Transaction Licensee

Why Are You A Transaction Licensee?

James L. Goldsmith, Esquire.

The Real Estate Licensing and Registration Act ("RELRA") allows a real estate consumer to hire a real estate licensee as a "transaction licensee." A transaction licensee is defined by RELRA as "a licensed broker or salesperson who provides communication or document preparation services or performs acts described under the definition of "broker" or "salesperson" for which a license is required, without being an agent or advocate of the consumer." Pennsylvania has seen few practical applications though it would seem that transaction licensee practice might be a financially discounted practice given its limited scope. RELRA, however, also imposes minimum standards that must be observed even by transaction licensees, so that the ability to substantially discount services means that substantially discounting fees may prove difficult.

Our exposure to transaction licensee practice in Pennsylvania suggests that the status is frequently assumed in error. When a seller and buyer have reached tentative terms on the sale and purchase of property but seek the assistance of a licensee in order to "do the paperwork", the licensee may be treading into an illegal practice, whether he or she does so as a seller agent, buyer agent, or even as a transaction licensee. The danger is that by acting as scrivener for a buyer and seller who have reached terms, the licensee is engaging in the unlawful practice of law. In Pennsylvania, the unlawful practice of law is a criminal offense punishable by up to one-year imprisonment and a $2,500 fine! Further, the real estate licensee who engages in the unauthorized practice of law is also in violation of Article 13 of the NAR Code of Ethics.

Pennsylvania case law has established that licensees, in specific circumstances, may draft legal real estate contracts without violating the unauthorized practice of law statute. In 1934 the Pennsylvania Supreme Court in the case of Childs v. Smeltzer held that:

There can be no objection to the preparation of deeds and mortgages or other contracts by [real estate] brokers so long as the papers involved pertain to and grow out of their business transactions and are intimately connected therewith. The drafting and execution of legal instruments is a necessary concomitant of many businesses, and cannot be considered unlawful. Such practice only falls within the prohibition of the act when the documents are drawn in relation to matters in no manner connected with the immediate business of the person preparing them, and when the person so drafting them is not a member of the bar and holds himself out as specially qualified and competent to do that type of work. A real estate broker is not prohibited from drawing a deed or conveyance or other appropriate instrument relating to property in which he or his associates have negotiated a sale or lease." (emphasis added).

Under this case, and the significant court decisions that have followed, the extent of a licensee's involvement in a transaction dictates whether that licensee has the legal authority to draft the ancillary contracts. The definition of "transaction licensee" in RELRA should not be interpreted to authorize document preparation services where the licensee had no involvement in the transaction or in bringing the parties together. As legal counsel for PAR, we do not believe that RELRA statutorily overrules or modifies the case law defining the unauthorized practice of law. This was not the intent of the authors of Act 112 which, when becoming effective in November 1999, enabled licensees to act as transaction licensees.

So, in what circumstances would someone act as a transaction licensee? On the seller's side, a licensee could serve as a transaction listing licensee to market the property by, among other things, submitting it to the MLS, acting as a conduit for communication between the buyer and seller, informing the seller of the seller's duty under the Seller Disclosure Act, obtaining the seller's disclosures, reviewing contracts, and providing other similar services. Sounds very much like seller agency, though a primary difference may be that the transaction listing broker offers no advice as to the strength or weakness of an offer and avoids participating in the primary decisions shouldered by a seller. Conceivably it's a practice that could be performed by a distant broker or one who communicates primarily via email and other writing rather than in person.

Similarly, a transaction licensee working with the buyer should shy away from offering advice as to what is in the best interest of the buyer and should stick to basic tasks such as identifying properties within parameters suggested by the purchaser, reducing buyer's offer to writing and related services.

As you can see, a transaction licensee performs most services of a buyer or seller agent although he or she can avoid giving advice on the ultimate issues confronting a buyer and seller. To most licensees, this is the enjoyable part of the practice: using hard-gained insight to help the buyer or seller.

In my first article on this subject for The Pennsylvania REALTOR®, I prognosticated that: "It is not anticipated that the practice of acting as a transaction licensee will be wide-spread in Pennsylvania by real estate licensees. It is difficult to imagine that, in a market driven by consumer choice, a consumer would prefer that a real estate licensee not act as his/her agent or advocate in a real estate transaction." I feel the same today. Regardless, if you are inclined to act in the capacity of a transaction licensee, make sure that your broker has authorized this practice as one that is available to you and your office.

Copyright © Brett M. Woodburn, Esquire, CALDWELL & KEARNS, P.C., 2008

All Rights Reserved

Mr. Goldsmith is an attorney with Caldwell & Kearns and serves as general counsel to PAR. A substantial portion of his practice is dedicated to providing advice and counsel to real estate licensees and representing and defending real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. He routinely counsels employers on employee relations issues as one of the voices of the PAR Legal Hotline. He may be reached at www.realcompliance.com.