As a listing agent, you may be tempted at times to step in and help your sellers fill out their disclosure forms, especially if they ask you for help. However, you must know that completing any disclosures for your clients can create more problems than it solves.
Even with the best intentions, stepping in to fill out disclosure forms can expose you to legal and ethical risks.
In this blog, we take a look at all the reasons why licensees should never complete seller disclosures … but what you can do to help.
The Role of Real Estate Seller Disclosures
Most states require the seller and real estate licensee to:
- Disclose any material defects, problems, or issues with the property that may influence either the price of the property or a buyer’s decision to purchase.
- Disclose any prior reports on the property.
Your sellers need to complete the disclosures themselves, ensuring the information they provide is accurate and true to their intentions.
When licensees take responsibility for completing these forms, you’re blurring the lines of responsibility. This deviation from what is considered ‘part of the job’ can set you on a path towards potentially costly legal disputes.
The Risks of Completing Seller Disclosures on Behalf of Clients
Filling out disclosures for sellers might seem like a small favor, but it opens the door to a whole host of problems, such as:
Legal Risks
When a licensee completes a disclosure on behalf of sellers, there’s a risk of mistakes that could lead to a claim of misrepresentation. The sellers could later say you didn’t complete the forms as they instructed you to, or they could accuse you of omitting something they told you to include.
If this leads to a lawsuit from the buyer, you as the licensee could be held responsible.
Misunderstandings
If clients aren’t directly involved in completing disclosures, they are disconnected from the process which can cause disputes later. Sellers might later claim that the information they gave you wasn’t reflected in the forms, perhaps because their real estate licensee misunderstood what they said. A misunderstanding might be innocent and not ill-intentioned. It doesn’t need to be intentional to be a problem for your real estate business.
We have also seen claims where the person completing the forms does not speak English and the agent has translated the questions. If the translation was not fully understood the client can claim the agent did not properly translate the question. Have a third-party, like a relative of the client, do the translating. Then the error is on them, not you.
Professional Ethics
When a licensee completes a disclosure for a client, it crosses ethical lines. Your job is to explain the documents, not to fill them out. You are not the owner of the property, you haven’t lived there, you couldn’t know everything about the property that should be disclosed. Only the sellers have that knowledge. Using Technology to Support Clients Without Overstepping
You can manually walk your sellers through each disclosure, allowing them to complete each form and ask questions as they go.
Or you can use automated seller disclosures to walk sellers through every form. Automated disclosure systems can offer explanations about each form and question to help sellers complete the disclosures truthfully and accurately. The automated systems can also help ensure that every disclosure is completed and signed.
If there are frequently asked questions that you find yourself answering all the time, you could create some resources to help your clients understand each part of the disclosures. Keep in mind that you should have any documentation and resources you plan to distribute checked by your real estate attorney first to ensure potential liability issues are taken care of.
Practical Tips to Protect Yourself and Your Clients
While licensees should avoid completing seller disclosures, there are steps you can take to assist your clients when it comes to documentation:
- Keep the roles and responsibilities clear and ensure your client knows exactly what you can and can’t do as their real estate licensee
- Help clients understand what each form is for, why it’s needed, and how it impacts the transaction.
- Encourage clients to review forms carefully and seek their own professional legal advice for any concerns or complex matters they don’t understand.
- Document all client communications to ensure there’s a clear record of the advice you provided.
- Stay informed on industry changes and ensure you’re using the most up-to-date disclosure forms and following the right procedures. CRES makes Natural Hazard Disclosures available for 48 states to help sellers effectively disclose flood, fire, and earthquake zones, as well as special assessments on the property. When you purchase an NHD report on behalf of your seller and provide the report to a buyer before closing, the NHD will include the $25,000 Sellers Protection Plan when the licensee has CRES E&O. Sellers Protection covers claims related to seller-completed disclosure forms.
Your job is to ensure the seller disclosures are all completed and that the information provided in the disclosures is accurate as to your knowledge. But the job of completing seller disclosures should remain with the seller.
If you need guidance on what items should be disclosed, check out our ClaimPrevent Summary on Seller Disclosures.
How CRES Can Help Protect You in Your Real Estate Business
Helping clients complete disclosure forms might seem like a small favor but, as you can see, it can land you in hot water. Empower your clients to take responsibility for their own disclosures so you can do what you do best — educating your clients and supporting them through the transaction process.
Real estate licensees need support too and the right insurance policy can make all the difference. Real Estate Errors & Omissions (E&O) insurance offers critical protection against claims related to documentation issues or disputes. E&O coverage can help you defend against claims related to failure to disclose, misrepresentation, or other disputes, offering peace of mind.
As part of one of the largest insurance brokers in the world, we have access to more real estate E&O options than just about anyone. Let us find you superior protection at an exceptional value, with pre-claim legal help included.
CRES E&O+ClaimPrevent® members have access to a team of qualified real estate attorneys who can help you prevent claims before they happen.
Contact us for a confidential discussion today.
