How To Avoid A Real Estate Lawsuit When Selling A Storm-Damaged Home

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Natural disaster can come at any time — whether it’s a hurricane, like we’ve seen recently in Florida, or the unprecedented flooding in Houston. The trail of disaster leaves a lasting impact on people, communities and properties.

As a real estate agent, this can affect your business. It’s not uncommon for property prices to plummet. And, your pool of prospective buyers may drop, at least in the short term. Many investors and homebuyers are more cautious about what they buy after a drastic weather event. This means you need to work even harder when selling storm-damaged homes on your books.

Even if you’re not dealing with homes damaged by large-scale natural disasters, selling any storm-damaged home can bring new risks to your real estate business. How can you protect your business from a potential real estate lawsuit and manage those risks?

How to List a Storm-Damaged Home

1. Ask Your Sellers The Right Questions

What if you inadvertently sell a storm-damaged home without disclosing damage, and the new buyer decides to sue you? How will you prove you didn’t know about the damage?

This legal minefield can be avoided, in part, by making sure you ask your clients the right questions. Ask your sellers about storm damage, repairs, maintenance and any other issues you need to know about to satisfy your legal obligations. For example, did the home flood? Has electrical wiring been inspected? Was there mold in the house and has this been remediated? Do they have permit and inspection report copies to show the repairs were done correctly? No matter how old inspection and permit reports are, they should be disclosed to buyers.

Palo Alto based law firm, Miller Starr Regalia recommends you don’t fill in disclosure forms and paperwork on behalf of the seller. They say, if a lawsuit arises, the seller could argue that it’s your fault because you completed the disclosure forms (regardless that the seller signed  them). So, ensure sellers complete their own disclosure paperwork.

2. Look For Telltale Signs Of Damage

When the property is  appraised, carefully review notes about visible damage in and around the home. Telltale signs of storm damage include discolored ceilings, dark patches on floor coverings (especially in corner areas), or large cracks in ceilings and walls. Also, take note of water or mildew smells within the home.

If you see damage, ask the seller to document all details for the property file. Because, no doubt, if you noticed it, so will your prospective buyers. You’ll then be able to answer buyer questions and include details in the disclosures, which will also build buyer trust.

Also, as much as sellers might think it’s a good idea to initially hide or cover up damage when marketing a listing, do not alter images to cover up repairs or damage. Be transparent right from the start, so buyers are not surprised later when they view the home in person and see discrepancies from photographs.

3. Know Your Responsibilities About Disclosure In Your State

There are no uniform guidelines across the United States, with each state having its own regulations. In any case, you, as the selling agent, are ultimately responsible for disclosing any information which might affect a property’s value or appeal. If you know about storm damage (even if the damage has been repaired), you must disclose to prospective buyers.

Avoiding Risks as a Buyer’s Agent

What if you’re a buyer’s agent? Let’s say you’re guiding prospects through a home and they see water stains or damage.

“How much do you think that might cost to fix?” is invariably a question that will come up.

Unless you’re a licensed contractor or have extensive experience in renovations and construction, don’t provide advice or estimates when questions like this arise. Just because your husband’s mother’s cousin got her ceiling fixed for $2,000 doesn’t mean this repair  can be done for the same price. Guessing is no replacement for a qualified opinion.

Imagine if you estimate a certain repair will cost $2,000 to fix.  After closing, the buyer finds out  it will cost up to $12,000 to fix the damage. Here comes a Real estate lawsuit! Always advise buyers to seek expert advice or estimates from licensed professionals. This puts the responsibility and the decision on them.

Additionally, provide your buyers with the required disclosures, so they are aware of their responsibilities to obtain a building inspection. You can stick to what you know best – real estate — while avoiding a lawsuit in the process. If you have any questions about disclosure forms, you can easily get answers as a CRES real estate E&O + ClaimPrevent® customer.

Protect Yourself From the Things You Don’t Know

Not all sellers are equal. So, what happens if you come across a dishonest seller who doesn’t disclose important information about storm damage? What if your seller is honest, but not aware of an issue arising from storm damage? What if, after purchasing a property, your buyer finds massive defects which prove to be storm damage, yet you had no knowledge about them?

No one wants to face a real estate lawsuit, whether it’s caused by dishonesty, lack of attention to detail, or just by pure mistake. It’s important to protect your business and yourself by proactively educating yourself and using the proper documentation.

Real Estate Errors & Omissions (E & O) Insurance is designed to give you peace of mind in exactly these situations. With CRES Real Estate E & O + ClaimPrevent®, you’ll get customized, innovative coverage focused on the specific risks you face everyday in real estate, property management, appraisal, and mortgage brokerage. And, you’ll also have access to Legal Advisory Services  7 days a week to help you prevent a lawsuit. Claim prevention is as important to us as helping you when claims do occur.

With more than 20+ years of experience protecting real estate agents and brokers with E&O, no one takes your daily protection more seriously than CRES.

Have you had experience selling a storm-damaged home? What other suggestions would you make to your fellow real estate agents to prevent claims and potential lawsuits?

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.

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