Brokers: Here are 4 Ways Your Agents Can Get Sued
Although unfortunate, lawsuits in the real estate industry are more common than you might think. When navigating through property transactions, real estate agents can be legally vulnerable — as buying or selling a home is a complex undertaking. As a broker, this liability extends to you and your business.
In most cases, however, there are simple precautionary steps that agents can take to protect themselves from litigation and that brokers can do to limit their risk. But, in order to mitigate your risk, you have to be cognizant of where the opportunities for suits are lurking.
Let’s explore these five all-too-common ways that real estate agents get sued — and how to avoid them.
#1. Inspections
It’s a real estate agent’s job to help their buyers to understand the condition of the property so that the buyer can make an informed purchase decision. The agent must assist the client in determining the condition of the property so the client can evaluate and weigh the risk.
Ordering inspections and seeking the advice and counsel of construction experts and tradespersons is one tried-and-true method to assist the buyer in determining the condition. Agents who don’t recommend inspections risk claims of negligence and breach of fiduciary duty.
Agents should always recommend a general home inspection and other (specialty) inspections as appropriate and/or as recommended by the General home inspection. These additional inspections may include: pools, structural engineering, chimneys, septic system, well water system, lead-based paint, and more.
#2. Contract Terms and Deadlines
Real estate agents are legally bound to the specifics of their contracts; deviations from these terms can result in legal action. While there are many common areas where real estate contracts are breached, the most prominent issue is timeliness. For instance, sellers often fail to provide buyers with required reports and disclosures within the time specified in the contract; and likewise, buyers often fail to adhere to their contingency and financing deadlines.
The best agents provide their clients with a copy of the contract well in advance of the transaction. It’s recommended that agents sit down with their clients and carefully go through the contract together. Discussing all the details will help avoid misinterpretations. And, if timelines must change, it’s important that the proper paperwork is executed to have a paper trail for those changes.
#3. Giving Clients Legal Advice
Agents aren’t supposed to have all the answers — and shouldn’t provide legal advice to their clients. Some areas that agents should consider off-limits are tax and legal matters. However, it’s not easy to avoid these topics as they’re intrinsically linked to real estate sales.
As a standard rule, agents can simply refer their clients to seek answers from other professional sources like lawyers, tax preparers, or other professionals.
#4. Providing Misleading Information
Marketing is one thing, but misleading is another. While agents may feel tempted to boast about their listed properties, they need to be careful about how far they go. Buyers can sue the agent if they were misguided or lied to during the marketing process.
Agents need to remember to describe and represent the property in its exact condition (as it’s known to the agent) and to not be boastful in listing descriptions, property tours, marketing collateral, etc.
#5. Negligent Disclosures
Most states impose a separate disclosure obligation on the real estate agents. In California, for example, the agent is required to disclose all known material facts (defects) and perform a visual inspection of the property and disclose any/all defects observed. Agents need to tread carefully when working with property disclosures since any issues could potentially cause them to be liable.
Failure to fully and accurately disclose property information could bring about lawsuits — not only for their seller client but for the agent, too.
Solving the Disclosure Problem
In order to protect your agents against negligent disclosures, consider working with Glide - California’s premier resource for disclosures. Get disclosures right, every time. If you’re interested in providing your brokerage’s agents with even more security, check out our new insurance product.
