Real estate legal expert Barbara Nichols, author of The No-Lawsuit Guide to Real Estate Transactions (McGraw-Hill, 2007), responds to your questions.
What’s the most common reason agents get sued?
NICHOLS: The most common reason agents get sued is failure to disclose material facts related to the transaction. These usually relate to physical defects. Buyers do not like surprises. They want to know what they are buying before the deal closes.
Is there a statute of limitations after completing a transaction where a buyer or seller can no longer bring a lawsuit against you?
NICHOLS: In most states buyers or sellers have two years after the deal closes to sue for misrepresentation. If the accusation is fraud, they have three years after the fraud is discovered. I recommend holding all transaction files at least five years.
Can you really get sued if you don’t tell a buyer the house is rumored to be haunted? Would that really stand up in court?
NICHOLS: When I ask agents attending my risk management course if they have haunted houses in their area, they almost always say yes. However, I have never consulted on a lawsuit which involved non-disclosure of a haunted house. I don’t think most courts would consider that claim reasonable or provable.
There are some buyers who would avoid a house thought by the neighborhood to be haunted and others who might like the idea. These properties are usually where a notorious murder took place. A death on the property is disclosed based on state law. In California, any death within three years of sale must be disclosed regardless of circumstance.
What are some common things that lead to a dual agency lawsuit? What should agents watch out for in these transactions?
NICHOLS: Dual agency can be problem because the buyer wants the lowest price and the seller wants the highest price, and one agent or brokerage is in the middle, trying to make both parties equally happy with the final result. One side is often happier than the other and the less happy party calls an attorney.
I consulted on one lawsuit with a dual agent who was also one of the buyers. He was sued by the seller for talking the seller into accepting a price that was too low. I would strongly advise against being a dual agent/buyer. Careful attention to detail and documentation are critical. Fairly representing comp sales to both sides and letting each side decide on the offer and final accepted price are key in dual agency.
Agents should also be very careful in keeping confidentiality with each side. A dual agency should never be promoted with comments like, “if you don’t work with me (seller’s agent) you won’t get the house,” or “if you work with me (seller’s agent) I can get you a better deal.”
During a home inspection, what should you do if a buyer asks about the flaws noted by the inspector? Can you get in trouble for commenting?
NICHOLS: It’s a good idea to have the buyer ask the inspector directly about any flaws noted in the report. It is not a good idea for agents to try to interpret the inspector’s comments. Agent’s do not want to be accused later of “minimizing the significance of the defect” in their explanation or interpretation.
After buyers sign off on the Inspection Contingency Removal Addendum following a home inspection, can the agent still be found liable if subsequent problems with the property are found? For example, if the buyers move in and hire another inspector who then finds mold, can the agent get into trouble?
NICHOLS: Yes, the agents can get into trouble for undisclosed defects if the agents had information from the seller or from other sources, or had prior knowledge of a potential problem and did not disclose the defects. Agents are not expected to see through walls, and neither are home inspectors. The best approach is to refer only the most qualified inspectors to your buyer client who will be more likely to see clues of problems others may miss. I have a chapter in the book dealing with the importance of referring qualified inspectors and how to qualify them. I also have several useful ideas in the book if you are the seller’s agent, to protect you and the seller if the buyer hires an unqualified inspector who may miss something. You could later be accused of knowing and failing to disclose the defect that was missed and still be vulnerable to a lawsuit.
To avoid a lawsuit, what’s a good way to respond to buyers who ask you about what kind of people live in the neighborhood (such as racial composition or if there’s many families with children)?
NICHOLS: Be very careful when asked by a client to profile the neighborhood. I always provide the buyer with a “property profile” from the title company which provides appropriate information on neighborhood composition by education and income. I suggest that clients drive around the neighborhood on evenings and weekends, and I decline to answer any question that would appear inappropriate.
If a buyer and seller in a multi-unit residential real estate puchase contract agree in the signed counter offer that “all contingencies will be removed 17 days after acceptance,” will that take precedence over the pre-printed language in the contract regarding contingency time periods?
NICHOLS: Yes, the counteroffer can modify the preprinted contract time schedule for contingency removal, or any other term of the contract. The contract should include a check box that says “buyer and seller sign in agreement, subject to the attached counteroffers # 1-3,” or similar language.