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 
together, 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 
talked 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.
My 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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