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How Real Estate Brokers Can Mitigate Risk with High-Value Transactions

High-value real estate transactions bring bigger commissions, but also bigger risks for real estate brokers. The stakes are high and any oversight or negligence (actual or perceived) can be costly, both financially and when it comes to your brokerage’s reputation. 

Here are the risks you need to watch out for, and  some useful strategies you can implement within your brokerage to mitigate the risks and avoid costly lawsuits. 

High-Value Transaction Risks 

Fraud and Money Laundering

The main risk associated with high-value transactions is an increased risk of fraud and money laundering. From identity theft and forged documents to the concealment of illegally obtained money, brokers need to be vigilant to avoid getting caught up in illicit schemes or activities. Buyers from certain countries, buyers paying cash and not interested in negotiating the price, buyers where a third-party is involved in the transaction all can be red flags indicating potential money laundering. The risks to real estate licensees in a money laundering scheme are high, involving potential criminal charges and jail time.

Learn more about potential signs of money laundering in real estate

What to do if you suspect money laundering

Cyber Attacks and Scams

High-value real estate transactions are attractive targets for hackers and scammers because there is much to gain financially. Cyber attacks could include an infiltration of a real estate broker’s IT system. Email and phishing scams are increasingly common, including situations where scammers hack into emails to falsify bank account information to obtain funds fraudulently. 

Whenever you receive an email with an attachment from someone you haven’t done business with, never open that attachment. Mouse over the “from” address to see if it matches other information the sender provided. If it’s from another real estate licensee, locate contact information for that individual online and contact the licensee by phone to verify the validity of the email and the attachment.

Here’s how to avoid real estate phishing attacks

Open Showing Thefts 

High-value properties typically have high-value contents and can be a target for theft at open showings from people who are not genuinely interested in purchasing the property. As such, real estate brokers need to have measures in place to ensure all client property (including home contents) is adequately protected. 

As a listing agent or broker, best to suggest to your seller they pack up all valuables ahead of the move. 

High-value Sellers and Buyers Have High Expectations 

High-value sellers and buyers expect exceptional service and a seamless transaction process. They can take more resources to service due to high expectations and sometimes complex requirements. 

Potential Property Issues Beyond the ‘Wow Factor’

A large, multi-million dollar property with the ‘wow factor’ could mask underlying property issues. If these issues aren’t identified before the transaction, brokers may see themselves facing a lawsuit from an unhappy buyer. While it’s not a real estate broker’s role to do more than a visual inspection, extra attention to detail is needed in high-value transactions. 

Heightened Levels of Privacy, Discretion, and Confidentiality Required 

Privacy and confidentiality in any real estate transaction are important. However, in high-value transactions, you may be dealing with clients in the public eye who need extra discretionary measures to ensure they remain protected. 

Suggest to your sellers they pack up all personal photos, awards or other items with the sellers’ name, and remove any notes around computers that may contain passwords.

Additional Strategies for Risk Mitigation

Real estate brokers need to have robust systems in place to ensure the risks of dealing with high-value property are mitigated. 

Due Diligence for All Transactions

Real estate brokers should have measures in place to ensure vigilance when working on high-value transactions. This includes having sufficient procedures in place to:

  • Assess whether potential buyers are genuine and have the required funds to purchase.
  • Verify the identity of each party to the transaction. 
  • Explain documents and processes to your client.
  • Avoid fraudulent activity by having Internal and external controls and procedures in place.

Always encourage your clients to do their own due diligence as well. That means doing their own independent research, engaging professionals to do property inspections, and seeking legal advice as necessary. 

Include a disclaimer on all of your marketing materials for each property that documents your recommendation to prospects to do their due diligence when purchasing a property. 

Maintain a High Level of Discretion

Do not talk about your clients and the properties they are selling or buying without their express permission. You and your team play an important role in keeping your client’s business private and confidential. 

Protect Against New Scams, Fraud Schemes, and Cyber Attacks

Unfortunately, scams and fraudsters are becoming more and more sophisticated in their schemes. Real estate brokers must keep updated about new schemes and trends. You can find this information through industry publications, real estate associations, and real estate news providers. The CRES blog has a category devoted to reporting the latest cybersecurity, wire fraud, email phishing, and other scams

Having sufficient cyber security measures in place to protect against hackers and data theft is also important for brokers. 

Open Showings vs. Personalized Home Inspection Experiences
For high-value properties, brokers should have procedures in place to pre-screen prospective buyers before showing them a property. Due to the nature of high-value real estate and the types of buyers these properties attract, inspections are usually one-on-one and not an open showing situation. This protects high-profile sellers from intrusion by non-genuine buyers just wanting to check out their homes. It also allows for a more exclusive experience for genuinely interested buyers. 

Remember, Disclosures Are Important

While it’s not a real estate broker’s role to assess the property condition beyond the ‘wow factor’, you or your team do need to do a visual inspection of the property. You also need to remind your sellers they must fulfill their disclosure obligations. That means providing a truthful account of any property issues that may not be obvious to the naked eye. Any material defects that may influence a buyer’s decision to purchase a property must be disclosed. 

Educate Your Team

It is important that your entire team shares your company values and knows exactly how high-value property transactions need to be managed at your brokerage. A high-value property sale could mean an expensive lawsuit if things go wrong. A consistent approach, and ensuring you have a trusted and reliable team around you, will help you meet the high expectations of high-value clients. 

Protect Your Real Estate Business

CRES is part of one of the largest insurance brokers in the world, so we have access to more Real Estate Errors and Omissions options, General Liability and Business Owner’s Policies, and more. (Our Business Owner’s Policies combine 6 essential types of coverage into one package, including general liability, buildings and property coverage, loss of income, equipment breakdown, and more.)

To protect your brokerage business, contact the team at CRES at 800-880-2747 for a confidential discussion today. customized insurance policy to protect you and your business.

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