If you've been selling real estate for more than a week and a half, you have likely already learned an important lesson essential to your professional survival: not all clients are good clients. A bad client can eat up your time and prevent you from servicing the "good" client who can earn you a commission.

Clients can be "bad" for several reasons. Even though they may earn you a commission, they are likely to sue you or to file a licensing complaint against you after a transaction is complete. And effort invested in defending a lawsuit is terribly unproductive. It often drains the enthusiasm that sales professionals need to remain in top form. It can also drain your capital since legal bills can be significant.

But how can you identify the client who will turn into a claim -- and do it before the seeds for a claim have been sown?

There are a few clues to look for. It helps to know, first, that the large majority of residential-related claims against agents and brokers come from buyers, rather than sellers. It also helps to know that a large majority of claims allege that agents either misrepresented or withheld material information before completion of a sale. In other words, you can expect that if you are ever targeted with a claim, it will very likely come from a buyer who complains that his agent hid defects or deficiencies in the home the buyer just purchased.

Unrealistic clients file claims

Experience shows that the persons most likely to file claims are also the most unrealistic or impulsive. An unrealistic client could easily be the one who, with $20,000 available to cover a down payment and closing costs and with an annual income of $40,000, begins with a belief that he can afford a $500,000 home with a gourmet kitchen. He might be the same client who, once advised of his limited options, signs to buy the decrepit shack that a local homebuilder considered for a tear-down. By comparison, an impulsive client might be the one who wants to tender an offer on the first home he tours.

When your client swings between unrealistic or inappropriate options or wants to make a purchase at impulse, it may be time to consider firing the client. A client who is unrealistic or impulsive is likely to be easily disappointed when the difficult reality of his purchase sinks in. In many cases, they are eager to blame somebody else for their misfortunes. These are characteristics that are typically ingrained and which are hard to negotiate past, even when a patient agent counsels caution.

First-time home buyers most likely to file claims

A disproportionate number of claims are filed by first-time home buyers. Many first-timers know little about the home-buying process and can easily have their hopes dashed. These clients will often make purchase decisions without asking key questions -- often assuming that "my agent is here to protect me." Commonly, they fail to open their eyes to risks and expenses that go along with the purchase of a particular home. These are the clients who might put in a purchase offer on an older home without ever considering a home inspection. They might be purchasing a condominium and never inquire about the monthly management fee -- to say nothing about the finances of the condominium association. Or, if purchasing a rural home, they might not ever ask whether the home has a properly functioning well and septic tank.

In many cases, an agent can minimize these risks by identifying issues and risks the buyer really should consider and by ensuring the buyer knows it has a duty to investigate for its own benefit -- and by confirming those conversations in writing. If done right, this process can help an agent develop a strong and loyal relationship that pays benefits for years to come.

Buyers in a hurry file claims

Finally, an unusual percentage of claims come from buyers who are making their purchase decision in a hurry. Perhaps a buyer is due to relocate soon because he has a new job and needs a house quickly. Perhaps a buyer inherited money and is eager to spend it right away. In either case, such a buyer could become someone who wants to blame you for a hasty decision that they later regret.

These clients are also good candidates for regular written correspondence. At the very start of the agent-client process, for example, it is recommended that you send a letter or e-mail that says, in essence, "Dear client, I understand you need to purchase a home very quickly. While there are certain risks with a hasty purchase, I will be happy to assist you and to try and accommodate your schedule."

While there are other characteristics associated with high-risk clients, these seem to appear with greatest frequency. If an agent finds himself tied closely to a client that appears high risk, caution -- and consultation with experienced counsel -- is often advised.

Published: December 9, 2003

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Spencer K. Stephens is a successful litigation and business attorney in private practice who represents real estate agents and other licensed professionals, such as engineers, architects and surveyors. Spencer has represented agents in litigation, arbitration, in licensing disputes and in mediation. He is a frequent speaker to professional organizations on professional liability, contract law, the Fair Housing Act, and other topics. Spencer also provides corporate, licensing and contract services to brokers. Spencer is currently based in Rockville, Maryland. Contact him at spencer@stephensassociates.net.