There are several reasons to have an attorney throughout the life of your brokerage business. Initially, a lawyer will help decide which entity is best for you. Once a decision is made about choice of entity - from sole proprietorship, limited or general partnership, to LLC or incorporation - a lawyer will complete and file the necessary paperwork to register the entity with the state and the IRS. A tax identification number should be obtained and, if you choose to form a "sub-S" corporation, the filing must occur within a requisite period of time. (Also, some states have an ongoing requirement to periodically re-register with them.) If you choose to buy a franchise, you'll need a lawyer to read and explain the franchise paperwork to you.
Construction and adoption of your entity-governing documents is the next step. If you are going into business by yourself, this process is made easier because you don't have to worry about all the scenarios that can unfold with a partnership. If you are going into business with a partner or partners, the process of creating entity-governing documents becomes much more difficult.
Besides providing language that establishes the tax structure for the entity, the entity-governing documents (known as Partnership Agreements, Membership Agreements or Corporate By-Laws), dictate how the business should run. There should be a voting process to resolve disputes, amend or create new rules for the entity. When you are contemplating the creation of your entity, you should also contemplate several other topics such as: what happens if a partner dies; what happens if a partner wishes to work for a competitor; what happens if a partner wants out of the business; what happens if a partner becomes ill; what happens if a partner wishes to sell his ownership interest to an outsider. These are just a few examples of issues that can arise. By having a clear mutual agreement about how to tackle the problems I just mentioned, partners can prevent headaches from occurring and more importantly, hopefully alleviate a painful, costly "business divorce."
Once the entity is formed and registered and the entity-governing documents are signed, the lawyer's job is just beginning. The next job for your lawyer is to formulate a list of documents required for each of your transactions. The listing side of the transaction has it's own set of unique documents and the buyer's side has another set of unique documents. Some of these documents are required by the state; some of these documents are required by your multiple listing service; and some of these documents will be strongly recommended by your lawyer to reduce legal liability. For example, we have a document that was tailored as a response to an incident that occurred. To paraphrase, it says "sellers should safe-keep all their valuables - like watches, jewelry, and pharmaceuticals - and if they're stolen during an open house or other viewing, the agent is not legally responsible."
As you may know, the practice of real estate is governed or impacted by many laws including, but not limited to, RESPA, State Real Estate Licensing Act, State Sellers Disclosure Act, Real Estate Commission Guidelines, REALTOR(R) Code of Ethics, Uniform Condominium Act, State and Federal Environmental Laws, Local Ordinances, and Multi-List Regulations. There are real estate lawyers out there who have working knowledge of all these rules and how they might effect your business or transaction. If your lawyer is available at a moment's notice to answer a question from you, your agent, or your client, you can prevent problems from occurring. Here are some other reasons to have a lawyer on-call:
Let's not forget contract law! The Agreement of Sale is a legally binding contract. Contract law is a complicated subject. REALTORS(R) are expected to have a firm grasp of contract law so that they can help their customers form contracts to purchase or sell real estate. REALTORS(R) are also expected to draft contracts in a manner that is beneficial to their clients. Finally, REALTORS(R) are supposed to be able to explain to their customers how an Agreement of Sale and/or contingency addendum dictates the transaction. A lawyer should be available at a moment's notice to answer any questions.
Have you ever drafted language for an addendum? If so, you are taking great legal risk. There's probably some occurrence that you haven't thought of. Moreover, sometimes the words you write can have unintended consequences. I recommend against writing your own addenda or contractual clauses without a lawyer's approval. It is possible that your lawyer already has a "forms library" created so that, after a brief conversation with you, she can quickly email a form from her database.
Finally, a lawyer is helpful in resolving disputes. For example, if you have a client who is "under contract" to sell her house and the buyer has stated their intention to breach the contract, there are steps that should be followed and evidence to be gathered in case there is a future lawsuit. Lawyers will advise the sellers what steps to take in order to preserve their legal rights against the buyers and get their property back on the market as quickly as possible. There are innumerable instances when disputes arise between the parties to a contract or their real estate agents. Since lawyers understand the "end game," ie., what happens if the case ends up in court, they can provide incredible advice to the parties in order to reduce or mitigate their damages.
In closing, I've explained why it's important to have a good real estate lawyer on retainer. It is also a good idea to have that lawyer present annual risk-reduction seminars to explain many of the topics I have mentioned in this article.
My policy is "it is far cheaper to utilize a lawyer at the beginning of a problem (or even before a problem arises) than to wait until the problem is full-blown."
Good luck! - Lawton Stokes