It may come as a surprise to some sellers, but buyers can bring suits against them as the result of a real estate transaction they feel has gone wrong.

One seller writes Realty Times:

"I wonder if you can help us with a simple question that has us worried. We are considering putting our house on the market, and today were visited by a prospective agent. He works for a reputable agency, so that's fine. But ...

As part of his (rather aggressive) presentation and self-sales pitch, he mentioned that his company would cover us, yes US, against lawsuits should anything go terribly wrong with the house after the sale. I countered that it is my understanding a house inspection should take care of anything like that prior to the sale, and that sales are final, once all issues are covered by inspection or disclosure, or both, and the seller and buyer are mutually satisfied. He claimed, though, that the new buyers can come after us, personally, for up to five years after the sale "because people want to fleece you."

So, I did some checking online and came across your RealtyTimes website, and my understanding is now that he, the broker, is the one who would be at risk of lawsuits as selling agent, and/or the inspector at most, not us. As I'm beginning to believe that he rather lied to us in order to scare us, and get the listing. I just wanted to pass this by you by way of comment, and for confirmation that I've read the article on this type of insurance right. That we, as sellers, would not be liable if our house is sold by a reputable agent (with E&O insurance) and properly inspected by a reputable inspector (who should also have E&O insurance).

Thanks for your time!
-- M. Navarro

Realty Times responds:

A buyer's inspection is certainly a good idea, but it alone doesn't protect the seller. Sellers are best protected when they know the condition of their homes before they introduce them to the market.

One way to do this is to have a seller's inspection that is separate from the buyer's inspection. A seller's inspection isn't necessarily recommended by all agents, but it can do two things:

• alert you to the potential problems you may have before you put your home on the market. Then it's your option to fix the problems or price your home accordingly.

• eases buyers' fears because you can use the inspection report as the bulk of your disclosure. The reason it can't substitute for your disclosure is there are issues that an inspector doesn't cover -- environmental issues, such as noise from a nearby airport, for example.

Then, when the buyer has their inspection, there are two opinions, and the buyer can make their decision accordingly -- to pay what you're asking, pay less and fix items themselves or ask you to fix them prior to closing. If you do have to fix something for the buyer, make sure it's done by a professional with an invoice that you can copy for the buyer.

Says Florida real estate attorney Hank Sorenson, "This is a common misconception from sellers that they cannot be sued after a sale so long as the buyer had a home inspection done. Florida is consistent with most of the country in that there is a requirement that the seller disclose all known facts that would materially affect the value of the home, so long as those facts are not "readily observable," i.e. viewable upon a cursory examination. However, even if a buyer has a home inspection or purchases the property 'as-is,' Florida law holds that the seller's disclosure obligation trumps the inspection or sale status. Therefore, the seller still has an affirmative disclosure obligation for residential property in almost all circumstances."

He continues, "Unfortunately, even if a seller did not know of a defect, that fact does not prevent the buyer from suing the seller and alleging that he did. In my personal experience, I would say at least half of the nondisclosure suits filed are the result of buyer misconceptions about the condition of the property or simple frivolous suits -- neither of which would hold the seller liable. Litigation being what it is, it can be very expensive."

To answer your question, Sorenson says he has seen several brokerages' E&O insurance companies using the marketing tool you describe, in that brokers are better able to secure listings in the event they have an insurance policy protecting the seller from nondisclosure suits.

"However, those same insurance companies usually require that the broker also sell some type of home warranty to the seller/buyer so that any damages recoverable against the insurance company are reduced by the amounts payable to the buyer under the service warranty."

Conclusion? "I see nothing wrong in the agent's pitch as described by the reader."

So there you have it. Get as familiar as you can with the property. Get a seller's inspection. Insist the buyer get an inspection and cover your home with a home warranty. And it wouldn't hurt to run the whole transaction by a real estate attorney.

Published: August 17, 2006

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