Nicole Solari is a top-producing broker-owner in Northern California whose regular bimonthly column, which covers real estate marketing, selling strategies and working with clients, publishes on Tuesdays.
As Realtors, we have all promised to abide by a detailed Code of Ethics that sets a stringent standard of behavior for “fair and honest dealing” with all parties in a transaction.
Following the Code of Ethics religiously — backed up by a good E&O policy — is one of the best ways to avoid winding up on the losing end of a costly lawsuit.
Our association has increased the frequency with which we must take refresher courses on these standards, and we’re all for that.
As brokers, we never want our agents on the wrong side of an ethics complaint, much less a lawsuit. We train our agents to avoid these eight specific missteps to keep them (and us) out of trouble (and court):
1. Breach of duty
This is the leading complaint in suits filed against agents and agencies. Our clients place enormous trust in us, so they need to know we will unfailingly treat their financial interests as if they were our own and never put our own interest above our clients’.
Agents who do not act in the best interests of the seller or buyer — or avoid even the appearance of a conflict of interest — put both themselves and their agency in jeopardy.
So we train our agents to under-promise and over-deliver by:
- Creating realistic expectations from day one
- Recommending only vendors we know to be excellent, with the final choice left to clients
- Reporting problems promptly and outlining possible solutions
- Reaching important decisions with clients, not unilaterally
- Communicating openly and often with clients throughout a transaction
- Documenting every decision made and question answered
Those guidelines are doubly valuable in dual agency transactions. A single agent representing both sides of a transaction has to walk a very thin line; so we don’t encourage the practice. But two agents in our firm can easily wind up in transactions together.
In such cases, we communicate to the client how we handle such transactions internally up front. One agent represents the seller exclusively, and one the buyer. Neither reveals privileged information to the other.
Every party to the transaction is treated with the utmost care and diligence, with agents never favoring one client’s interest over another’s — or the agents’ over the clients’ — period.
2. Failure to disclose
When in doubt, disclose.
We’ve all heard that mantra a hundred times, and it’s still sound advice.
From the decision to place a listing (or withhold it) on the multiple listing service (MLS) through close of escrow, scores of issues and events must be disclosed. Pocket listings can get agents in trouble with a local MLS if other agents complain the listing agency put itself at an unfair advantage and a seller at a disadvantage.
Dual agency and variable commission arrangements are legal but must be disclosed to all parties. We urge our sellers to list every scrap of information requested (in detail as needed) on all seller disclosure forms.
We tell our agents to be diligent and thorough in their visual inspections, noting all material facts — including hidden defects in the property or neighborhood issues of which they’re aware.
When representing clients outside their usual territory, agents must disclose that fact to their clients and take care to verify the desirability and value of the property and its location.
“Outside agents” — like non-Realtor websites — can get valuations badly wrong because disparate neighborhoods may look alike to them. Local agents, by contrast, know if values vary from one side of town to another, from neighborhood to neighborhood, even from street to street.
Because of the increased risk of poorly representing a client’s best interests in these cases, we ask agents to consider referring the client to — or working with — a local agent.
3. Mishandling or failing to verify funds
Maintaining updated trust accounts/logs and scrupulously avoiding co-mingling EMD funds used to be a constant bone of contention in state audits, especially as offices grew.
But brokerages caught a break with the inclusion on the standard purchase agreement of a variety of ways to handle earnest money deposits. We now urge our agents to specify either electronic funds transfer or direct deposit of earnest money checks by buyers within three days of acceptance of an offer.
When we’re representing the seller, our agents follow up on day two with the title company to ensure funds are in escrow. If they’re not, the buyer’s agent will be getting a call because part of our “fiduciary duty” is to ensure contractual timelines are strictly adhered to by both sides. (For the OCD among us, including myself, we also follow up to make sure the EMD check cleared.)
Bottom line: Where money is concerned, you simply cannot be too careful. Never having the client’s money pass through your hands and verifying that buyers have sufficient funds to close are two top ways to live that principle.
4. Failing to safeguard client data
Computerized file management systems have made the (almost) paperless office possible and agents’ lives easier in so many ways. That convenience has come with its own risks: cyber “thefts” are on the rise.
So having the highest level of anti-virus/malware, firewall, privacy, email and server protection on all office systems and agents’ personal computers is imperative.
Any documents that have been printed should, of course, be cross-cut shredded once the transaction has closed. In addition to vigilance, carrying E&O insurance that covers both standard business vulnerabilities and cyber liability is wise.
5. Going along with unethical, discriminatory or fraudulent clients
From the difficult to the flat-out shady, clients themselves can put agents in uncomfortable — even illegal — corners. The highly critical client is far more likely to sue the first time anything goes wrong with their newly purchased home and, therefore, require extraordinary caution and care.
Clients who make it clear they want to avoid specific neighborhoods due to race, religion or other discriminatory reasons are fair housing infractions waiting to happen. And “straw men” and other fraudulent buyers will drag agents down with them when their fraud comes to light.
There’s often no way to handle any of these types successfully. So, it’s better to simply terminate the relationship than to risk large fines — even prison — by “going along to get along.”
6. Not addressing client complaints promptly and directly
Selling or buying a home is stressful. No agent is perfect. And even the best clients can fall prey to both realistic and completely irrational fears.
The neighbors always know what staging works better than a professional stager. Mom and dad can quickly convince first-time buyers they’re paying “too much” for the property they want.
Sellers can point to a sunny online “estimate” of their property value and insist on raising their selling price or countering a great offer with an unrealistic price proposal. They can decide you’re “unresponsive” if you don’t pick up the phone the second they call in a panic.
In most cases, calm, fact-based conversation can reassure clients reacting to fear or irrational hope. If we really did go dark for a long period or make a mistake, however, we owe them an apology. And, whether the perceived problem is our fault or not, our job as Realtors is to solve the problems raised by our clients.
7. Injuring clients en route to or at a showing
If agents transporting clients to view listings are in an auto accident and those clients are injured — unless payouts meet or exceed clients’ expectations — the brokerage and the agent are likely to be sued.
If clients slip and fall on an icy sidewalk or wet floors or take a tumble down stairs, that’s likely a lawsuit in the wings. Injuries are a known risk, but one that’s only marginally controllable.
Known hazards — like a rickety staircase that’s not up to code — can be dealt with before the property goes on the market or kept behind locked doors. Stagers shouldn’t use little trip-inducing throw rugs.
Our sellers’ entry steps need to be clear and have railings or hand-holds. Beyond addressing foreseeable problems, we manage risk by carrying E&O insurance, urging sellers to verify their homeowner’s policy adequately covers visitor injuries and asking agents to have ample car insurance with the agency named as an interested party.
8. Trying to please everyone and know everything
Legal, but just as dangerous as both difficult and shady clients, are those who expect you to advise them in areas where you cannot be expected to have essential expertise. Bitcoin transactions, for example, are outside the experience of most agents. Yet they’re happening.
What the market will do in the future, where interest rates are going, how the IRS will view a purchase or sale, even crime rates by neighborhood are all outside Realtors’ core competencies. Agents who don’t know what they don’t know will disappoint and mislead, no matter how unintentionally, if they try to answer questions best left to others. And that can get them sued.
So, we encourage referring clients to known experts in the specific subject matter the clients are asking about — their own accountants, real estate attorneys and resources they personally find online.
We live in litigious times. And when large sums of money are involved — as they are in most home purchases — the risk of lawsuits over conflicts of interest, fraudulent activity or perceived breaches of contract or duty skyrockets. But by avoiding these eight major missteps, we’ve kept ourselves out of hot water, and you can too.
Nicole Solari is owner and managing broker of The Solari Group in Solano and Napa Counties in Northern California. Nicole runs one of the highest producing brokerages in all of Northern California.