Avoiding agent liability in a real estate transaction

By
Services for Real Estate Pros with Marte Cliff Copywriting

From my Thursday newsletter - thanks to a suggestion from a reader...

 

When you’re dealing with other people’s money – especially when it’s a great deal of money – the threat of liability is always there.

Sometimes all parties have good intentions and something goes wrong, but once in a while there’s a deliberate attempt to trap you, the other agents involved, and a client.

Since I fell into one of those traps once, I know how it can happen. Here’s my story:

I had a buyer interested in an older commercial building in downtown. Viewing it Buyer knew the roof needed repairtogether, we could see that the roof had been leaking. The buyer asked me to get him a bid on putting a new slanted roof over the existing flat roof. I did that.

Meanwhile, the selling agency provided me with a document saying that the roof had been repaired and was warranted for 10 years. I shared that document with the buyer.

After the closing, he sued me because the roof leaked. My attorney did nothing, and I ended up paying what my E&O insurance did not. I think it was $2,500. They didn’t go after the listing agent at all. (I always thought something fishy went on there – that agent was known for it.)

Where did I go wrong? I should have written it all out – the fact that we both knew the roof leaked, that I had gotten him a bid for a new roof, and that the document presented by the listing agent came from him, not me. Then I should have made the buyer sign off on it.

A few months later I ran into the buyer in the grocery store and would not have stopped to visit – but he came after me. He wanted to know why I was mad at him because “After all, I had to sue somebody.”

Another time we were nearly sued over one of my listings.

It was a log cabin in the woods, with only solar power. The buyers wanted to install electricity, and in order to do so needed a utility easement from a group of 4 siblings who (never having seen it) had inherited property the line would need to cross over.

The power company prepared the documents and sent them to the siblings, after I had power polestalked with each of them and been assured that they would sign. Then, with their agent present, I advised the buyers NOT to close until those documents were returned. The buyers didn’t listen, but insisted on closing because they “Knew” it would be OK.

Fortunately, that conversation took place in our office, with both other agents and other clients listening.

One of the siblings was married to an attorney and he didn’t like the agreement, so they did not sign. It took years, and about $10,000, to convince them that it was fine.

What should have happened? The agent working with the buyer should have made them sign off on a statement saying that we had advised them not to close. If she didn’t do it, I should have done it. It was only all those witnesses that saved us.

From here I think you can see where my advice to you is going…

Document everything and insist that your clients sign off on every decision they make against your advice. For instance, make them sign a statement saying they don’t want an inspection. Make sure they’ve signed off on the property condition report and any inspections.

Next, disclose everything.

You know the rules – once you know a “material fact” about a property, you have to disclose, even if the sellers leave it off the property condition report.

NOTE: The laws in your state may be different. Find out.

I once had a listing of property that had been the site of a machine shop and had a buried fuel tank. That was something we had to disclose, and my seller was pretty angry with me for doing so. When he learned that it could not be sold without removing the contaminated soil he decided not to sell. He said “I’ll leave it for my kids to worry about after I’m gone.”

I know there is discussion about fiduciary duty to the client, and it is a grey area. That means you need to be honest with the client and let them know ahead of time when you have a legal obligation to disclose. If you’re unsure about what must be disclosed, do check with your attorney or your agency’s attorney.

There are some fuzzy regulations regarding psychologically impacted property. Check your state laws to see if you or the sellers are required to disclose a death, a suicide, or paranormal activity.

Finally, rely on YOUR information, not the other agent’s.

LAWSUIT AHEADMy last example is the sad story of a gentleman who purchased 5 acres on the highway with the intent of moving his saw shop to a more visible location. He paid what was, in Priest River in the early 80’s, a fortune for 5 acres. $60,000.

The sign on the property – a custom-painted 4X8 sheet of plywood – declared that the property was commercially zoned. The agent working with the buyer wrongly assumed that the sign was truthful. He didn’t check the zoning himself.

The poor buyer did all in his power to get the County to rezone that land so he could build. He even circulated petitions that about half the people in town signed. No go. They refused.

After several years of trouble and litigation, guess who had to pay? The buyer’s agent, even though this was back in the years when everyone represented the sellers.

Had that agent looked at a zoning map he’d have seen that the land was zoned rural. Had he stopped by the assessor’s office or the building department he’d have learned the truth. He didn’t. He relied on what the listing agent and that huge sign said. Pictures of the sign, by the way, were not allowed in the court proceedings. The listing agent was not held liable at all.

I have no idea why the listing agents were not held liable when they had deliberately tried to deceive – but I sure wouldn’t count on it happening every time. If you state a fact about a listing, make sure you've verified it yourself and that it is the truth.

 

The best defense…

Sir Walter Scott wrote "Oh what a tangled web we weave / When first we practice to deceive," and he was so right.

That’s a web that can tangle you up in legal problems for years, so Document, disclose, do your own research, and always tell the truth.

Even then, someone may try to sue you, but you won’t end up the loser.

 

roof repair Image courtesy of vectorolie at FreeDigitalPhotos.net
Time to sue Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Power pole Image courtesy of Photokanok at FreeDigitalPhotos.net

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  1. Debbie Reynolds 04/13/2018 05:00 AM
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Rainmaker
1,122,517
Jane Peters
Home Jane Realty - Los Angeles, CA
Connecting you to the L.A. real estate market

This is excellent advice, Marte. Disclose everything and go the extra step to make sure that the disclosures are signed by the client. That will make it so much more difficult to sue.

Mar 30, 2018 03:18 PM #4
Rainmaker
409,553
Bruce Kunz
C21 Solid Gold Realty, Brick, NJ, 732-920-2100 - Howell, NJ
REALTOR®, Brick & Howell NJ Homes for Sale

Hi Marte Cliff. Well written about important topics: Documentation and personal research. Many towns in our area are going all out to make as much available on line as possible so research is easier than ever. A visit to the local offices is almost always a productive experience. They LOVE when people value their answers!

Thanks for sharing!
Bruce

 

Mar 30, 2018 03:36 PM #5
Rainmaker
3,357,439
Dorie Dillard
Coldwell Banker United Realtors® ~ 512.346.1799 - Austin, TX
Serving Buyers & Sellers in NW Austin Real Estate

Good evening Marte Cliff ,

I'm so glad to see your post featured! I'm a firm believer in disclose..disclose..disclose! Jeff Dowler is right "Getting signatures from the appropriate parties is a good idea even if the issue seems a small one, nut just your own notes."

Mar 30, 2018 04:35 PM #6
Rainmaker
477,705
Ellen Caruso
Daniel Gale Sotheby's International Realty - Glen Head, NY

As they say, Realtors can write a book! So many of us can say we learned a lesson and must think before we speak or act to protect ourselves.

Mar 30, 2018 06:08 PM #7
Rainmaker
487,085
Karen Feltman
Cedar Rapids/Iowa City, IA Lepic-Kroeger REALTORS - Cedar Rapids, IA
Relocation Specialist

I have seen other agents go through similar situations to this.  I haved had a hold harmless signed when a buyer decides to not have their own home inspection. I have also had a hold harmless agreement signed for my seller when they give a credit for a repair that will be completed after the closing.  Estimates are just that....estimates.  I don't want my clients on the hook for something that isn't their fault! 

Mar 30, 2018 06:29 PM #8
Rainmaker
1,143,614
Kat Palmiotti
Grand Lux Realty, 914-419-0270, kat@thehousekat.com - Monroe, NY
The House Kat

This is a great reminder to document, document, document.

I have had several situations lately where I was the buyer's agent and I checked county records and found out the listings were incorrect. One agent admitted he hadn't checked any of the details before he listed; he just assumed his client was being truthful. We get what we inspect, not what we expect.

Mar 31, 2018 04:43 AM #9
Rainmaker
2,246,976
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

What agents don't realize is that when you touch a Real Estate transaction, you are part of it. Its like trust account funds. Touch them and you have to report

Mar 31, 2018 05:53 AM #10
Rainer
408,000
Sham Reddy
H E R Realty, Dayton, OH - Dayton, OH
CRS

Great sharing of experiences to keep others from falling into same trap!!!

The agent working with the buyer should have made them sign off on a statement saying that we had advised them not to close. If she didn’t do it, I should have done it. It was only all those witnesses that saved us.

Mar 31, 2018 06:41 AM #11
Rainmaker
239,994
Dennis J. Zisa & Associates, Inc.
Dennis J. Zisa & Associates, Inc. - Camden, NJ
26 years in So. Jersey and the Greater Camden area

This post is really quite excellent. You bring up issues and share experiences that any agent should heed.

Mar 31, 2018 07:58 AM #12
Rainmaker
2,827,780
Michael Jacobs
Coldwell Banker Residential Brokerage - Pasadena, CA
Los Angeles Pasadena Area Real Estate 818.516.4393

Hello Marte - a valuable lesson and wise words.

Mar 31, 2018 09:35 AM #13
Ambassador
3,230,937
Kathy Streib
Room Service Home Staging - Delray Beach, FL
Home Stager - Palm Beach County,FL -561-914-6224

Marte- I could have kept reading more!  This is excellent!  And, I think it's good to have this information out there for agents, old and new, to remember to document and never assume. 

Mar 31, 2018 10:19 AM #14
Rainmaker
480,521
Jon Quist
REALTY EXECUTIVES TUCSON ELITE - Tucson, AZ
Tucson's BUYERS ONLY Realtor since 1996

I love it! "“After all, I had to sue somebody.” And sue they did. Great post, as usual.

Mar 31, 2018 12:20 PM #15
Ambassador
3,585,330
Debbie Reynolds
Platinum Properties - Clarksville, TN
Your Dedicated Clarksville TN Real Estate Agent

Early in my real estate career I took a class given by attorneys. They pretty much said what you said in this post. State the source of the source, document, keep notes and a papertrail of conversations and use due care and diligence to make sure you are giving correct information. If we don't, we can be held liable. Having a client sign off is an even better way to protect our backsides. 

Mar 31, 2018 01:02 PM #16
Rainmaker
1,960,748
Elizabeth Weintraub Sacramento Real Estate Agent, Top 1% of Lyon Agents
Lyon Real Estate - Sacramento, CA
Put 40 years of experience to work for you

I keep copies of every text and email pertinent to the transaction. When I pass along information from a third-party, I state in writing I have not verified the documents and will not verify. I never obtain inspections for anybody and certainly do NOT put my name on them.

Guess you could say I practice risk management to an extreme. On top of which, we have excellent lawyers and provisions for zero deductible on E&O, although, knock on wood, I've never had to use my E&O.

In the 1970s, I was sued for 5 million over duplexes in Las Vegas (like I had 5 million back then). It went nowhere, but it taught me a big lesson about putting everything in writing. Most of all, I do not give legal advice.

Mar 31, 2018 05:55 PM #17
Ambassador
1,531,464
Debb Janes EcoBroker and Bernie Stea JD
ViewHomes of Clark County - Nature As Neighbors - Camas, WA
REALTORS® in Clark County, WA

We have to keep records of all interaction per our State Real Estate rules. All emails and texts, and phone conversations. It requires a lot of documenting - but we get it - especially sinc Bernie is an attorney.  Although, like Elizabeth we NEVER give legal advice - it is prohibited in our state. We give clients several names of real estate attorneys who we know are top-notch. 

Apr 01, 2018 07:15 AM #18
Ambassador
2,693,374
Tammy Lankford,
Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668 - Eatonton, GA
Broker GA Lake Sinclair/Eatonton/Milledgeville

Someone filed a suit against my firm once, but when it came to the "day in court" where the guy had his hearing the case was thrown out.  The problem was because my E&O insurance had someone there to defend us it still caused my rates to go up for 5 years.  Ugh.  

Apr 01, 2018 08:04 PM #19
Rainmaker
325,406
John Wiley
Right Move Real Estate Group- EXP Realty - Fort Myers, FL
Lee County, FL Real Estate GRI, SRES,GREEN,PSA

Many times some updated education would be in order.

I see agents all the time leaving themselves open to an expensive lesson by not protecting themselves.

Document and have signed should be a constant refrain in the brain.

Apr 02, 2018 07:05 AM #20
Rainmaker
2,246,976
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

Yes to this post and hostess...The war can be lost but for a loss of a nail

Apr 02, 2018 06:48 PM #21
Ambassador
2,434,145
Debe Maxwell, CRS
www.AtHomesCharlotte.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
Charlotte Homes for Sale - Charlotte Neighborhoods

Oh boy, these are the things that really should alert both old and new agents to be diligent (on their OWN accord), Disclose everything they uncover/know and make certain that everything is in writing, Myrl. Thank you for sharing these experiences - it's a great reminder for us ALL.

Congratulations on your well-deserved feature as well!

Apr 04, 2018 07:58 PM #29
Rainmaker
2,705,884
Sally K. & David L. Hanson
Keller Williams 414-525-0563 - Brookfield, WI
WI Realtors - Luxury - Divorce - Short Sale

This is an element sadly missing in early agent education...it doesn't even occur to agents that there IS liabiity...or to their instructors to teach it.

Apr 16, 2018 04:15 AM #30
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