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How Real Estate Brokers Can Limit Vicarious Liability Through Team Supervision

As a real estate broker, your team is one of your greatest assets. However, as your team and business grow, you also face increased risks that must be carefully managed. This includes the potential for lawsuits based on vicarious liability. With a larger team, more moving parts need oversight. The potential for miscommunication, errors, or unethical conduct increases as the size of your brokerage expands. As a result, team supervision is a necessity. But, how can you balance the need for team supervision with creating a positive work environment where your licensees feel empowered and thrive in their work?

In this blog, we’ll explore the concept of vicarious liability, the potential impact, and how real estate brokers can balance the need for team supervision without micromanaging . . .

What is Vicarious Liability and What are the Consequences? 

Vicarious liability is the responsibility that a person has for another person’s actions. There needs to be a legal relationship between the parties and one party must have the right to control the actions of the other to some extent (for example an employee/employer relationship). In real estate, when we use this term, we’re talking about when real estate brokers are held liable for the actions of their team, whether they are employees or independent contractors. 

Vicarious liability is an ‘indirect’ liability where brokers themselves have not been negligent in their work, but one of their real estate licensees has in carrying out their responsibilities and normal duties within the brokerage. Vicarious liability does not require malicious intent — it can be completely accidental. 

Real estate brokers typically have access to greater financial resources, assets, and insurance coverage than an individual licensee. This can make brokers an attractive target for lawsuits because they typically have greater capacity to pay and the damages bill is likely to be larger as a result. 

Real Estate Case Study:
Slauson Avenue, LLC vs Thomas Gilleran

In 2018, the National Association of REALTORS® reported on the Slauson Avenue, LLC vs. Thomas Gilleran case. In this case, a real estate licensee told the buyer incorrect square footage details of an investment property. The property size was actually much smaller than the square footage quoted, affecting the potential rental returns of the property. The buyer filed a lawsuit against the property owner, the licensee and the licensee’s broker. The outcome of the legal proceedings was the licensee was found to be negligent and thebroker was vicariously liable for the licensee’s conduct. The judgment was $571,635 against the licensee and their broker. This covered compensatory damages including interest. The broker lost all appeals. 

Supervision without Micromanagement 

While team supervision is important in a real estate brokerage environment, micromanagement isn’t likely to get the best out of your people. You want to strike the right balance between effective supervision and avoiding the pitfalls of micromanagement.  It’s possible to empower your team to be autonomous, while also providing the necessary guidance, advice, and support to mitigate the risks. 

One way of doing this is to establish clear performance expectations and goals, but don’t dictate every step of the process. Give your licensees some freedom and flexibility about how those goals and expectations will be achieved. 

Educating your team is also key – not just during team inductions, but on an ongoing basis with regular team training sessions. Equip your licensees with the skills and knowledge they need to make good decisions while feeling empowered in their work. 

Monitor team performance and consider if your KPIs (Key Performance Indicators) for performance management are encouraging your team to do their best work. Some companies have KPIs set up that inadvertently incentivize behaviors that could lead to important details being missed. For example, KPIs that push teams to prioritize closing transactions as quickly as possible can lead to short-term productivity and revenue but can result in details being overlooked in a cutthroat environment. Instead, consider a more balanced set of KPIs that measures and rewards achievements for maintaining attention to detail and providing exceptional customer service. 

Tips to Manage Your Team and the Risks Effectively 

Proactively manage complaints

Closely monitor any complaints from clients, your team, and other parties. This will ensure that any problems can be resolved early before they escalate into lawsuits. 

Establish policies and procedures

Ensure you have policies and procedures in place that outline how things are to be done, especially when it comes to managing compliance and risks in real estate. 

Create a positive work environment 

Create and maintain a positive work environment for your team. Be available to answer any questions your team may have and resolve any conflicts early before they become more complex issues (or possible lawsuits). 

Get legal advice

Engage legal counsel if you are in doubt about your legal obligations for the actions of your team. 

Check your insurance

Ensure you have adequate insurance that will protect you and your team in case a lawsuit claim is made against you. 

Protect Yourself and Your Real Estate Business

Real estate brokers need to have the right insurance in place to protect their business. CRES specializes in helping real estate professionals find the best insurance coverage for the best price. (And as part of one of the largest insurance brokers in the world, we have access to more options than just about anyone, especially smaller insurance brokers whose access may be limited.)

Our team can tailor an insurance package specifically to suit your business needs, giving you peace of mind that you have the best protection for the best price.

Whether you’re looking for real estate E&O insurance or a Business Owner’s Policy, we offer a range of insurance options for real estate offices. We can find you the right Cyber Liability policy, Surety Bond, or Worker’s Compensation policy as well.

Contact us at 800-880-2747 for a confidential discussion today.

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