For real estate agents, offering a holistic approach to servicing clients is critical. Supporting the client throughout the buying/selling process ensures that the agent is a trusted professional and not merely a transactional agent. Clients expect their real estate agents to be knowledgeable in both real estate and tax law in order to provide a higher level of service. “How much of my mortgage can I deduct on my taxes?”, “Will I have to pay capital gains tax if I sell my home?”, “How much will buying this home save me in taxes?” are just a few questions clients expect their real estate agents to answer.
However, the clients expectations of their real estate agent often do not match the realities that exist in the real estate profession. The discussion of taxes and other legal matter is an inevitable part of any real estate transaction, however, in most US states it is illegal for real estate professionals to give advice on such matters.
Real estate professionals who purposefully or inadvertently give tax or legal advice to clients may face legal challenges. The major types of lawsuits that arise from such situations primarily involve misrepresentation or failure to disclose.
Although this may not be the case for all tax and legal advice, real estate professionals should do their due diligence before giving any advice to a client. What constitutes appropriate advice varies from state to state so one size fits all disclosures will not be enough to avoid liability.
If a real estate agent were to give tax advice to a client then the real estate agent may face legal repercussions. In this case, if a client felt that their real estate agent mislead them by giving inappropriate tax advice then the client could take legal action and sue for damages.
If a real estate agent was found to be grossly negligent by purposely misleading a client with regards to tax advice then that real estate agent could potentially face personal liability. Litigation could result in the loss of ones real estate license, loss of public reputation, increase in attorneys fees and professional liability premiums.
Defer to a CPA
By no means does this preclude a real estate professional from giving any tax advice. Real estate agents can answer tax questions but should defer specifics to a tax professional. For example, if a client were to ask, “How much of my mortgage can I deduct on my taxes?”, a real estate agent may respond as follows: “Mortgage interest may be tax deductible, however, you would need to speak with a tax professional in order to get more information on your specific tax situation.”
By deferring to a tax professional, real estate agents will be able to defer legal liability. Even if the tax advice is sound and supported by tax law it is still safer to defer these questions to a trusted CPA. Either recommend a tax adviser or work with the clients existing CPA. This practice ensures a client will get the holistic service they were looking for, all while mitigating the legal burden on the real estate professional.