Put yourself in a buyer’s shoes for a minute. You’ve found your dream house. You make an offer that’s accepted. You’re so excited. And then that dream turns into a nightmare: lead, asbestos or mold. Or maybe you thought there was a sewer hook up, but there’s only septic. Or the updates the agent raved about aren’t so great. Would you sue?
Real estate lawsuits are still surprisingly common. From simple clerical errors to failure to disclose, as a real estate agent you’re at risk of E&O claims being filed against you. Let’s look at some key issues and what you can do.
Housing Issues that Lead to Real Estate E&O Claims
When buyers see a house, they often see what they want to see: location, architectural details, space, potential. They may see a sagging roof or wonder about outdated features in older homes, but there are some issues they can’t see or may not think to ask about. As a seller’s agent, your duty is to disclose such problems if you know about them, and to ensure your client documents all known conditions in disclosures. As a buyer’s agent, you’ll recommend a home inspection. If the buyer declines an inspection, be sure to get a signature that you recommended it and the buyer chose not to get an inspection. (CRES has a sample disclosure letter just for this purpose in our Resources section.)
Common housing issues that lead to real estate lawsuits and E&O claims include:
Other physical or structural issues can lead to lawsuits too. If it’s likely to cause a headache or major expense for the buyer, it’s likely to cause a lawsuit for you if you don’t disclose it.
In all states, if the house was built before 1978, federal law requires you to disclose known lead paint and follow a specific protocol. Other issues to be disclosed, such as death on the property, depend on state real estate law (like Colorado’s law). Here’s the steps you should take to protect yourself.
Steps to Avoid Real Estate E&O Claims
Get informed on state regulations. Stay up to date on regulations like RESPA. Understand requirements in your state, for example, California real estate law is particular on the cancellation of escrow and how multiple listings are handled (code 1088). Knowing requirements of state and local codes can help you avoid real estate lawsuits.
Know what you need to disclose, and disclose thoroughly. To avoid real estate lawsuits, you should disclose all known issues like those listed above. In addition, you must disclose prior inspection reports. If you are aware of problems with permit history or insurance claims on the property, you should disclose those too. Beyond that, start with disclosure forms required by your state, and check with your state’s real estate commission for additional information. State law varies widely, and some states, such as California, have very stringent disclosure requirements. When in doubt, disclose or get legal advice by calling the CRES ClaimPrevent® Legal Hotline if you’re a CRES member.
Get disclosures in writing. Make sure your client fills out disclosure forms. Most states have forms specific to the most common housing issues that lead to real estate E&O claims mentioned above. Review the completed forms carefully and ask your client about any common areas they have not commented on and to expand on any issues they have documented. This could include adding in repair or report dates, proof of permits, or proof of existence, such as septic lines. Don’t fill out forms for them or any misinformation can be attributed to you.
If a seller asks if you should disclose something, say yes. Knowing about a potential problem and advising your client not to disclose can lead to legal liability for you. The truth is, agents are often sued along with sellers, so have clients document in writing that they have disclosed all property issues to you.
Use your real estate E&O insurance tools. Real estate E&O insurance is essential to protect you if you do face a lawsuit, but your goal is to prevent real estate E&O claims before they happen. CRES helps you do that with some powerful tools that are part of your E&O coverage.
ClaimPrevent® legal advice hotline. CRES uniquely provides expert legal advice to members BEFORE you have a claim. You can talk with a local real estate attorney 7 days a week — to review a contract, ask a question, write a letter, or get advice on what you need to disclose or what to do if you accidently failed to disclose. ClaimPrevent® services are included with every E&O policy.
Seller’s E&O insurance. What happens if a buyer decides to sue after the sale? Remember that if your clients get sued, you probably will too. Fortunately CRES offers seller’s E&O insurance as one more way to protect you if a buyer does decide to sue. Since it protects the seller as well, having seller’s E&O insurance is a great selling point. Now is a great time to call CRES to make sure it’s included with your coverage. Every layer of protection counts!
Home Warranties.Home warranties are another tool that reduces claims, but not all home warranties are equal. CRES has partnered with top companies to offer increased levels of protection and coverage most companies leave out, like Structural Coverage. Even better, with a CRES qualified home warranty, you’ll receive up to $50,000 (varies by state) in Seller’s E&O for your seller clients. Furthermore, if a claim is filed on the property, you’ll lower or eliminate your E&O retention (out-of-pocket claims expense) by having a home warranty.
Need more help navigating common housing issues? CRES is here to make you aware of common risks we see, help you address issues before they become claims, and help you avoid real estate lawsuits. If you’re a CRES client, give us a call. If you’re not, doesn’t it make sense to have access 7 days a week to expert real estate attorneys as part of your E&O at no extra cost? Check out CRES Real Estate E&O.
What housing issues have caused problems for you in the past?
This blog/website is made available by CRES Insurance Services for educational purposes to give you general information and understanding of legal risks and insurance options, not to provide specific legal advice. This blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. Claims examples are for illustrative purposes only. Read your policy for a complete description of what is covered and excluded.
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