Misrepresentation is among the most common claims made against real estate agents. It seems pretty obvious that you shouldn’t misrepresent the property you want to sell, but it isn’t always as simple as that. Let’s look at three kinds of misrepresentation, how they can get you into trouble and how your real estate E&O can help.
Also see our Ultimate Guide to Understanding Real Estate Errors and Omissions Insurance
What is Misrepresentation?
Misrepresentation is a false statement that affects someone’s decision to enter into a contract. The three types of misrepresentation are:
- Fraudulent Misrepresentation— when you purposely provide misleading information.
- Negligent Misrepresentation— when you don’t perform your due diligence in providing information, or you provide information without taking reasonable care to determine that it’s true.
- Innocent Misrepresentation— when you have reasonable grounds to believe what you say is true.
Knowingly sharing false information about a property or failure to disclose a known problem, such as water damage, is fraudulent misrepresentation. Fraudulent misrepresentation is a serious offense, but it isn’t the only kind of misrepresentation that can get you into trouble.
Don’t be fooled by the name “innocent” misrepresentation. You can still face a real estate lawsuit for innocent misrepresentation — as well as negligent misrepresentation.
Examples of negligent or innocent misrepresentation include providing inaccurate square footage — by using information populated by MLS or in some cases not verifying information from the seller. Yes, you’re responsible for reviewing and identifying mistakes to correct them on MLS.
Over exaggeration of features can be deemed misrepresentation. And altering photos may be a problem. Editing out temporary items from images, like garbage cans, to create a cleaner look may be acceptable. Removing permanent structures such as power lines or mold spots is misrepresentation.
How to Avoid Being Sued for Misrepresentation — and What to Do if You Are
To protect yourself from misrepresentation claims, adopt practices to avoid unintentionally misrepresenting anything:
- Make sure to double-check key information, such as square footage.
- Verify any information provided by the seller. (Some states require that you do so. Make sure you know requirements in your state.)
- Document all disclosures, and keep records of confirming and sharing them by email.
- Make sure marketing materials are factual and don’t exaggerate features or hide flaws.
Still, no matter how careful you are, it’s quite possible you may be sued for misrepresentation. What do you do if, despite your best efforts, you face a misrepresentation real estate lawsuit?
The first thing to do is get legal advice. With CRES E&O + ClaimPrevent®, that’s easy. Simply call the ClaimPrevent® Legal Hotline. CRES has a team of local expert real estate attorneys ready to advise on claims or potential issues. Your legal expert can help you decide on the best course of action based on your particular situation and state.
Even if you aren’t facing a lawsuit, but realize you may have unintentionally misrepresented something, you should get legal guidance. There may be steps you can take that mitigate any issues. At CRES, we want to know about potential issues before they become problems to help you prevent claims.
Have you been involved in a transaction where a form of misrepresentation occurred? How was it resolved?
Read more on our ClaimPrevent® Summary: Real Estate Licensee Responsibilities When Creating New Listings
