“The number of lawsuits is growing again as real estate markets are heating up, and that means more transactions and claims,” says Eric Myers, vice president of the errors & omissions department at Victor O. Schinnerer & Co. Inc., a REALTOR Benefits® Program partner.
Myers cites a recent lawsuit in which an agent representing the owner of a lakefront property viewed tax assessor’s online records and determined the property had 150 feet of waterfront footage. The seller said that number sounded right, so the home was priced and marketed as if it had 150 feet of shoreline.
A few weeks after the sale was complete, the new buyers wrote a letter to the agent saying there was only 100 feet of waterfront land. The agent believed she had suggested that the original owner obtain a survey of the property, but the owner claimed the agent said a survey was a waste of time and money and not necessary. The seller sued the agent alleging breach of duty, unjust enrichment, and fraudulent representation, and demanded $75,000 in damages. The case was eventually settled for $30,000.
Myers suggests that when the seller refused the suggested survey, the agent should have had them sign a statement of refusal.
Ted Devine, CEO of Insureon (a seller of real estate E&O policies), says that one of the most common lawsuits against agents is failure to disclose an issue with the house. It can be anything from a suspected haunted house to basement leakage problems and neighborhood noise.
In a recent suit, a seller told the real estate agent that the home’s sewer system was connected to the city sewer system. The agent didn’t verify the information, and it turned out it was connected to a sewage tank. “An agent … can be liable for any information they pass on,” he says.
Third-party verification, including the inspection, can help agents reduce their risk. “Don’t go crazy and give advice beyond your scope,” he adds. “If something goes wrong because of your advice, you can be sued.”
For instance, if a buyer asks about remodeling, don’t give your opinion about what they should do and how much it would cost if you’re not an expert. You can suggest vendors that you know to be reputable or a website that can give them further information.
One of the big reasons agents get sued is buyer’s remorse, explains Steven Sargenti, CEO of CRES Insurance Services in San Diego. “Everything is fine when the buyer moves into the house. A couple weeks after they settle in, the neighbors come over and say, ‘Did you know that this might have been a drug house because people were coming in all hours of the night?’” he says. The buyers might want to find someone to blame, and it often comes back to their agent.
Sargenti adds that a quarter of the money agents spend defending themselves against claims involves cases citing failure to disclose a permit issue. The common scenario is a building addition that was not authorized by the local authority. “The agent needs to go down to the county building and pull those permits themselves,” he says.
Agents should document everything in writing, even text messages and emails, says Sargenti. When taking notes about something that comes up in conversation, the agent should write who said it, the date, and whether it was verbal or via email.
Here are some other ways to manage professional liability as an agent or broker:
- Be careful with numbers. Triple-check every number you write down. Transposing numbers such as 5.19 acres to 5.91 acres can be cause for a lawsuit.
- Treat all clients the same. No matter what their budget or timeline for buying a house is, treat all clients with the same level of service and respect. Keep up to date with fair housing laws.
- Disclose all flaws before the sale takes place. Just because damage from a previous kitchen electrical fire is no longer visible doesn’t mean you shouldn’t tell buyers it happened.
- Don’t embellish a property’s qualities. If a house is three blocks from the beach, don’t describe it as waterfront.
- Don’t exaggerate what you can accomplish. Don’t tell your seller that you can sell their home in two weeks just so they’ll list it with you.
NAR’s Risk Management Committee has created documents online for use by brokerages to manage many legal risks that could compromise their business and financial well-being. All of the documents are available for member firms to download and reformat as needed for their firm, including branding with their logo.
Source: “How to Minimize Risks After Closing” (realtormag.realtor.org, Oct. 2016)