Twelve Ways To Avoid Being Sued As A Real Estate Agent
by Stanley F. Bronstein
If you are like many real estate agents, you've had a bad experience with a lawyer at some time in your career. Believe it or not, there are many attorneys who are working to help real estate agents and their clients avoid problems, rather than causing them. However, due to the complex nature of business today, you can be fairly certain you will run into some kind of problem sooner or later. The good news is there are several things that can be done to minimize the likelihood you will ever get sued. No one can guarantee that you will never be sued, but you can greatly reduce the chances of it happening.
Document everything.
Professionals who do not document what they do are examples of malpractice waiting to happen. Keep a notebook that documents your transactions. Make a habit of putting your statements in writing, and then getting your clients to sign that they have received those statements. Sending e-mail or letters instead of making phone calls facilitates this, as the conversations are automatically recorded and can be more easily referenced in the future than spoken conversation. If there is no proof of something you said or did, the opposing party can claim you misled them, didn't tell them, or possibly even lied to them. Also, the other party might misunderstand you, which leads to wasted time, arguments, loss of your deal and maybe even a lawsuit.
Make proper disclosures.
Some estimates indicate that at least 75 percent of all real estate lawsuits are filed by buyers, and most of those lawsuits address nondisclosure. In most states, real estate agents are required to disclose in writing to all other parties involved any information they possess that could affect the price that is being paid for the property in question. Basically, real estate agents cannot assist their clients in hiding any material or negative information about the transaction. Few real estate agents have lost their license because they disclosed negative information in their possession, but many have lost their license and/or lost a lawsuit because they did not disclose negative information in their possession.
Respond to consumers.
Address complaints promptly. If you do this, you can resolve most problems long before they ever turn into lawsuits. In my experience, most lawsuits are filed because someone feels their complaints were not heard. No matter who complains, the quicker you respond, the more likely you will be able to resolve the complaint before it escalates into a larger problem or lawsuit.
Limit your expertise to your own field.
Do not act outside your area of expertise. As real estate agents, you have to let your clients know that you are not an attorney, not a surveyor, not a title expert, and not a CPA. This problem arises when your clients want to save money and cut corners when doing their deals. All too often, as a real estate agent, your clients expect you to be able to answer all of their questions as part of the package of services you provide to them as their agent.
One of the easiest ways you can avoid problems is to refer your clients to an expert when they have questions that are outside your area of expertise. Beginning with drafting the contract, real estate agents should recommend their clients seek the advice of a real estate attorney who can tailor the deal to their needs. Especially if the other side of the transaction is represented by an attorney, you can sell your client short if you don't help them realize the importance of seeking legal and tax advice on their deals. When you do this, you are protecting both yourself and your clients, and saving both of you from future problems and hassles. If your client is stubborn or doesn't want to spend the money, I strongly suggest that you put your recommendation in writing. That way if a problem arises later, you have the documentation to protect yourself.
Avoid dual agency.
This is an issue that has caused many problems for real estate licensees in the past, and it will continue to cause problems in the future, as long as real estate agents continue to act as dual agents. In most states, dual agency is allowed if consent is given in writing by both parties. However, that does not mean it's a good idea. Many sellers feel that brokers should owe them a greater duty of loyalty, as it is usually the seller who pays their commission. Buyers often misunderstand and think that since they have talked with an agent and negotiated with them, that the agent is representing them. In dual agency situations, the broker must walk a fine line between the parties, and both sides frequently wind up getting a lesser degree of loyalty than they expect. From a consumer's perspective, agents provide a lesser level of service in dual agency situations because the agent has to be fair and impartial to both sides and consequently ends up short changing them both.
Avoid conflicts of interest.
Put your clients' interests first. Due to the fact that real estate agents typically do not get paid unless the deal closes, agents often find themselves in a position where their interests conflict with the interests of their client. Agents need to remember that they owe a duty of loyalty to their clients and they must put their clients' interests ahead of their own even if it means the deal might die, commissions might get cut, or closings will be delayed in order to give the parties time to solve problems.
Keep deals simple.
Overcomplicating a deal increases the risk that something will go wrong. If a deal does get complicated, bring in a professional who can help. This shifts the risk of something going wrong away from you.
Be available.
Return phone calls and e-mails promptly. I know nothing bothers a client more than getting the run around when they need to get in touch with their agent. Most of them won't hesitate to give up and start working with someone else in this type of situation.
Use reminders..
Use forms and checklists. Put together sets of forms and use checklists. These checklists will minimize the likelihood you forget to do something which might lead to a serious problem. This will help you to keep organized records and will make it easier for you to document what you are doing.
Give excellent service.
Agents who give excellent service almost never get sued. Agents who give substandard service are a lawsuit waiting to happen. By giving excellent service, you make your client happy they did business with you, and you make them willing to do business with you again, and you make them want to send you referrals.
Incorporate.
Real estate agents should also consider becoming a professional corporation or a professional limited liability company. Though this will not keep you from getting sued, it can minimize the effect on your personal finances if you should ever get sued and happen to lose. Additionally, there are tax benefits that can be achieved if you set up a properly structured professional corporation.
Buy insurance.
At a minimum, agents and brokers should carry some type of liability insurance, especially if they are driving people around in their cars. One thing you should do, is check with your auto insurer to make sure you are covered when you are driving people around on business trips. Also, you should consider getting professional liability insurance. This is commonly known as errors and omissions insurance.
Real estate agents are vulnerable. You are working with many different people on many different deals, and there are potential problems that can and will arise. It is vital that you do what you can to prevent problems, and protect yourself from potential lawsuits. Though no one can guarantee you will never be sued, if you are willing to make the effort, you have the power to minimize the chances of it happening.
Stanley F. Bronstein is a real estate attorney in Scottsdale, Arizona. He has been a CPA for 17 years and a real estate attorney for 13 years. He has created many informative audio programs, which are available to real estate agents and their clients. Contact Stanley F. Bronstein at sfb@TheCPALawyer.com, or phone 480-8-CPA-LAW. More information can be found at www.TheCPALawyer.com.
Published: November 15, 2004
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