Posted in Blog  
  on Mar 23, 2016

What Lawsuits Should Realtors Watch Out For?

With so many details going into each real estate transaction, a small error can have serious ramifications. In some cases, a mistake can derail an entire property sale.

Multiply potential problems by the number of properties each Realtor handles, and it is clear that there are risks to being in the real estate business.

Unfortunately, when it comes to investment properties, clients aren’t always forgiving. Simple mistakes can lead to major headaches for even the most conscientious Realtors.

Three Most Common Lawsuits and How to Avoid Them

Issue: Failure to Disclose Property Defects

Property defects — both large and small — are the biggest problem for Realtors.

Whether owners discover major issues, like undisclosed construction defects and improvements added without permits, or less serious problems, like leaks or noisy neighbors, they are quick to point the finger at their agent.

Without good documentation, you can find yourself on the wrong end of legal action.

Solution:

Prevent these unpleasant surprises by taking proactive steps to uncover any and all issues with the property.

Partner with a trusted inspector and carefully document findings.

When you disclose issues to potential buyers, get an acknowledgment in writing and file it away safely. You never know when you'll need proof that you performed your duties honestly and in good faith.

Issue: Breach of Duty and Breach of Contract

While property defects make up a significant percentage of complaints against Realtors, other “breach of duty” and “breach of contract” lawsuits are quite common.

These boil down to any situation where buyers or sellers believe their agent did not act in the client’s best interest, or agents did not live up to the terms of their contract.

Realtors are held to high standards of honesty and integrity, and there is a long list of responsibilities that go along with client representation.

Failure to perform the expected functions can give clients legitimate cause for complaint.

Solution:

It goes without saying that the best way to prevent lawsuits alleging breach of duty or breach of contract is to approach your work with honesty and integrity.

With that said, the documentation rule applies here, too.

Keep a paper trail of all communications, even if it is simply a pad or calendar with dated, handwritten notes. This can be a lifesaver when clients come to you with accusations that you failed to provide critical information or didn’t complete tasks as listed in the contract.

Issue: Giving Tax and Legal Advice

Giving advice outside of your area of expertise can be tempting, particularly in real estate. There are many tax and legal ramifications that go hand in hand with home ownership, and your extensive experience means you often know the answers to tax and legal questions.

Still, giving advice in these areas is simply not worth the risk. First, you could be wrong based on the nuances of an individual situation.

Second, in the best-case scenario, your information will be accurate, but the client will still have to visit an attorney or tax adviser regardless.

Either way, you are setting yourself up for serious consequences, since offering unlicensed tax and legal advice is against the law in many states.

Solution:

Sidestepping this potential minefield is best managed through careful preparation.

Know the most common questions clients ask and be ready with a clear request that they consult their attorneys and tax advisors.

If it makes sense, join forces with trusted tax and legal partners so you can provide referrals when necessary.

When you stay within your area of expertise and behave in a conscientious, ethical manner, you can avoid being targeted by reasonable clients.

Of course, there are cases where clients choose to file suit despite your diligent efforts to provide them with high-quality representation. In these cases, careful documentation is your best defense against legal claims.


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