To protect against legal risks, agents need to be meticulous in their work and up to date on all relevant laws. Here are 11 things real estate agents commonly get sued (or otherwise land in legal trouble) for.
Disclaimer: This piece is not to be construed as legal advice, but rather a collection of publicly available information on legal issues. If you are seeking legal advice, consult licensed counsel.
Real estate agents deal with high-value transactions, detailed legal documents and multiple clients at once. They’re also accountable for maintaining high standards, and they must follow various laws and regulations.
For these reasons, real estate agents are especially susceptible to getting sued (or getting involved in other sorts of legal trouble). Even small slip-ups could potentially lead to problems.
To protect against these legal risks, agents need to be meticulous in their work and up to date on all relevant laws. Having a legal team you can go to for advice or legal help is essential as well.
Here are 11 things real estate agents commonly get sued (or otherwise land in legal trouble) for.
1. Breach of contract
Contracts are a frequent source of legal trouble for real estate agents. Clients may take legal action if they believe the agent did not follow the terms in the contract. Breach of contract claims often come in conjunction with another sort of challenge.
To avoid this issue, go over your contracts with a lawyer to make sure they are legally sound. You should also go over them with all clients to make sure you’re on the same page.
2. Breach of duty
Breach of duty is one of the most common legal challenges brought against real estate agents. It essentially claims the agent did not act in the client’s best interest as they are required to do. A breach of duty can result from negligence or deliberate actions.
Documenting everything you do and always being honest can help prevent you from facing this type of lawsuit.
3. Failure to disclose flaws
Real estate agents must give their clients accurate information about defects in the properties they’re considering buying. These defects could include faulty construction, cracks, leaks, excessive noise, the presence of lead-based paint, the presence of mold and much more.
Clients may sue for any defect they say the real estate agent knew about and did not disclose or should have known about.
Conduct a thorough inspection to uncover any potential issues, and document anything you find. Then have the client sign a document indicating you told them about the defects.
4. Misleading clients
If clients feel their agents misled them, whether through their advertisements, their word or their actions, they may sue. The law requires all the information and pictures in ads to be accurate.
It can be tempting to exaggerate the features of a property, and some agents may do so without even realizing it. Make a conscious effort to avoid exaggeration, and be as clear as possible to prevent misinterpretation. Of course, honesty should always be a top priority.
5. Fair housing issues
Fair housing issues can be complicated, as federal, state and local laws may play into them. It’s important to avoid this kind of legal trouble, though, in part because the penalties can be costly.
Federal fair housing rules disallow discrimination based on race, color, national origin, religion, sex, familial status and disability. State and local laws may extend this to other groups as well.
Make sure you are informed about the fair housing laws that apply in your area, and devote time to ensuring you are always following them. If you come across clients who do not want to sell their property to people of a particular group, it is often best to drop the client to avoid legal issues.
6. Data security
Data security is becoming an increasingly important issue in every sector. Because real estate agents collect sensitive information from their clients and can be held liable if it gets stolen, it’s especially important that real estate agents stay on top of data security.
Make sure to keep your security systems up to date, encrypt your data, change your password regularly and store physical paperwork in secure locations.
7. Giving legal advice
When clients ask you questions, you want to be able to answer them. When those questions have to do with legal issues or taxes, though, answering them can get you into trouble.
In many states, it is illegal for real estate agents to give legal or tax advice. That can be frustrating for real estate agents who have the answers.
If your client asks for legal or tax advice, it’s best to politely refer them to a lawyer or tax expert. This can prevent costly legal issues from arising in the future.
8. Failing to advise inspections
Realtors should recommend inspections to their clients. If they don’t, clients could say the agent didn’t look out for their best interests.
Clients rely on agents’ expertise, so it’s crucial to recommend inspections that may be valuable.
You should suggest a general home inspection, but some situations may call for additional, specialized examinations. Pools, roofs, chimneys, septic systems and structural issues may all require additional inspections.
People do not have to claim that their real estate agent purposely wronged them to take legal action. They could also sue on the grounds of negligence, which means an agent has failed to take reasonable measures to protect his or her clients.
Sometimes, if clients cannot prove fraud, they will change their case to one of negligence.
To avoid claims of negligence, you should always take reasonable precautions to protect your clients and act in their best interest. If you’re unsure about something, it’s best to err on the side of caution to prevent negligence lawsuits.
10. Antitrust misconduct
Antitrust laws are designed to protect competition from monopolies and other agreements that could impede trade. Although there’s plenty of competition in the real estate space, agents also often cooperate with each other and act as subagents, facilitators or buyers’ representatives.
This cooperation makes real estate particularly vulnerable to antitrust misconduct. You can still have these partnerships, but you must make sure you are up to date on antitrust laws and always keep them in mind.
11. Working outside your comfort zone
If you find yourself doing work that’s outside your comfort zone, take extra precautions by researching relevant laws and any issues that may come up. Be extra careful if you’re representing clients in an area you’re not familiar with, selling a type of property you don’t typically sell or doing anything else outside your norm.
Taking extra precautions in these situations can help you avoid potential legal issues and make the whole process go more smoothly. In fact, you should always take precautions to ensure you’re protecting your clients from harm and protecting yourself from legal trouble.
Make sure you’re up to date on all relevant laws so you can follow them (along with ethics standards). You should also have a legal team available in case something goes wrong or you need legal advice.
By taking these precautions, you’ll be in a much better place when it comes to avoiding legal trouble and maintaining your reputation as a competent real estate agent.