By Melissa Dittmann Tracey
One in five real estate practitioners will be involved in a lawsuit during their career, says real estate broker Barbara Nichols in The No-Lawsuit Guide to Real Estate Transactions (McGraw-Hill, 2007). The effects can be just as damaging to your reputation as it is to your pocketbook. So how do you make sure you don’t end up in court? There are some obvious lines you know to never cross, but there are far more gray areas that can land you in trouble for nondisclosure, steering, or even false advertising. Nichols gives advice on navigating these potentially risky situations. Buy the Book
FROM THE BOOK: 5 WAYS YOU COULD END UP IN COURT
Real estate lawsuits often stem from what you say — or don’t say — to your client. Bottom line: You’re obligated to report any property information, both onsite and offsite, that could impact the property’s price or a buyer’s decision to buy. Nichols outlines these common legal mishaps for practitioners:
1. Not disclosing property stigmas. Prospective buyers need to be told if a anything in a home’s past could potentially scare off future buyers or hurt the property’s resale value. What counts as a stigma? It could be a murder that once occurred in the home, a rumored haunting, or a history of foundation problems (even if the seller spent thousands of dollars fixing the foundation, future buyers could be hesitant to make an offer). If you don’t disclose any potential stigmas, you could be held liable when the clients find out. So do your research and be sure you know the home’s history.
2. Using risky words. How closely do you proofread your advertising copy? No matter how well-intentioned you are, you could be sued for discrimination or unlawful steering if you use terms such as “perfect for young married couple,” or “no children under age 10.” You’re obligated to provide fair access to properties to everyone, unless the development has been classified as a restricted age community or a “senior citizen residence.” In addition, you shouldn’t talk about the racial or ethnic diversity of a neighborhood even if your clients ask you. However, you can provide general information that would be found in a community profile, such as the average price ranges of properties, education and income levels, and religious facilities.
3. Overlooking a property defect. While you’re not expected to have the expertise of a property inspector, you are required to disclose “any known or readily observable property defects to buyers and sellers,” Nichols writes. She recommends putting all details from your visual property inspection in writing, and then deliver your notes to all parties involved in the transaction. To do a visual inspection, evaluate the property starting with the outside of the building (Is the brick cracked on an exterior chimney?) and then work to the inside (Are there any signs of mold or mildew on walls or floors? Are there cracks in the walls?). Avoid using sweeping statements such as “I don’t see any defects” or “this property is in excellent condition,” since a defect-free property doesn’t exist.
4. Failing to meet fiduciary duties. Your duty includes being loyal by acting in your client’s best interest, not your own self-interest, and obeying all lawful instructions that your client gives you. You’re also responsible for disclosing all relevant information during the transaction, keeping your client’s personal information confidential, exercising reasonable care and diligence, and accounting for all money or property belonging to the client that is given to you. Plus, if applicable, be sure to reveal dual agency — when you’re representing both the buyer and seller — which can create extra levels of challenges that often result in lawsuits.
5. Passing along bogus information. Ignorance is no defense in court. When it comes to misrepresentation, it’s easy to get in trouble by simply not knowing the facts. You could be held liable for not verifying information you pass onto your client, giving incorrect professional advice that you should have known was wrong, or even simply repeating bad information that your seller tells you. So be sure to triple-check that all property details are correct, and have the seller review it, too.
“Participants in any capacity in today’s real estate market know how complex the typical transaction has become. It seems that every day another document is added to the contract or the disclosures. Average buyers need treatment for writer’s cramp after signing volumes of transaction documents. It is usually at this point that the buyers start to feel panic. … The sellers may be experiencing another kind of panic. Have we sold for enough money? Should we have told the buyers about something else? Did we forget to mention something? … There has never been a time when more was demanded of real estate agents to meet the requirements of their profession and the needs of their clients and customers.”
ABOUT THE AUTHOR
Barbara Nichols is a real estate broker and owner of Nichols Real Estate and General Contracting. She has served as a witness on numerous real estate-related lawsuits involving agents and their brokerages. As a supplement to her book, she has created “How to Stay Out of Court,”, training and workshop materials about risk management and liability issues for real estate professionals.
Check back on Monday, Aug. 6, to read Nichols’ responses to your already submitted questions.