal questions arise helps ensure they receive advice from the appropriate expert while reducing the likelihood of misunderstandings, disputes, or professional liability concerns later in the transaction.

Complex situations often require specialized advice, including:
·      Estate sales
·      Divorce or separation matters
·      Corporate ownership structures
·      Private financing arrangements
·      Property disputes
·      Occupancy agreements
·      Transactions involving unusual legal rights or obligations

In these circumstances, involving a lawyer early can help protect both the client and the transaction.

Knowing When to Refer

Part of providing competent service is knowing when a client needs advice from another professional.

Clients turn to licensees for real estate advice, but that doesn’t mean having all the answers. When a conversation moves into legal territory, it’s time to bring in the right professional.

Referring a client to a lawyer isn’t avoiding the issue. It’s protecting the client by ensuring they receive advice from someone with the expertise to assess their specific circumstances and legal risks.

A good rule of thumb: if a question requires interpreting legal rights, obligations, or the meaning of contract terms, encourage the client to seek legal advice.

Knowing when to refer demonstrates sound judgment, helps manage risk, and ensures clients get the expertise they need.