If you have established a good rapport with your client and a strong relationship forms, they’ll often turn to you for advice. Sometimes their request for counsel or information might be very specific and complex.
And as real estate professionals, we want clients to turn to us for answers to all of their questions. We don’t want to look unprofessional if we don’t know the answers or have the information they need. We should be the primary source of all information for a client, right?
Wrong! I have seen lawsuits and regulatory complaints arise from something an agent said to a client about matters that were clearly out of their area of expertise. When you start working with a client, you need to immediately explain the scope of your expertise, as well as the boundaries in which you must operate.
Agents should provide their clients with a written statement explaining what an agent can and cannot do in a real estate transaction. This statement should be a formal disclaimer outlining the importance of relying on other professionals for certain aspects of the sale or purchase of the client’s property.
We are not home inspectors, structural engineers, roofing contractors, electricians, plumbers, city planners, surveyors, or appraisers. We are licensed real estate agents and brokers who have the education and experience to assist buyers and sellers in purchasing or selling real estate.
A real-life cautionary tale
I want to share a brief story from early in my real estate career. I was friends with a very experienced agent, Cliff (not his real name), who worked for a real estate brokerage in a small rural town near Nashville. Cliff found himself in big trouble because of misinformation he shared with a client.
He showed a property to his buyers who fell in love with a house on a large one-acre lot. Located directly behind the row of pine trees in the backyard was a large parcel of vacant land. Cliff’s clients asked him if that particular piece of property was ever going to be developed.
He was not sure how to answer their question, but he did say that he heard the land was put in a land trust and would not be developed.
Later that afternoon, Cliff’s buyers elected to make an offer on the property. The offer was accepted, and the transaction closed forty-five days later. One of the reasons they wanted the home was because it backed up to a large, undeveloped piece of property.
Fast-forward one year when Cliff got a voicemail from those buyers. They were extremely upset. They informed Cliff they just learned the city commission had approved a large outdoor family entertainment center with go-carts, miniature golf, batting cages and other amusement amenities.
Construction of the facility was to begin within a month. They reminded him of their conversation when he told them the property behind the house was in a land trust and would never be developed.
Cliff had to sit down as he began feeling faint. Two weeks later he and his broker were served with a $2 million lawsuit accusing Cliff of misrepresentation and not using reasonable skill and care as a licensed real estate agent. A few days later Cliff received a complaint for misrepresentation from the state real estate commission filed by the buyers.
What should Cliff have done to avoid a lawsuit and a real estate commission complaint?
The answer is straightforward. When the buyers asked him about the vacant property behind their future home, he should have said he did not know if it was going to be developed or not, but the city planning and zoning commission probably could answer their question.
Make sure you provide reliable information or refer clients to sources of reliable information
The moral of the story is, if you’re not sure, don’t guess, and don’t provide clients information that’s based on what really amounts to a rumor.
Cliff could have avoided the lawsuit by encouraging the clients to do their own homework by calling the city planning department.
Agents can jeopardize themselves by “being the source” or coming across as an expert on a particular topic on subjects that they’re not in a position to answer definitively.
Many times, to gain a client’s trust, real estate agents will come across as being knowledgeable on everything asked of them by their clients. They do not want their clients and prospects to doubt their expertise and not turn to them for answers to their questions. They know their clients are more likely to use their services again and make referrals to agents they trust.
Unfortunately, when we step outside the bounds of our licensure and expertise, we put ourselves at significant risk by causing severe harm to our clients with incorrect information. Also, we can lose our real estate licenses and be subject to civil lawsuits with large monetary requests.
Cliff’s errors and omissions insurance carrier eventually settled out of court with the buyers for an undisclosed amount of money.
The state real estate commission heard the buyers’ complaint against Cliff, and he had to pay a $1,000 fine and attend several continuing education classes on contracts and real estate ethics.
I am confident his managing broker probably was included in Cliff’s lawsuit as a co-defendant and may have been disciplined for improper broker supervision and oversight by the state’s real estate commission.
As a former managing broker, and now as the one who oversees seven managing brokers and their offices in my company, I always stress the importance in training classes and company-wide meetings of the dangers of misrepresentation.
Our agents know they must be very careful about what they tell prospects or clients when asked about something outside their expertise.
If you do not use a written disclaimer form that outlines what you can and cannot do as a real estate licensee, I would encourage you to create one now or ask your attorney to draft one for you.
In Tennessee, our state Realtor association provides a large number of pre-printed listing and contract forms for their members. That includes a disclaimer form. Our company’s compliance department requires all of our agents to use it in every property listing and sales contract transaction.
It’s not perfect — nothing really is — but it does assist us in reminding clients of our limitations, as well as our areas of expertise. However, it doesn’t stop us from making referrals to people who do know the answers, or who might know the answers.
So the next time a client asks you a question that you feel may be outside your area of expertise, direct them to a source who is positioned to provide the right answer. You won’t regret it. Yes, we want to always have the answers to our clients questions, but the wrong answer could prove fatal for your business.
John Giffen is Director of Broker Operations for Benchmark Realty, LLC in Franklin, Tennessee. He is the author of “Do You Have a Minute? An Award-Winning Real Estate Managing Broker Reveals Keys for Industry Success.”
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