Since the NAR commission suit settlement, buyer agents have faced new rules, new documents and a new normal. This month, Inman drills down on Today’s Buyers Agent with the fresh marketing strategies, skills and tools buyer agents are using to prosper in changing times.
Even if you have errors and omissions insurance, being a defendant in a lawsuit can have a huge negative impact on both you and your business. Being deposed by a superstar litigator is your worst nightmare. Everything you say can be twisted and, in many cases, turned against you.
Hopefully, you have never been or will be in any real estate litigation. If you want to keep the attorneys at bay, here is a list of behaviors to avoid as well as best practices that can keep you out of trouble.
Wrong place, wrong time
What’s really upsetting is that you can do everything right and still end up in litigation. Sometimes you’re just in the wrong place at the wrong time.
For example, there was one case where the seller failed to make a major disclosure about the property. The seller went bankrupt, so the plaintiff’s attorney turned to the agents and the other people involved in the transaction.
When the attorney discovered that the painting contractor had errors and omissions insurance, he was named as a defendant as well, along with the agents and brokerage because they also had E&O insurance.
6 best practices to avoid litigation
Below you will find six common sources of real estate litigation as well as six strategies to avoid being sued.
1. ‘What’s that spot on the ceiling?’
Even if you are a roofing expert, never answer this question. I had two listings where the brown spot on the ceiling turned out to be a beehive with over 100 pounds of pounds of honey.
Best practice: Avoid diagnosing any issue regarding the condition of the property. Instead say:
“I don’t know what caused the stain on the ceiling. If you are interested in the property, then you should hire a competent roofer and conduct a thorough physical inspection to thoroughly investigate the condition of the property.”
In terms of what you put on your mandated written disclosure documents, avoid diagnosing there as well. Instead, describe what you see: “Brown stain noted on living room ceiling.” Or, “Buckled sidewalk noted adjacent to Ficus tree in front yard.”
2. We aren’t going to disclose that old inspection report
Sellers often don’t want to disclose previous inspection reports, especially if the report caused their transaction to be canceled. Failure to disclose is always a poor idea. Here’s why.
A geological inspection on a house revealed that it could collapse during an earthquake. The first set of buyers walked away from the property.
The listing agent failed to disclose the geological report to the second set of buyers. The house collapsed during the Northridge Earthquake and two people died. Needless to say, the settlement was several million dollars.
Best practice: When you have a transaction that falls apart due to the physical inspection, it’s smart to disclose it to the buyer. If the seller won’t disclose the report, walk away from the listing. It’s simply not worth the risk.
3. Where’s the property line?
While the seller may swear under oath that they know exactly where the property line is, don’t believe it. In a case where the sellers said the fence was the property line, they were actually off by 1 foot. That mistake cost them over $200,000.
Best practice: When a buyer asks about where the property line is say:
“I don’t know. If you want the exact location of the property lines, hire a surveyor.”
4. How much will the seller really take for the property?
A luxury agent had a listing that was priced at $2.4 million. When a journalist asked her where she thought the property would sell, she said $1.8 million. When the seller read this in the paper a few days later, he filed a lawsuit for an unauthorized price reduction. The judgment against her and her brokerage was over $2 million.
Best practice: When a buyer asks you how much a seller will take for the property, there’s only one correct answer:
“The only way to know for sure is to write an offer.”
In fact, you can’t even represent that the seller will sell for the asking price because in a multiple-offer situation the property could sell for over asking.
5. Is this a good family neighborhood that has a low crime rate?
You may believe that a property is located in a great neighborhood; however, that can all change if the wrong tenant or owner moves into just one house.
Best practice: When a buyer asks you about the characteristics of the neighborhood, including crime statistics, ethnic composition of the residents, or “families” that live in the area, you cannot comment. If you do, you run the risk of violating the fair housing laws. Instead, provide them with links to census, crime and school data where they can search out this information for themselves.
6. It’s a new property — do I really need a physical inspection?
If there was ever a time to have a thorough physical inspection, it’s when a buyer purchases a new property. For example, in one of the new homes that we purchased, the plumbers hooked up the hot water to one of the toilets — talk about being steamed.
Best practice: On all new properties, make sure that the buyer does a thorough physical inspection and walk-through prior to closing. The buyer has leverage before the transaction closes. Afterward, some builders aren’t very good at following up on post-close problems.
Ultimately, your first line of defense is always to follow the Golden Rule. Never say anything negative about anyone, never represent what your buyer or seller will do, and never diagnose the condition of the property.
Instead, have your clients use trained professionals to evaluate the property. Also, for additional peace of mind, order a home warranty policy as well.
Bernice Ross, president and CEO of BrokerageUP and RealEstateCoach.com, the founder of Profit.RealEstate and a national speaker, author and trainer with over 1,500 published articles.
