Top 4 Reasons Real Estate Agents are Sued!

I was recently asked to be the key speaker for a group of individuals from the real estate and mortgage industry in Memphis, Tennessee. The person who was putting together the program had asked me to share some thoughts on the top ways that agents get themselves in trouble. Here is the list that I put together to show them and I thought that some of you might enjoy a quick look at 4 Fastest Ways to be Sued.

1. Failure to Disclose a property defect. – Okay ladies and gentlemen, always, always, always, document everything! If there is anything at all that you are aware of (leak in kitchen, prior history of pests, anything) make sure to have it written down somewhere and have your clients sign a statement showing that they are aware of this issue. You also want to make sure that you have completed a thorough walk through of the property yourself to see if there are any visible issues. The old adage “Buyer Beware” should also state “Real Estate Agent Beware”, failure to adequately complete an inspection by the agent and disclose any issues can be grounds for a lawsuit against you. If there are make sure that you point them out. On the same note, if you’ve offered your client any type of advise and they decline your advice make sure that you have them sign a statement showing that you offered said advice and it was decline. KEEP THIS ON FILE! Unfortunately we live in a world where people will sue over anything, even if it isn’t your fault. Do everything you can to protect yourself.
2. Giving Legal or Tax Advice. – Okay, raise your hand if you’ve ever given advice to a client regarding how the sale of their home will not be taxed because they’ve lived in it for the past two years. Or how many of you have helped answer questions regarding the contract, almost everyone I bet. The simple fact of the matter is that most states consider this the illegal practice of law. I know, you’re thinking “but that’s my job”. The fact is that you are only allowed to to help in completing the forms that your local association has. You are not allowed to give advice regarding any of the legal ramnifications. So protect yourself and defer these types of questions to the attorney who will be representing your clients at closing.
3. Not Disclosing Dual Agency. – If you are involved in a transaction where you are representing the buyer and the seller make sure that you are “shouting from the mountaintop” to everyone that you are the agent of record for both parties. Again, document, document, document! I can’t believe the number of times that I’ve been to a closing and the parties where not aware of this. For those of you who are builder’s agents at model homes be especially aware of this. I probably see more issues from this type of agent than any other. A nice couple comes in, you’re there to help them and guide them through the process of picking a lot, a plan and all the fixtures. Before you know it you’ve forgotten to disclose to them the dual agency or you’ve waited until very late to do so. Either way the end result is usually a client who ends up feeling a little betrayed and has a bad taste left in their mouth. At worst this results in a lawsuit and at best their never going to use you again or give referrals. Be aware.
4. Breach of Fiduciary Duty. – This is probably the hottest thing going these days and I could (and have) written and given entire speeches on the issue. What types of duty are the agents breaching you ask? Well the biggest thing is for pushing certain companies involved in the settlement process. Do not, I repeat Do not simply tell your clients about only one appraiser, pest control company, home warranty company, attorney/title company. My advice is to put together a small portfolio listing at least three different companies for each service. Give this to your client and let them look through it and compare prices and choose which company they won’t to work with. If you don’t do this and you refer a company who is not either A)the best company (which can be impossible to determine from a legal standpoint) or B) the lowest price you have breached your fiduciary duty to your client. I’m willing to bet that 90% of agents are guilty of this. And up until 2007 noone was even paying attention. But we’ve entered a whole new era. Consider this your warning.