- With tons of details, multiple clients and valuable properties, it’s all too easy for things to slip through the cracks, and agents are vulnerable when it comes to getting sued.
- Agents should lean on the side of preparedness and educate themselves about potential legal issues.
- Legal issues that could potentially be problematic for agents include failing to disclose a property defect, breach of duty, giving legal advice, misleading clients and more.
Real estate agents are particularly vulnerable when it comes to getting sued. With tons of details, multiple clients and valuable properties, it’s all too easy for things to slip through the cracks.
Even the slightest mistake could end up costing you a lot of money, a lot of stress and worst of all, tarnish your reputation. Luckily, there are proactive steps you can take to protect yourself and your real estate career.
Although accidents can still happen, learning how to avoid the most common mistakes can significantly reduce the risk of being sued, and you should still educate yourself to lean on the side of preparedness.
Here’s a list of 10 common ways real estate agents get sued and how you can keep them from happening to you:
1. Failing to disclose a property defect
Clients who discover defects after signing the papers will be quick to blame the real estate agent. Every bit of damage and every defect found on the property should be thoroughly documented.
Defects can include construction issues, improvements without permits, leaks, cracking, noise or nuisances.
When a client sues a real estate agent for failing to disclose a property defect, they have to prove the agent knew or should have known about the defect and failed to disclose it.
Be sure to perform a thorough inspection of the property, and have your clients sign a statement that documents their awareness of any issues.
2. Breach of duty
One of the most common lawsuits brought against real estate agents is for breach of duty. Real estate agents know they must always act in the best interest of the client, as clients place a special trust in real estate agents for their expertise.
Real estate agents are held to a high standard of honesty and full disclosure. Any breach of this duty, whether from negligence or intentional action, is subject to the risk of a lawsuit.
Always document everything, and practice honesty at all times to avoid this common pitfall. For further reading, particularly when agencies are involved, see this piece from Matt Carter.
3. Representing clients in unfamiliar territory
If you are showing and selling properties in an area that you are unfamiliar with, take extra precaution and do your research first.
Many times there are requirements or other situations particular to an area of which you are unaware. If an issue arises that is due to the geographic location, you might be blamed because you failed to warn your clients about any such problems.
4. Giving legal advice
Clients want their real estate agent to have an answer for every question they ask. Similarly, real estate agents want to help their clients.
Just remember most states consider it illegal for a real estate agent to give tax or legal advice. This mistake is especially difficult to avoid because taxes and legalities are an unavoidable part of real estate.
Give the wrong advice, and the client could blame you for any consequences. Instead, politely request that your clients direct any such questions to a lawyer or tax professional.
5. Misleading clients
Every real estate agent strives to make their property stand out from the crowd. It might even be tempting to exaggerate here and there about the features or the condition of the house. However, this kind of deception can end disastrously for agents.
If a buyer feels misled about anything, a lawsuit typically follows shortly after. Always be truthful about claims you make about a property with no room for misinterpretation.
A misleading statement might help you close a sale, but it might also lead to legal action and financial loss. It’s not worth the risk.
6. Breach of contract
When a client claims a real estate agent did not perform under the terms of a contract, he or she might seek legal action.
One of the most common reasons for breach of contract is failing to comply with time frames stated in the contract. A breach of contract claim is often made in conjunction with claims of negligence, fraud or breach of duty.
It’s important to examine every aspect of your contracts with a lawyer to ensure all appropriate information is accounted for and accurate.
Additionally, be sure to take time with each client to advise them on the terms of a contract properly. Identify any unclear clauses, terms or issues to reduce the chance of later legal action.
7. Failing to keep your clients’ data safe
Hackers are everywhere, and they want your clients’ information. Moreover, if they are successful in getting it — you will be the one who pays.
Protect your clients’ information from criminals by installing security software and keeping your paperwork in a secure location. Once you have a secure system in place, regularly change your password and make sure your data is encrypted.
8. Failing to recommend inspections
Real estate agents frequently fail to recommend property inspections to prospective buyers. Your clients are trusting you for your expertise and guidance through the real estate process. But there are some areas that require a third-party opinion.
Inspectors should be recommended for pools, chimneys, roofs, septic systems and structural issues. At minimum, a general home inspection should be recommended.
Negligence is a cause of action alleging the failure to exercise due care toward others that a reasonable or prudent person would do in the circumstances.
Clients can make claims that a real estate agent should have known something but did not and failed to take appropriate action.
Negligence differs from fraud in that it lacks an element of intent. Often clients seeking legal action will begin by claiming fraud, but if they are unable to prove intent, they will seek reparations for negligence.
It’s hard to prevent claims of negligence because you might not always know what you should have known. Be sure to obtain insurance coverage for these unfortunate instances.
10. Bodily injury
If a client is injured during a showing and you are found liable, you will be responsible for reimbursing any costs related to the accident.
Always make sure any debris is picked up, the snow is shoveled and the ice is melted to avoid slips and falls. Bodily claims might also include physical problems resulting from an undisclosed mold problem.
Evaluate your property for all possible physical risks and protect your business with insurance for unforeseen accidents.
Protecting your real estate business
Even the most diligent real estate agent can get sued. The good news is, by avoiding the common mistakes listed above you can dramatically reduce your risk.
It is still crucial to protect yourself as much as possible. Finding a sound errors and omissions carrier is ultimately essential, though the above list should hopefully keep you out of the courtroom.
Ryan Ellis is an independent consultant to businesses across the West Coast and passionate about helping real estate agents navigate unforeseen market challenges. Follow him @theEOpro for the news to know.