As a real estate professional, there are risks in your business which make you vulnerable to lawsuits. When you’re balancing multiple listings, contracts, clients, prospects, open houses, marketing and managing your business, it’s understandable that mistakes can happen, even when you have the best of intentions.
Unfortunately, these mistakes can cost you your reputation in the industry and, in extreme cases, even your business. Some real estate agents have faced tough financial penalties as a result of lawsuits that did not go their way.
We’ll explore what negligence is, how good real estate professionals can get mixed up in negligence claims, and what you can do to protect yourself, your career and your business effectively.
What is Negligence?
According to the dictionary, negligence is the “failure to exercise the care that a reasonably prudent person would exercise in like circumstances.” In a legal sense, negligence is different from fraud in that it lacks intent. A real estate agent is fraudulent if they intentionally dupe or mislead a client. However, in your work as a good and honest real estate agent, you may not intend to disadvantage a seller or buyer. But carelessness, failure to take appropriate action, taking the wrong action, or simply making an error in judgement can result in a lawsuit against you for negligence.
In real estate, negligence is a common reason for lawsuits. It’s reasonably common that clients may claim their real estate agent in some way breached their duty which resulted in harm or damage. Often, claims relate to a failure to disclose pertinent information about the property, which could materially affect the value and price paid for the property.
However, there are a number of other reasons, including but not limited to, cases where:
- Real estate agents have provided inaccurate or misleading information
- An agent was acting for both the buyer and the seller
- Agents have inadvertently breached client privacy by accidentally sharing details
- Defects have been found after the purchase and claims were made on the basis that the agent should have known about them
The basis of a negligence claim can relate to the unintentional omission of information or misrepresentation of the facts. While it’s a less serious claim than fraud, it can still have drastic consequences to a real estate agent’s career and business, as plaintiffs try to recover financial losses or damages arising from the claim.
When deciding upon negligence claims, the courts will decide whether a defendant did or did not exercise sufficient care. If it’s deemed that they should have known better, costly damages bills may ensue.
Negligence in Real Estate Case Studies
The West Virginia Record reported that a woman is suing a real estate agent for negligence, because the floor of the property allegedly collapsed when she was viewing the property. Ms Graves, the plaintiff, suffered injuries as her leg went through the floor and has claimed her injuries were caused by poor lighting and a poorly-maintained property. The plaintiff is seeking damages, court costs and attorney fees. While the outcome of this case remains to be seen, it’s a timely reminder to check any potential hazards inside a property which could cause harm to prospective buyers.
In Easton v. Strassburger, a real estate broker was sued for negligence due to non-disclosure of issues relating to the soil conditions of a property. The plaintiff purchased a home which was significantly damaged from landslides, and this damage was not disclosed. The court found for the plaintiff and awarded $197,000 in damages, stating the broker was negligent for not further investigating the soil conditions of the property upon seeing that the floor was uneven during the inspection. According to California law, real estate professionals must conduct a “reasonably competent and diligent visual inspection”.
Other negligence cases which have arisen include:
- When an agent missed a deadline for opting out of a contract
- When disclosures provided to the agent by the seller have not been passed on to the purchasers in their entirety
- When a building inspection carried out by a prospect showed a mold issue, which led to the cancellation of the contract, but this mold issue was not then communicated to other prospects.
- When purchasers of a home realized after settlement that their home was the site of a widely-publicized murder, and this information was not disclosed
What You Can Do To Avoid a Lawsuit for Negligence
You need to stay on top of every listing and transaction as a real estate professional. Here are some tips to help you avoid a lawsuit for negligence:
- Disclose any material defects or problems which could affect the desirability or value of the property.
- Establish clear communication channels with your clients and document all discussions, directives and consents
- Don’t rush — taking shortcuts could cost you your business
- Don’t be afraid to say you don’t know something if it’s not your area of expertise. For example, if a purchaser asks you about building regulations.
- Encourage the purchaser to do their own due diligence, including a building inspection.
- Remember that good real estate professionals can get mixed up in negligence claims, so make sure you’re protected in case that happens
- There is no substitute for a good Errors and Omissions Insurance Policy.
Protect Yourself With CRES E&O + ClaimPrevent ®
CRES E&O Insurance + ClaimPrevent ® provides you with peace of mind in your real estate business, so you know you won’t be out of pocket for costly court proceedings. Tailored packages are available to suit the unique needs of your business. You can access advice from fully qualified and experienced attorneys, so you can deal with issues before they become lawsuits.
See our Ultimate Guide to Understanding Real Estate Errors and Omissions Insurance
We’ve been working with real estate brokers and agents for more than 20 years. To find out more, contact CRES on 800-880-2747.
